USDA 538 Loan Program

Rural Multifamily Housing Financing

CommercialRealEstate.Loans, Inc. specializes in arranging USDA 538 loans for affordable rental housing developments in qualified rural sub-markets. We carefully walk the developer through the NOFA application process and have deep experience working through the USDA application and commitment process. 

What Is A USDA 538 Loan?

The USDA 538 Loan Program is a government-guaranteed loan available to developers of multifamily housing in rural areas. To qualify, multifamily housing projects must be intended for low and moderate-income families. Under the program, Commercial Real Estate Loans, Inc. underwrites the loan. The USDA then provides a guarantee of up to 90% that covers the loan.

Call (866) 220-9389 to speak with a USDA 538 loan specialist or fill out the form below.

Who Qualifies for a USDA 538 Loan?

As specified by regulation, the guaranteed loan facility may be accessed by the following entities:

  • For-profit organizations, including LLC's

  • Not for profit organizations

  • Federally recognized tribes

  • State and Local government agencies

  • Individuals

USDA 538 Loan Application Process


The application for a rural housing loan requires the developer to submit the following:

  • Documents to prove legal entity status such as corporate documents and partnership agreements

  • Financial statements

  • Credit score

  • Project information including market studies, location, site plans, budget, pro forma, etc.

Each year, the USDA publishes a NOFA (Notice Of Funding Availability), which states the amount of funding and period for which it is available. Commercial Real Estate Loans, Inc. will handle the paperwork for the developer and hand in a response to NOFA.

Once the USDA ensures that everything is in order and valid, it then processes the application. Before moving forward on a USDA 538 loan, the UDSA will want to ensure that:

  • That the developer is a qualifying entity.

  • The developer has complied with all federal and state regulations.

  • The intended project qualifies for a USDA 538 loan.

  • The project is in an eligible area.

  • The project is feasible and the developer has the ability to complete it.

  • The application in line with the NOFA requirements.

If the application is approved, the USDA issues a Notice to Proceed. After this, a meeting is scheduled between the USDA, Commercial Real Estate Loans, Inc. and the developer. The meeting is mostly procedural and mainly involves reviewing the plans. 

Each NOFA states if there is an applicable interest credit. The interest is accrued and paid on each recurring January 1st . The amount of interest credit depends on the demand. If demand is high then the projects with the lowest interest credit request will get priority. In the event of high demand for interest credit, the projects that can demonstrate that an interest credit will yield lower rent or high service levels for tenants will get preference.  

The USDA may decide to limit the amount of interest credit for each project. For highly ranked projects it is possible to have two guaranteed parity loans, one with tax credit and one without. 

Use of USDA 538 Loan Proceeds:

According to the standards and conditions of 7 CFR part 1924, subpart A or successor provision, a USDA 538 Loan facility may be used for the following purposes as it relates to multifamily housing in qualifying markets: 

  • New multifamily construction.

  • Moderate or substantial rehabilitation of apartment buildings and acquisition costs when related to the rehabilitation of a building.

  • Acquisition of existing buildings, when approved by the Agency, for projects that serve a special housing need. For example, acquisition and improvement of land on which housing will be located.

  • Development of on-site and off-site improvements essential to the use of the property.

  • Development of related facilities such as amenities, community space, recreation, storage or maintenance structures.

  • Construction of on-site management or maintenance offices and living quarters for operating personnel for the property being financed.

  • Purchase and installation of appliances and certain approved decorating items, such as window blinds, shades, or wallpaper.

  • Development of the surrounding grounds, including parking, signs, landscaping, and fencing.

  • Costs associated with commercial space provided that:

    1. The project is designed primarily for residential use.

    2. The commercial use consists of essential tenant service type facilities, such as laundry rooms, that are not otherwise conveniently available.

    3. The commercial space does not exceed 10 percent of the gross floor area of the residential units and common areas.

  • Costs for feasibility determination, loan application fees, appraisals, environmental documentation, professional fees or other fees determined to be necessary to the development of the project.

  • Technical assistance to and by non-profit entities to assist in the formation, development, and packaging of a project, or formation or incorporation of a borrower entity.

  • Education programs for a board of directors, both before and after incorporation of a cooperative that will serve as the borrower.

  • Construction interest accrued on the multifamily construction loan.

  • Relocation assistance in the case of rehabilitation projects.

  • Developers fees.

