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CHAPTER 2: MULTI-FAMILY HOUSING PROGRAMS 

AND THE ORIGINATION PROCESS 

2.1 INTRODUCTION 

This chapter introduces the key aspects of the Section 515 Rural Rental Housing and 

Section 514/516 Farm Labor Housing programs. Under these programs, the Agency provides 

direct loans and grants to support the development of affordable rental housing that serves rural 

areas. The Section 538 Multi-Family Housing Guarantee program—the Agency’s third MultiFamily Housing program that guarantees loans made by private lenders—is covered in a separate 

regulation [7 CFR Part 3565] and handbook (HB-1-3565). 

This chapter presents an overview of the framework that the Agency uses in soliciting 

applications for funds and selecting projects to receive loans or grants. The framework provides 

Loan Processing Staff with a consistent basis for attracting and funding project applications that 

further the objectives of the program and meet applicable Federal requirements. 

Section 1 introduces the types of loans and other forms of assistance available through 

the Section 515 program and the Agency’s objectives in providing this assistance. Section 2 

describes the loans, grants, and other assistance available to increase the supply of affordable 

housing specifically targeted toward farm labor. The chapter concludes with Section 3, which 

outlines the major actions and decisions in the loan origination process, as well as the key parties 

involved. 

SECTION 1: SECTION 515 PROGRAM 

2.2 OVERVIEW 

The Section 515 program offers direct loans to eligible borrowers to provide 

economically designed and constructed housing and related facilities for very low-, low-, and 

moderate-income households; elderly households; and persons with disabilities living in rural 

areas. This section of the chapter describes: 

• The types of projects allowed; 

• The types of loans available; 

• Rental assistance available from the Agency; and 

• The Agency’s preference for leveraged projects. 

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2.3 TYPES OF PROJECTS 

There are five basic types of rental projects that can be developed using Section 515 

loans: 

• Family projects; 

• Elderly projects; 

• Congregate projects; 

• Group homes; and 

• Rural Cooperative housing. 

In addition, Section 515 loans can be used to finance rural cooperative housing projects. The 

Agency also allows mixed projects that contain both family and elderly units. 

The housing must be economical and must not include elaborate features, but must be 

adequate to meet tenants’ needs. The project should be of average quality and cost. With the 

exception of Off-Farm Labor Housing, all projects must be developed in locations in designated 

places as described in Chapter 3. 

A. Family Projects 

A family housing project is a rental property developed for occupancy by eligible 

very low-, low-, and moderate-income households. 

B. Elderly Projects 

An elderly project is a rental property that is developed for occupancy solely by 

eligible elderly households, which include a tenant, or cotenant who is disabled, or age 62 

and older. Persons with disabilities and their families are permitted to live in elderly 

housing. 

C. Congregate Projects 

Congregate projects are rental properties developed for occupancy by eligible very 

low-, low-, and moderate-income elderly households, individuals with disabilities, and 

families who require some supervision and central services but are otherwise able to care 

for themselves. Congregate projects consist of private apartments and central dining 

facilities in which a number of allowable pre-established services are provided to tenants. 

These projects are not designed to be nursing homes and, therefore, are not allowed to 

pay for the cost of medical- or healthcare-related services. 

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D. Group Homes 

 A group home is housing that is occupied by eligible very low-, low-, and moderateincome elderly persons or individuals with disabilities who share living space within a 

rental unit and in which a resident assistant may be required. 

E. Rural Cooperative Housing 

Section 515 loans may be used to finance rural cooperative housing projects operated 

by nonprofit consumer cooperatives for the benefit of eligible very low-, low-, and 

moderate-income members who will own and manage the development. 

F. Mixed Projects 

Mixed projects are properties developed with a portion of the units designated as 

family units and the remainder of the units established as elderly units. At the time the 

project is developed, the borrower must designate the units that will be operated as family 

units and those that will be operated as elderly units. 

2.4 TYPES OF LOANS 

The rules governing the origination of Section 515 loans differ slightly, depending upon 

the type of loan being made. The types of loans available under Section 515 include: 

• Initial loans;

• Subsequent loans; and 

• Assumed loans. 

