USDA Launches a Two-Year Preservation Pilot for Rural Rental Housing
On September 25, 2026, USDA Rural Housing Service published a Federal Register notice with two parts: a two-year Multifamily Housing Preservation Pilot, and a separate increase to the Section 538 loan-to-cost limit. (Federal Register)
What the Pilot is for
USDA says the Pilot streamlines property transfers, reduces duplicate paperwork, and helps preserve rural affordable housing. (USDA Rural Development) It also responds to long-standing concerns about regulatory barriers and processing delays. (CARH)
Timing and coverage
The Pilot takes effect October 9, 2026, and runs through September 25, 2028. It covers three transaction types:
Section 515 ownership transfers outside the existing Simple Transfer Pilot
Section 515 ownership transfers involving LIHTC
Section 538 guaranteed loans, with or without a transfer, for the first 200 loans
(CARH)
What changes
Key changes announced include:
More flexibility for appraisals and third-party reports
Streamlined processing for qualifying low-risk transfers
Revised developer fee, replacement reserve, and return-on-investment provisions for certain Section 515 transfers
A reduced debt service coverage ratio for the first 200 Section 538 loans
The Pilot developer fee replaces the fee in 7 CFR 3560.63. (CARH) USDA has also posted a Pilot 515 Transfer Application Checklist for transfers involving LIHTC, third-party financing, and/or Section 538 financing. (USDA Rural Development)
A separate change: 80% loan-to-cost
Apart from the Pilot, the maximum loan-to-cost for Section 538 Option 3 (Continuous Guarantee) loans rises from 70% to 80% of total development cost. This applies to all qualifying Section 538 guarantees going forward and is not limited by the 200-loan cap. RD expects it to increase both preservation and new production applications. (CARH)
Next steps
Read the notice in the Federal Register.
Join the RD webinar on October 8 at 2:30 p.m. Eastern. (CARH)
Review the Pilot 515 Transfer Application Checklist if you have a transfer in the pipeline.
Talk with your lender and counsel about how the Pilot fits your deal.