Section 538 loan sizer
A 538 loan is capped twice: at 90% of the lower of cost or value for a for-profit borrower (97% for a nonprofit or public borrower), and at whatever the property's income covers at a 1.15x debt service coverage ratio. Enter the deal and see which cap wins, plus the 2026 guarantee fees.
Rules: 42 U.S.C. 1490p-2(f); 7 CFR 3565.52, 3565.53, 3565.204, 3565.209 and 3565.303 (eCFR current to October 2026); guarantee fees per 91 FR 61820 (September 30, 2026); pilot DSCR per 91 FR 60930 (September 25, 2026). All sources.
How the two caps work
The loan-to-cost cap is the lesser of 90% of development cost or 90% of value for a for-profit borrower, 97% for a nonprofit or a state, local or tribal government borrower (7 CFR 3565.204). The loan also can't exceed HUD's section 207(c) per-unit limits for the residential part of the property, which this sizer doesn't model.
The income cap comes from the 1.15x DSCR the lender certifies before USDA issues the permanent guarantee. On the sample, 48 units at $1,150 plus $15 of other income, less 5% vacancy on rent, is $637,920 of effective income. Take off $268,800 of expenses and NOI is $369,120, which at 1.15x supports $320,974 a year of debt service. The longer the amortization, the more loan that payment carries, and 538 allows up to 40 years.
The fees, computed the way USDA charges them
The initial fee is charged on the guaranteed amount: the guarantee percentage (up to 90%) times the loan. The annual fee is charged on the outstanding principal as of December 31, paid in advance. On a $5,000,000 loan with a 90% guarantee at standard rates, that's $29,250 up front and about $17,500 in the first year. Who pays the fees is between borrower and lender, so the sizer shows coverage with and without the annual fee.
What gets a deal scored higher
USDA accepts 538 applications year-round and only scores them when funding runs short. The biggest single factor in its current scoring is 12 points for a tax credit deal that waives its Qualified Contract rights. Smaller points go to towns under 10,000 people, persistent poverty counties, loan-to-cost under 50% and a rate at or below 130% of the long-term applicable federal rate (89 FR 104031, December 20, 2024).
Common questions
What DSCR does a Section 538 loan need?
At least 1.15 under 7 CFR 3565.303. For the first 200 loans closed under USDA's Multifamily Housing Preservation Pilot (October 9, 2026 to September 25, 2028), USDA lowered it to 1.11 and may approve lower.
What are the 538 guarantee fees in 2026?
Under USDA's notice of September 30, 2026: 65 basis points initial and 35 annual on the standard structure; 60 and 25 for workforce housing with rents between 80% and 115% of AMI, preservation of existing 515 or 514/516 properties, and new construction or substantial rehab in Qualified Opportunity Zones.
Is interest credit available on 538 loans?
No. USDA's current process notice says there will be no interest credit, and the fiscal 2026 appropriations act says interest on these loans may not be subsidized.