Loans are only made to projects that further the program’s objectives and comply with 

applicable Agency requirements. Eligible uses of loan funds and the conditions that borrowers 

must meet to be eligible are discussed in Chapter 4. 

A. Initial Loans 

Initial loans are normally made to build new projects. However, the Agency does 

make initial loans for the purchase and rehabilitation of existing properties when it is in

the Agency’s best interest. 

The interest rate for these loans is set at the note rate established in RD Instruction 

440.1. The Agency then provides interest credit assistance, which reduces the effective 

interest rate to 1 percent.1

 The amount of interest credit received depends on the income

 

1

 Some existing projects do not receive interest credit, while others receive interest credit that reduces the 

interest rate to 3 percent. However, all initial loans made by the Agency following the publication of this

handbook will receive interest credit as described here. 

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of the eligible tenants living in the complex. The administration of interest credit is 

covered in HB-2-3560 and HB-3-3560. 

The Agency establishes the term of these loans to correspond to the expected useful 

life of the property. The maximum term is 30 years with an amortization period not to 

exceed 50 years. Generally, initial loans are made for a term of 30 years, with the 

exception properties where the expected useful life is shorter (e.g., manufactured 

housing). 

B. Subsequent Loans 

Subsequent loans can be issued during the term of an Agency loan to help an existing 

borrower pay for repairs or improvements to the property, or in conjunction with the 

transfer of a property where the purchaser is assuming the initial Agency loan. The key 

differences between processing requirements for subsequent and initial Section 515 loans 

are discussed in Chapter 10. Guidance regarding the requirements and procedures for 

processing project transfers is covered in HB-3-3560. Subsequent loans may also be used 

to finance equity to avert prepayment of the project. 

Subsequent loans to add units to an existing project will be processed in the same way 

initial loans are and will be subject to the Notice of Funding Availability (NOFA) 

requirements. However, subsequent loans to add units for the disabled are not subject to 

the NOFA requirements. 

C. Assumed Loans 

Section 515 loans may be assumed in conjunction with the transfer of ownership of 

the property. The terms and conditions of the assumption depend upon the needs of the 

project at the time of the transfer. 

1. New Rates and Terms Assumption 

Most assumptions of Section 515 loans are new rates and terms assumption—that is, 

the purchaser assumes responsibility for all or a portion of the remaining debt. To 

conserve the Agency’s budgetary resources, the transaction does not involve paying off 

the old loan and issuing a new initial loan. Instead, the purchaser assumes the 

outstanding debt, which is reamortized at new rates and terms. Such assumptions are 

used when the purchaser will experience financial difficulties under the terms of the 

initial loan or when a change in rates and terms is necessary to facilitate the transfer. 

2. Same Rates and Terms Assumption 

Transfers may also take place in conjunction with a same rates and terms assumption. 

Under this type of assumption, the existing note terms, including the interest rate and the 

remaining repayment period, do not change. 

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2.5 PREFERENCE FOR PROJECTS THAT LEVERAGE OTHER FUNDS 

To maximize the number of units produced with Section 515 loan funds, the Agency 

gives preference to project applications for new loans that leverage other funds, thereby reducing 

the amount of Section 515 loan funds needed to develop the project. The greater the leveraging 

proposed in a project application, the greater the preference for funding. Examples of funds that 

count as leveraged funds include borrower resources beyond the minimum required amount, 

equity generated by the sale of low-income housing tax credits (LIHTCs), a second loan from

another lender, or a grant from a State or local public agency or other source. 

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SECTION 2: SECTION 514/516 PROGRAM 

2.6 TYPES OF PROJECTS 

The Section 514/516 Farm Labor Housing program provides funds to support the 

development of housing for farm labor. Section 514/516 assistance differs from the Section 515 

loans in the following ways: 

• The objective of the program is to provide housing for farmworkers; 

• There are no rural restrictions; and 

• Agency grants are available to support the development of these projects.

Section 514/516 assistance may be used for Off-Farm Labor Housing projects. On-Farm Labor 

Housing projects may receive only 514 assistance, they are not eligible for grants (516). Section 

514 assistance may be used in conjunction with Federal LIHTCs. 

