On January 3, 2011, the Rural Housing Service issued final regulations for the Section 538 guaranteed multifamily housing loan program that provide for a single, continuous guarantee for construction and permanent financing. The regulation went into effect on February 2, 2011.
The RHS currently offers two separate guarantees – one for the permanent loan and one for construction advances; these two types of guarantees will continue to be offered.
The new continuous guarantee option will be offered only to projects with a low loan-to- cost ratio, to be specified by the RHS in a Federal Register Notice. The program will require a construction contingency reserve of 2% of the construction contract, and the RHS may also require a lease-up reserve.
Developers interested in this new option should review the January 3 Federal Register notice carefully for full details on requirements.
Of course, all this is contingent on there actually being money for the 538 Program (see below.)