USDA Loans: Strong Options for Rural Multifamily

USDA doesn’t just do farming subsidies. Its Rural Development division also supports rural housing through programs like Section 538 — a loan guarantee for the construction or rehab of multifamily rental housing in qualified rural areas. If your client is looking to develop or preserve affordable housing in smaller markets, it’s worth knowing how USDA loans work.

This guide, part of our comprehensive walkthrough of commercial loan products, gives you a close look at USDA 538 loans.

What Is the USDA 538 Program?

The Section 538 Guaranteed Rural Rental Housing Program is designed to increase the supply of affordable rental housing in eligible rural areas. USDA doesn’t lend directly — instead, it guarantees loans made by approved lenders.

It’s nonrecourse, offers up to 90% loan-to-cost, and supports both new construction and preservation. Eligible properties must meet affordability standards, and at least 90% of the units must be for households at or below 115% of area median income (AMI).

Borrowers should expect to demonstrate both development and operational capacity. While first-time developers aren’t ruled out, USDA and its lending partners will scrutinize the experience of the sponsor, especially for projects involving tax credits or layered financing. A strong general contractor and a proven compliance consultant can help strengthen the deal.

Where USDA Loans Work

Eligibility is tied to the location. Properties must be in rural areas as defined by USDA — generally towns and communities with fewer than 35,000 people that aren’t part of a larger urbanized area.

The USDA provides an interactive map tool to confirm whether a site qualifies: USDA Eligibility Map. Select “Multi-Family Housing” and then "accept" to open the map. You can just enter the parcel/property address and see if your project is in the clear.

Note: “Rural” doesn’t necessarily mean remote. I was a bit surprised to see that many family's house — just a 15-minute drive from downtown Peoria, Illinois — is shown as "rural" on the map.

So, suburban areas on the edge of metro regions may still qualify. The map sometimes uses terms like “on-road” or “off-road” to describe whether parcels are considered developed enough for serviceable infrastructure — not whether they’re literally paved. Always verify at the parcel level.

Key Features Brokers Should Know

• Nonrecourse
• Up to 90% loan-to-cost
• Fixed or variable rates (negotiated with lender)
• Loan terms up to 40 years (with amortization)
• Prepayment options vary
• Designed for low- to moderate-income renters

You’ll also need to coordinate with both the lender and USDA, which can make the timeline longer than a conventional loan.

What Kills These Deals

• Location ineligible (always check the map early)
• Too many high-income tenants or market-rate units
• Missing affordability commitments
• Developer doesn’t understand compliance requirements
• Poor borrower or GC experience with affordable housing

If your client is new to affordable housing or rural development, consider partnering them with a more experienced co-developer.

How Brokers Can Make It Work

Success starts with identifying the right deals — and setting the right expectations. Begin by confirming the site’s eligibility using the USDA map tool, and then carefully vet the sponsor’s development team. If they’re new to affordable housing, consider pairing them with a more experienced co-developer.

Work with a lender who knows the USDA process and can help navigate the back-and-forth with the agency. USDA approval adds time to the process, often stretching timelines by a few months, so transparency with your borrower is key.

In addition, make sure your borrower understands the long-term compliance requirements — including tenant income certifications, rent limits, and periodic reporting. These obligations don’t disappear after closing and will affect how the property is managed.

If you can manage the extra layers, USDA loans can deliver highly competitive, stable financing for the right rural deals.

Real Impact, Rural Focus

USDA loans might not be on every broker’s radar, but they should be — especially if you serve clients working in underserved markets.

If the project fits, these loans offer a path to long-term, stable financing with solid terms and federal backing. Just don’t forget to check the map.