A. Off-Farm Labor Housing 

 The Agency is authorized to make loans and grants for financing off-farm labor 

housing to broad-based nonprofit organizations; nonprofit organizations of farmworkers; 

Federally recognized Indian tribes, agencies, or political subdivisions of State or local 

Governments; and public agencies (such as local housing authorities). Section 514 loans 

can be made to limited partnerships in which the general partner is a nonprofit entity. 

B. On-Farm Labor Housing 

On-Farm Labor Housing is designed to provide adequate housing for farmworkers 

involved in a specific farming operation. Individual farmers, family farm corporations or 

partnerships, or associations of farmers may develop these projects but must operate them

on a nonprofit basis. To qualify for occupancy, an individual or a household must simply 

be employed as part of the farming operation. There is no income restriction governing 

occupancy; however, immediate family members of individuals with an ownership 

interest in the farm are prohibited from living in this housing at the property. 

2.7 LOANS AND GRANTS 

A. Farm Labor Housing Loans 

Section 514 loans for Farm Labor Housing projects are very similar to Section 515 

loans, but differ in two important ways: 

• These loans carry a 1 percent effective interest rate (i.e., there is no interest credit);

and 

• The maximum term for these loans is 33 years. 

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These loans can be used to finance either Off-Farm or On-Farm Labor Housing projects. 

At one time, loans for both types of projects were processed on a first-come, firstserved basis. Today, lending decisions regarding loans for Off-Farm Labor Housing 

projects are handled through a competitive NOFA process, while loans for On-Farm

Labor Housing projects are still processed in the order they are received. Chapter 12 

provides more detailed information about the origination process for these loans. 

B. Farm Labor Housing Grants 

Section 516 grants may only be used to support the development of Off-Farm Labor 

Housing projects. These grants may be used for the same purposes as Section 514 loans 

when there is reasonable doubt that the housing would not be affordable to prospective 

farmworkers without the grant. Chapter 12 provides more information about the 

origination process for these grants. 

2.8 PREFERENCE FOR PROJECTS THAT LEVERAGE OTHER FUNDS 

Like the Section 515 program, the Agency gives preference to applications for Off-Farm

Labor Housing projects that leverage other sources of funds. There is no leveraging preference 

for On-Farm Labor Housing applications.

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SECTION 3: SECTION 521 PROGRAM 

2.9 OVERVIEW

The Section 521 Rental Assistance program provides assistance to individual residents of 

Agency financed multi-family projects. Rent subsidies under the Rental Assistance program

ensure that elderly, disabled, and low-income residents of multi-family housing projects financed 

by RHS are able to afford rent payments. With the help of the Rental Assistance Program, a 

qualified applicant/tenant pays no more than 30% of his or her income for housing. 

Residents of multi-family housing projects built both under the Rural Rental Housing 

Program (Section 515) and the Farm Labor Housing Program (Section 514) are eligible to apply 

for the Rental Assistance Program. Not all residents of RHS-financed housing developments 

receive rental assistance. 

The Agency and the project owner execute a contract in which the Agency commits 

payments on behalf of tenants in a designated number of the units. Both the Agency and the 

project owner agree to be bound by all applicable Agency regulations. The contract becomes 

effective on the first day of the month in which it is executed (additional units may be covered if 

funds are available and an additional contract is executed). The agreement may be renewed as 

many times as funds are made available. State Directors may transfer unused and unneeded 

contracts or portions of contracts to other projects. 

2.10 SECTION 515 & 514/516 PROGRAMS. 

A. Section 515 

Owners of Section 515 projects located in areas where prospective applicants are 

likely to be overburdened by rent or where existing tenants are already over-burdened can 

apply for rental assistance administered by the Agency. 

B. Section 514/516 

Off-Farm Labor Housing projects may also apply for rental assistance administered by 

the Agency. The requirements for obtaining rental assistance are the same as for Section 

515 projects. Operating assistance may be used in lieu of tenant-specific rental assistance 

in off-farm labor housing projects financed under Section 514 or Section 516 that serve 

migrant farmworkers. On-Farm Labor Housing projects are not eligible for rental

assistance. 

