USDA 538 Loans

#1 Provider in the Nation for USDA 538

USDA Section 538 Loan Program—90% Federally-guaranteed financing.  The US Department of Agriculture (USDA) Section 538 Loan Program is one that encourages commercial financing through the insurance of the federal government.  These loans foster the development and rehabilitation of affordable-income rental housing projects in rural areas (usually a population of 35,000 or less), which include multifamily and senior housing units.

There is a two-stage application process for this program. The first part is a no-cost, pre-application package, known as Notice of Solicitation Applications (NOSA).  Once USDA reviews the NOSA, the agency will issue an invitation letter to submit an application for loan guarantee to lender and borrower.  The next step is assembling the application. When the application is submitted, a $2500 application fee is due.  The NOSA process and approval of the application typically take between 90 and 120 days.  Once approved, the USDA issues a Conditional Commitment.  We are very familiar with the process. We have closed nearly three hundred USDA 538 loans in the last 13 years in 38 US states.

The benefits of the USDA Section 538 Loan Program include:

  • 90% Federal Guarantee of loan to foster lending in rural areas
  • Up to 40-year amortization
  • No Davis-Bacon wage requirements
  • No loan cap
  • Fixed rate for life of loan
  • GNMA Securitization to insure most competitive rates and terms

Does your project qualify?

  • Project must reside in an eligible rural area (generally a population of 35,000 or less)
  • Tenant income cannot exceed 115% of the area median income (AMI)
  • Monthly rent per unit may not exceed 30% of 115% of adjusted AMI and, overall average rents may not exceed 30% of 100% of adjusted AMI
  • Minimum term/amortization 25 years, max term/amortization 40 years, or any combination thereof
  • Maximum 90% loan-to-restricted-rent-value (97% for non-profit)
  • Maximum 70% loan-to-cost (no loan-to-cost restriction for USDA 515 acq/rehabs)
    • Virtually all 538 loans are done in conjunction with LIHTC
  • Minimum 1.15 all-in debt service coverage
  • Typical prepayment provision is 10% penalty in year one, declining 1% annually
  • Equity requirement of at least 10% of total development cost (3% for non-profit)
  • Rehab of at least $6500/unit—project must have at least 5 rental units)