Section 538 – Apartment New Construction/Substantial Rehabilitation

Profit motivated or nonprofit single purpose entities.

Properties subject to the below conditions:

• Federally-recognized tribal lands.
• Rural areas and towns with 35,000 or fewer people.
• An area classified as rural prior to October 1, 1990 (even if within a MSA) with a population greater than 35,000 (previous rural area).
• A Section 515 revitalization property that will use Section 538 Guaranteed Rural Rental Housing Funds (permissible in areas that are no longer rural).
• Project eligibility is determined by a mapping guide provided by USDA.

• Tenant income cannot exceed 115% of area median income (AMI) adjusted for family size.
• The average rent for the entire project, including tenant-paid utilities, cannot exceed 30%of 100% of AMI adjusted for family size. No single unit can exceed 30% of 115% of AMI.
• The property must remain affordable for the loan term. Even if the loan is prepaid restrictive language must be recorded in the deed or any other instrument that conveys with the property if the mortgage is prepaid.

• The lesser of 40 years (including the construction period) or 100% of remaining useful life. The minimum loan term is 25 years. Mismatch of term and amortization is allowed (subordinate debt cannot balloon during the loan term). Loans can be I/O during the construction period (not to exceed 24 months) but then amortization term is reduced by the I/O period.
• DCR of 1.15.
• LTV of 90% based on restricted rents.
• 70% of total development costs
• Statutory per unit limits.
• 100% of mortgageable transaction costs less the portion of grants, public loans and tax credits applied to mortgageable costs.
• When combining a 538 loan with a 515 the restriction on total development costs is waived.

Maximum underwritten physical occupancy of 93% for properties without rental assistance and 95% for properties with rental assistance¹.

Qualifies for Ginnie Mae guaranteed mortgage-backed securities, direct placement or may be used to credit enhance tax-exempt bonds.

Subject to market conditions. The construction and permanent financing interest rate is set at initial closing. Forward rate locks available subject to market conditions.

The annual Guarantee fee is .25% of the outstanding loan amount.

Typically no lock out with a 10 year declining pre-pay (10,9,8,7,6,5,4,3,2,1). Alternative structures can be negotiated.

A NOSA is first submitted to the State Office. An accepted NOSA reserves the amount of the loan obligation.

Section 538 processing usually takes about 4 to 5 months (subject to deal specifics).

• 0.90% of loan amount (non-refundable) is paid to USDA at the time of closing.
• An Operating & Maintenance Reserve equal to 2% of the loan amount is required at closing.
• For construction deals a Contingency Reserve of 2% of the construction contract is required at closing.

$250 per unit per annum or as determined by a 20 year capital needs analysis. $1,000/unit should be in RR account by the end of year 3.

None. The USDA loan is non-recourse; however, identified principal(s) will be required to sign “Bad Boy” carve outs at closing.

Yes, subject to USDA and lender approval.

Subject to USDA and lender approval.

Nationwide.