USDA 538 Loans
The USDA 538 Loan offers up to 97% leverage and fully amortizing loans with terms up to 40 years for qualified rural housing multifamily projects.
What Is a USDA 538 Loan?
As part of its mandate to develop farming communities, the United States Department of Agriculture (USDA) provides affordable loans to build housing for low and moderate income families in rural areas. The U.S. government guarantees the loans of commercial lenders, with programs like USDA 538 loan guarantee program, who then provide financing to developers of low and moderate income multifamily projects in rural areas.
Speak to a mortgage banker specializing in USDA 538 loans. Complete the form below.
What Are the Benefits of the USDA 538 Loan Program?
If you have a multifamily housing project intended to benefit the rural community then the USDA 538 loan could be the perfect choice. The 538 program includes:
A federal guarantee of up to 90% of the loan amount
Loan-to-value ratios of up to 90% (or up to 97% for nonprofit, public and tribal entities)
Loan-to-cost ratios capped at 70%
The loan can be used for various development costs, refer to list below
The interest rate is fixed throughout the term of the loan
You can use the USDA 538 loan in conjunction with other sources of finance such as LIHTC or even other commercial and multifamily loan programs.
For-profit organizations including LLCs
Not-for-profit organizations
Federally recognized tribes
State and local government agencies
New housing construction
Rehabilitation of a housing project
Purchase an existing building
Acquisition and improvement of existing land on which housing will be located
Development of on site and offsite improvements essential to the use of the property
Education costs for board members
Construction interest accrued on construction loan
Must earn no more than 115% of the area’s median income (AMI) adjusted for family size
May be an individual or family
Rent charged including utility bills cannot exceed 30% of 115% of adjusted AMI
Must be in a rural area or town with population not larger than 35,000, or on tribal land. Click this link to use USDA’s map tool to search to see if your market qualifies.
Must consist of at least five units
Must be located close to essential services such as hospitals, schools, shopping malls etc.
Cannot be located close to risky or nuisance areas like railway tracks or environmentally unsafe zones
The housing may not be used to house students or migrants or used as a health facility
Leverage up to 90% loan-to-value, or 97% for nonprofits
Maximum 70% loan-to-cost
Up to 40 years fixed and fully amortizing
There is no limit on the principle borrowed
Interest rates are fixed throughout the loan tenure
If the loan is intended for rehabilitation of housing, the cost of rehabilitation must be more than $6,500 for each unit
Timing for execution is generally five months
Who Is Eligible for a USDA 538 Loan?
You must be a property developer with plans to construct new multifamily housing or make major renovations to housing for low and moderate income families in a rural area. The following entities may apply:
If you would like to know if your organization is eligible to apply for the USDA 538 loan, our team will work to guide you through the process and make it as streamlined (and painless) as possible.
What Can USDA 538 Loan Proceeds Be Used For?
The USDA 538 loan program seeks to create housing for low and moderate income tenants within rural communities. The following is an abbreviated list of what you can do with the money. A more detailed list can be found on the Code of Federal Regulations:
If you have questions on any of the above criteria or would like to know if your needs qualify for the USDA 538 loan, feel free to contact our team.
What Are the Tenant and Housing Profile Requirements?
The USDA 538 loan was designed to create housing for a specific tenant profile. The tenant:
Additionally, the intended multifamily property must satisfy the following criteria to qualify;
If you have any questions regarding the site or tenant profile, the team at Multifamily.loans will gladly explain everything to you.
What Are the USDA 538 Loan Terms?
Apply for a USDA 538 Multifamily Loan
With the assistance of Multifamily Loans, the application process is simple. Each year, the USDA releases a Notice of Funding Availability, or NOFA. The NOFA will state the amount of funding available and the areas eligible for the funds. We will walk you through the entire application process from beginning to end.