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Rural Housing Service's Section 538
Guaranteed Rural Housing Program:
A Guide For Developers
© Housing Assistance Council, 2000
Permission is granted ONLY to nonprofit community-based
organizations to reproduce and/or adapt this document, and only for their
own use.
I. INTRODUCTION
A. What is the Section 538 Guaranteed Rural Rental Housing Program?
The Section 538 Guaranteed Rural Rental Housing Program provides federal government guarantees for
loans made by commercial lenders to developers of multifamily rental housing for low- and moderate-
income tenants in rural areas. The U.S. Department of Agriculture (USDA) guarantees up to 90 percent
of a loan made by a qualified lender.
Section 538, which was created by Congress in 1996, differs in some important ways from USDA's
longstanding Section 515 Rural Rental Housing Program. Section 538 focuses on partnerships between
USDA and qualified lenders, whereas Section 515 makes loans directly to nonprofit or for-profit rural
housing developers. Section 538 is intended to provide decent, affordable rental housing for low-
and moderate-income rural households with incomes up to 115 percent of area median income, higher
than those served by Section 515. Income calculations for Section 538 tenants do not take into
account the deductions permitted under Section 515. Units developed with Section 538 loans can be
larger than those financed by Section 515. Either program can be used in conjunction with other
subsidies.
B. About This Guide
This guide is intended to provide basic information, particularly for nonprofit housing developers,
about the Section 538 Guaranteed Rural Rental Housing Program. It provides a summary of the program
and information about the application process, financing rates and terms, and construction,
management, and servicing. Appendices include excerpts from the agency handbook for the program.
This guide is not intended to enable a reader to put together a loan application without using the
agency handbook. Applicants should obtain and utilize the complete RHS/Rural Development instructions
to the Section 538 program. (For ordering information, see Section II.F, below.)
HAC expects to update this guide periodically. Comments from those who have used the program, or
tried to use it, are welcome.
C. Agency Names and Acronyms
This guide refers to RHS (the agency responsible for the Section 538 program at the national level)
and Rural Development (the designation for local, area, and state offices and staff administering the
program). Both are parts of the U.S. Department of Agriculture. USDA's rural housing programs were
formerly administered by the Farmers Home Administration (FmHA) and then by the Rural Housing and
Community Development Service. FmHA has been eliminated through USDA restructuring. The FmHA farmer
programs and about 30 percent of its staff were transferred to the Farm Service Agency (FSA), as part
of a "one stop" center for farmers. The remaining FmHA programs were transferred to three small
agencies: the Rural Business-Cooperative Service, the Rural Utilities Service and the Rural Housing
Service (originally named the Rural Housing and Community Development Service). Field staff and most
program support staff for all three agencies became Rural Development staff. The latter are directly
responsible to the Under Secretary of Agriculture for Rural Development.
Since RHS develops regulations and provides oversight to the program, this guide generally refers to
RHS as the administering agency. Rural Development is referenced when state or local roles are
involved. In some instances we use RHS/Rural Development.
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