SECTION 4: OVERVIEW OF LOAN AND GRANT ORIGINATION 

2.11 THE LOAN ORIGINATION PROCESS AND THIS HANDBOOK 

Because most of the initial Multi-Family Housing loans made by the Agency finance 

Section 515 rental projects, this handbook first presents the loan origination requirements and 

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procedures for these loans. The loan origination process for these projects also serves as a basis 

for the Agency’s lending decisions for other types of loans. Next, the handbook covers the 

process for making subsequent loans to these projects. The handbook then discusses how the loan 

origination process differs for loans to special types of Section 515 projects—congregate housing, 

group homes, projects using manufactured housing, and cooperative projects. Finally, the 

handbook presents the origination process for Section 514/516 loans and grants for farm labor 

housing projects. 

2.12 KEY STEPS IN THE ORIGINATION PROCESS 

A. Section 515 Loan Origination Process 

1. Family and Elderly Projects 

The Agency uses a competitive process to 

select project proposals that will be invited to 

apply for loans. The Agency’s competitive 

process involves a NOFA that requests 

project proposals that meet the established 

eligibility requirements and selection criteria. 

Selected applications that are determined to 

be both eligible and feasible are approved for 

a loan and the applicants proceed with 

construction and loan closing. Project lease-up generally begins once construction and 

closing are completed. 

The NOFA is published annually once the Agency has received the appropriation for 

the program and determined the available funding. Exhibit 2-1 outlines the key steps in 

the Section 515 loan origination process. Chapters 3 through 11 provide specific guidance 

regarding the Agency’s requirements and procedures for originating Section 515 loans for 

these projects. 

Processing Steps

This section outlines the steps 

involved in processing Section 515 and 

Section 514/516 loans and grants. It is 

intended to provide a conceptual 

overview of the process. The detail 

needed to fully understand each step 

follows in later chapters. 

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Exhibit 2-1 

Key Steps in the Origination Process for Section 515 Loans 

Stage 1 — NOFA and Initial Application Process 

Loan Applications 

y Loan Processing Staff develop list of designated places. 

y Agency publishes NOFA. 

y Applicants submit initial applications within required timeframes. 

y Loan Processing Staff perform preliminary eligibility evaluation of initial applications and 

rank them using scoring criteria from the NOFA. 

y Loan Processing Staff forward a list of eligible and feasible proposals to the National 

Office. 

y National Office notifies State Loan Processing Staff of applications that scored high 

enough for funding in the national ranking to warrant further processing. 

y Loan Processing Staff return to applicants low-scoring project proposals that will not be 

considered for a loan. 

y Loan Processing Staff conduct underwriting analysis of initial applications. 

y Loan Processing Staff reject initial applications that do not meet their underwriting 

standards. 

y Loan Processing Staff invite the applicants who had submitted backup project proposals to 

submit applications (if needed). 

y Loan Processing Staff invite applicants with top-scoring initial applications that meet 

Agency underwriting standards to submit final applications. 

Final Applications 

y Applicants submit final applications within 30 days. 

y Loan Processing Staff review final applications to confirm eligibility and project feasibility

and final documents still outstanding. 

y State Director* or delegated Loan Approval Official review and approve applications 

determined to be eligible and feasible. Applications that are not eligible or feasible are 

rejected. 

Loan Closing and Construction 

Project Lease-Up 

__________ 

* Review and approval may also be performed by a Loan Approval Official designated by the State 

Director. 

2. Congregate Housing and Group Homes 

Loan Processing Staff review and rank initial applications for congregate housing 

together with all other Section 515 proposals submitted in response to the NOFA. After 

its Loan Processing Staff have reviewed the initial application for eligibility and 

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feasibility, the Field Office will forward the application (if it ranks high enough) with its 

recommendation to the National Office for review. If the National Office concurs with the 

recommendation of the Field Office, the applicant is invited to submit a final application. 

Applications for loans to finance group home projects are handled in the NOFA 

process. Field Offices may process applications after contacting the National Office to 

confirm that such funding is available. Initial applications approved by the Field Office 

are forwarded to the National Office for review and concurrence. Final applications are 

processed much like those for other projects. 

Chapter 11 provides specific guidance regarding the requirements and procedures for 

making loans to these projects. 

