Using Section 538 to buy and rehab a Section 515 property
Section 515, USDA’s direct loan program, is most of its rural rental portfolio. Of 12,420 active properties in USDA’s October 2026 file, 7,602 began operating in the 1970s or 1980s, and many need roofs, windows and new owners. A Section 538 guarantee is one way to finance those transfers. A buyer takes on or pays off the 515 debt, a 538-guaranteed loan funds the purchase and rehab, and often tax credits fill the gap.
USDA’s own count: about 400,000 units across more than 12,000 properties, 95% of them Section 515 (91 FR 60930, September 25, 2026). Our rural rentals pages list every active 515 and 514 property by county from USDA’s October 2026 file, with the date each opened and, where one exists, the date its use restrictions end.
What 538 allows on a transfer
USDA’s December 2024 process notice lets a 538 application include the revitalization, repair and transfer of existing 515 or 514/516 properties. Two rules matter in practice:
- The 538 application and the 515 transfer application must be submitted to USDA on the same day, or the 538 application is rejected (89 FR 104031).
- Acquisition alone doesn’t qualify. The rehab has to be moderate or substantial and at least $6,500 per unit (7 CFR 3565.252).
Refinancing other debt isn’t an eligible 538 use on its own (7 CFR 3565.206), which is why the transfer, not a straight refinance, is the usual vehicle.
What preservation earns
Preservation of existing 515 and 514/516 properties is one of the reduced-fee categories: 60 basis points initial and 25 annual instead of 65 and 35 (91 FR 61820). In USDA’s scoring, a deal that has or is assuming 514/515 loans maturing within three years earns a point, and a tax credit deal whose owner waives Qualified Contract rights earns 12.
The 2026 preservation pilot
USDA’s Multifamily Housing Preservation Pilot runs from October 9, 2026 to September 25, 2028. For transfers it loosens third-party report requirements, allows streamlined processing of low-risk transfers through qualified lenders and nonprofit partners, and expands the cases where no new appraisal is needed. For the first 200 Section 538 loans it lowers the DSCR from 1.15 to 1.11 and caps the developer fee at 15% of total development cost when no tax credit or government program funds it. USDA expects the pilot to cover about 10% of the 515 portfolio (91 FR 60930).
Order of work
- Pull the property’s record from the county page: units, rental assistance units, vacancies, the year it opened and any restriction end date.
- Check the address against USDA’s current and proposed rural maps.
- Size the rehab and the 538 loan in the loan sizer at the reduced preservation fees.
- Line up any tax credits and soft money before both applications go to USDA on the same day.
Working on a transfer? Send it to the desk.