538 Guaranteed Rural Rental Housing Program

Application

A NOSA (Notice of Solicitation of Applications) is first submitted to the USDA Rural Development State Office. An accepted NOSA reserves the amount of the loan obligation.

Purpose

The program works with qualified private-sector lenders to provide financing to qualified borrowers to increase the supply of affordable rental housing for low- and moderate-income individuals and families in eligible rural areas and towns.

Eligible Borrowers

Eligible borrowers include most state and local government entities, nonprofit organizations, for-profit organizations (including LLCs, and federally recognized Tribes, and individual U.S. Citizens or permanent legal residents).

Eligible Projects

Construction, improvement and purchase of multifamily rental housing for low-to-moderate income families and individuals. Additionally, buying and improving land and providing necessary infrastructure (Code of Federal Regulations: 7CFR Part 3565.205).

Areas that may be served include rural areas and towns with 35,000 or fewer people and/or federally recognized Tribal lands.

Complexes must consist of at least five units, and these units may be attached, detached, semi-detached, row houses, modular or manufactured homes, or multifamily structures.

Ownership/Site Control

The property must be owned in fee simple or be subject to a ground lease or other legal right in land.

Secondary Financing

New Mexico Mortgage Finance Authority (MFA) mortgage must be the first lien on the property. Secondary financing allowed, subject to MFA and USDA approval.

Interest Rates

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

Loan Terms and Fees

TERMS

Minimum term of 25 years and maximum term of 40 years
Debt Service Coverage of 1.15x
Loan-to-Value of 90% based on restricted rents (97% for non-profit entities)
70% of total development costs for permanent only loan
70% of total development costs for construction and permanent loan

FEES

0.90% of loan amount (non-refundable) is paid to USDA at the time of closing
USDA Annual Guarantee fee is .50% of the outstanding loan amount

Prepayment

A guaranteed loan may be prepaid in whole or in part at the determination of the lender, and upon the lender's written notice to the agency at least 30 days prior to the expected date of prepayment.

Reserve Requirements

New Construction and Operating & Maintenance

A cash reserve of at least two 2% of the construction contract, inclusive of the contractor's fee and all hard and soft costs that must be set up and fully funded by the closing of the construction loan.

An Operating & Maintenance Reserve equal to 2% of the loan amount is required at closing.

Replacement Reserves

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

Affordability Requirements

The housing units subject to a guaranteed loan must be available for occupancy only by low- or moderate-income families or individuals whose incomes at the time of initial occupancy do not exceed 115% of the area median income. After initial occupancy, a tenant’s income may exceed these limits.

Rent Requirements

The rent for any individual housing unit, including any tenant-paid utilities, must not exceed an amount equal to 30% of 115% of area median income, adjusted for family size.