3. Cooperative Projects 

Applications for Section 515 loans to finance cooperatives are processed on a firstcome, first-served basis from the National Office reserve NOFA. Applications requesting 

loans for cooperatives are forwarded to the National Office for processing. Guidance 

regarding the loan origination process is covered in Chapter 11.

B. Section 514/516 Loan and Grant Origination Process 

1. Off-Farm Labor Housing Projects 

The loan/grant origination process for Off-Farm Labor Housing parallels the 

procedures for Section 515 loans with a few key differences. The Farm Labor Housing 

NOFA will be published by the Agency at approximately the same time as the Section 515 

NOFA. However, interested parties will have 60 days to respond, which is 15 days longer 

than for Section 515 loans. 

Once the Loan Processing Staff have ranked the proposals in their State, the topscoring proposals will be submitted to the National Office for national ranking. National 

Office Staff will notify Field Offices of the proposals that scored high enough nationally 

to be selected for further processing. At this point, Field Office Staff will invite NOFA 

respondents with top-scoring initial applications to submit final applications. The 

procedures for processing Off-Farm Labor Housing loan applications follow the general 

Section 515 procedures. 

2. On-Farm Labor Housing Projects 

Interested parties may submit applications for Section 514 loans for On-Farm Labor 

Housing projects at any time sufficient funds are available for the proposed projects. The 

procedures for reviewing and approving initial and final applications parallel the 

procedures in Chapters 4 and 5. 

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2.13 LOAN ORIGINATION FOR SECTION 515 PROJECTS 

Chapters 3 through 11 specifically address the loan origination requirements and 

procedures for Section 515 projects. 

A. Property Requirements (Chapter 3) 

To qualify for a Section 515 loan from the Agency, proposed projects must comply 

with the property requirements established in 7 CFR 3560.57 through 7 CFR 3560.59. 

Specifically, these requirements address: 

• Location;

• Site conditions; 

• Project design; and 

• Environmental reviews. 

These requirements ensure that proposed projects fulfill the program’s objectives; provide 

adequate, modest-quality housing for tenants; and protect the security of the Agency’s 

loan. 

This information is presented early in the handbook because prospective applicants for 

funding need to understand these requirements before they can prepare an application. 

Loan Processing Staff should refer to this chapter and the corresponding sections of the 

regulation when responding to inquiries. 

B. NOFA and Initial Application Process – Stage 1 (Chapter 4) 

Each year, the process of making Section 515 loans begins with the Agency’s 

publication of the NOFA requesting project proposals. Potential loan applicants submit 

project proposals to Field Offices in response to the criteria and priorities established in 

the NOFA. Loan Processing Staff review the proposals to make an initial eligibility 

determination and rank the proposals according to the scoring criteria in the NOFA. The 

National Office will rank all requests nationwide and will notify all States of applications 

that scored high enough nationally for funding and further processing. Proposals 

determined to be ineligible are rejected, and low-scoring proposals with no chance of 

funding are returned. 

After reviewing project proposals submitted in response to the NOFA, Loan 

Processing Staff will then invite the applicants who had submitted top-scoring proposals 

to submit applications. Applications provide more detailed information about the 

applicant and the proposed project. Once applications are received, State Loan Processing 

Staff will review them using the Agency’s underwriting standards to evaluate the 

eligibility and feasibility of the proposed project. The underwriting analysis of initial 

applications will examine: 

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• Loan applicant eligibility; 

• Project eligibility; 

• Project financial feasibility; 

• Environmental impact; 

• Reasonableness of project costs; and 

• Security available for the Agency loan. 

Loan applications that meet the Agency’s underwriting standards will continue for 

further processing. Applications that fail to meet the standards will be rejected. Loan

Processing Staff will extend invitations for applications from those who had submitted 

backup proposals in the event of any applications being rejected. 

C. Processing Final Applications – Stage 2 (Chapter 5) 

Applications that pass the initial application stage will be invited to submit final 

applications. This chapter explains how the Agency makes a final determination about the 

feasibility of the project, establishes that the applicant has adequate systems to 

successfully develop and operate the project under the program, and sets the terms of 

Agency financing. The applicant also signs the loan agreement or resolution, as 

applicable, which becomes their legal obligation to comply with all Agency program

requirements. 