  • Repaying applicant debts in the following cases:

    1. When the Agency authorizes in writing in advance the use of loan funds to pay debts for work, materials, land purchase, or other fees and charges before the loan is closed; or

    2. When the Agency concurs in writing with a determination by the lender that costs for work, fees and charges incurred prior to loan application are integral to the development of the guarantee application and project.

Over the years, Commercial Real Estate Loans, Inc. has advised developers on which loan option is best for the project at hand and accumulated the experience and skills to help developers navigate the requirements of the USDA 538 Loan Program as stated in the Federal Register including occupancy terms, O&M reserve requirements, surety requirements and more.

USDA 538 Loan Terms

A USDA Rural Development Loan May be Issued in One of Three Ways: 

  • Up to 90% LTV, as a permanent guarantee loan. The guarantee will be up to 90%, unless stated otherwise by the NOFA, of the remaining principal and interest.

  • A guaranteed advancement loan during construction, possibly with a permanent loan. This facility is available only for the duration of the construction; The maximum guarantee of construction advances related to a construction and permanent loan will not at any time exceed the lesser of 90% (unless stated otherwise through a NOFA) of the amount of principal and accrued interest or 90% of the original principal amount and accrued interest as a continuous guarantee for construction and permanent loans. This option is available to projects with low loan to cost ratios.

  • Single, continuous guarantee for construction and permanent loans. Only projects that have low loan-to-cost ratios, as stated in a NOFA, are eligible for this type of guarantee. A construction contingency reserve is required. The developer may also be required to establish a lease-up reserve, in an amount stated in a NOFA, that is set-aside prior to closing the construction loan. The guarantee covers 90% of the loan amount, unless otherwise stated by NOFA.

USDA 538 Multifamily Loan Pros:

  • The USDA provides guarantees for up to 90%. This lowers the risks of building in rural areas and maximizes returns.

  • State and local government entities, non-profits and federally approved tribes can get guarantees of up to 97%.

  • Loans up to 40 years.

  • No limit on how much a borrower can request, bearing in mind market size and capacity.

  • Interest rates are fixed throughout its term.


USDA 538 Multifamily Loan Cons:

The USDA 538 loan process can feel tedious and difficult without proper guidance from an experienced lender or intermediary. The USDA 538 Loan Program may not be used for;

  • Student Housing.

  • Housing in Military Impact Areas.

  • Cooperative Housing

  • Medical Care Facilities.

  • Payment of fees, salaries and commissions or compensation to borrowers, with the exception of developer's fees.

  • Refinancing of an outstanding debt, except in the case of an existing GRRHP guaranteed loan. The term and amount of any refinanced loan must not exceed the maximum loan amount or term limits.


USDA 538 Housing and Tenant Profile Requirements

USDA 538 Intended Tenant Profile

Housing properties under the USDA 538 loan platform must have the following restrictions, which must also be explicitly recorded in the deed:

  • The occupants of the multifamily homes must have an income below
    115% of the AMI, adjusted for family size

  • The rent charged for each unit will be capped at 30% of 115% of the AMI
    after it has been adjusted for family size. The HUD offers a guide to fair market
    for areas around the country

  • The tenant may be an individual or a family

In addition, the USDA provides a chart of the AMIs for any specific address across the United States.

USDA 538 Housing Profile

The intended multifamily property must satisfy the following criteria in order to qualify:

  • Must be in a rural area or town with population not larger than 35,000, or on tribal land. The USDA has created an interactive map of locations that qualify.

  • Must consist of at least 5 units

  • Must be located within reasonable distance to essential services such as hospitals, schools, shopping malls etc.

  • The housing may not be used to house students, migrants or used as a health facility

Multifamily housing under the USDA 538 loan program must ultimately bring dignity to its tenants and serve as a solid investment for all parties involved. For this reason, the site must be located in a desirable and convenient location that would in no way reduce the quality of life for its tenants. Examples of such nuisances and/or health risks include but are not limited to:

  • Sites adjacent to train tracks

  • Sites with any environmental concerns

  • Industrial areas

  • Declining neighborhoods

  • Sites near mobile home courts

  • Sites with poor sewage systems

Want to learn more about USDA 538 multifamily loans? Fill out the form below to speak with a commercial mortgage banker.

Call (866) 220-9389 Today To Speak With A Live USDA 538 Loan Specialist