Substantial Rehabilitation of Existing USDA Section 515


RHS 538/515


Borrowers may be for-profit, not-for-profit, individuals, partnerships, state or local public agencies, LLCs, trusts, or Indian tribes. For Acquisition, and/or the Revitalization, Repair, and Transfer Cost of Existing Direct Section 515 Housing.



Project must be in a designated “Rural Area,” as defined by USDA—population must be less than 35,000. Tenant income restrictions of 115% of area median income upon initial occupancy. Rents plus tenant paid utilities may not exceed 30% of 115% of area median income, and average rent for project including utilities may not exceed 30% of 100% of area median income. Property must contain at least five units. Property must be under one management.


Full escrows for property taxes and all applicable insurance are funded at closing. A Replacement Reserve account must be established at closing. The borrower must contribute initial operating capital equal to at least 2 % of the loan amount. A Construction Contingency Escrow in the amount of 2%. An Operating Escrow Reserve in the amount of 2% of the total development cost or appraised value (whichever is greater) may be required to cover operating losses until sustaining occupancy is reached, will then allow conversion to the permanent loan, and must be funded by with cash or letter of credit at closing.


This is a non-recourse loan. Security: Assets of the borrowing entity. Long loan term up to 40 years. Low fixed interest rate, fully amortizing. Loan-to-value ratio up to 70%. The program can be used to guarantee permanent financing, or a combination construction and permanent loan. It cannot be used for a loan that covers only construction. Fully assumable subject to CMI and USDA approval. A loan can be combined with other financing sources such as: Low Income Housing Tax Credits, HOME grant or loan, State or local assistance (including tax-exempt bond financing) or a second bank loan. Debt service coverage ratio of 1.15. Not subject to Davis-Bacon requirements.


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Current USDA Programs