D. Participation with Other Funding Sources (Chapter 6) 

Because the Agency is encouraging leveraging as a way to maximize the number of 

units that can be produced with available loan funds, a significant number of loans involve 

the participation of other sources of funds and financing. The participation of parties 

beyond the Agency and the borrower can enhance the production of housing, but it also 

increases the risk to the Agency. The Agency has established additional requirements and 

procedures for participation loans to ensure that these projects are developed in a manner 

consistent with the program’s objectives, that the Agency receives adequate security for its 

loans, and that the amount of Government assistance to these projects is no more than 

necessary for the project to be feasible. 

E. Security Requirements (Chapter 7) 

As a lender, the Agency needs to ensure that it obtains adequate security to protect its 

investment in the event the project fails. The requirements and procedures regarding 

security for the Agency’s loan are designed to provide reasonable assurance that the 

Agency will be able to recoup the loan principle if the project fails. 

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F. Loan Closing and Project Lease-Up (Chapter 8) 

Once the Agency has approved a loan application, Loan Processing Staff and the 

applicant will prepare for loan closing and construction. The process depends on the type 

of construction financing obtained by the applicant. At loan closing, the transfer of 

property takes place, and the documents establishing the loan applicant’s responsibility to 

repay the Agency financing and comply with the requirements of the program are 

executed. Once loan closing and construction are complete, the borrower begins to lease 

units in the property to eligible tenants in accordance with applicable program

requirements. 

G. Project Construction (Chapter 9) 

While improvements are being made at the property, the Agency will monitor the 

progress of construction to confirm that the work is being performed as agreed and that the 

quality of work is satisfactory. This oversight ensures that the project will offer adequate 

housing for tenants and provide the necessary security for the Agency’s loan. 

H. Subsequent Loans and Loans for Final Payments (Chapter 10) 

After a project is complete, there may be times when an additional loan from the 

Agency is required to address legitimate project needs. Under certain circumstances, the 

Agency will provide subsequent loans to projects to protect the interests of the 

Government and tenants. 

I. Special Property Types (Chapter 11) 

Due to differences in the nature of the projects that can be financed with Section 515 

loans, the requirements and procedures for making loans to congregate housing, group 

homes, and rural cooperative housing differ in several important respects from those for 

Section 515 rural cooperative housing standard family and elderly rental projects. These 

differences in requirements and procedures are designed to ensure that these projects 

fulfill the objectives for which they were built and protect the Agency’s interests. 

2.14 FARM LABOR HOUSING LOANS AND GRANTS (CHAPTER 12) 

The requirements and procedures for originating Farm Labor Housing loans and grants 

closely parallel those for Section 515 loans. However, there are important differences, given the 

purpose and nature of farm labor housing. 

A. Off-Farm Labor Housing 

Because the funding for farm labor housing is separate and distinct from Section 515 

funding, the Agency publishes a separate NOFA requesting proposals for Off-Farm Labor 

Housing projects. To facilitate the fair and equitable allocation of available funds for 

these projects, Loan Processing Staff submit the top-ranked project proposals to the 

National Office to be ranked nationally. Based on this national ranking, the National 

Office will identify those projects that will be invited to submit applications. In making 

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this determination, the National Office will consider geographic location, as well as point 

score. Field Offices will then be informed of the applicants who had submitted project 

proposals that should be invited to submit applications for loans and grants (if needed). 

After this point, the process proceeds on a parallel track to the Section 515 application 

process using the procedures presented in Chapters 4 and 5. 

B. On-Farm Labor Housing 

Given the Agency’s program priorities, the amount of funding allocated for On-Farm

Labor Housing is usually limited. For this reason, On-Farm Labor Housing loan 

applications are processed on a first-come, first-served basis. When Loan Processing Staff 

receive an inquiry regarding On-Farm Labor Housing financing, the State Office should 

contact the National Office to determine whether loan funds are potentially available. If 

loan funds are available, the Loan Origination Office can accept an application from the 

prospective borrower. Loan Processing Staff will process initial applications and final 

applications using the same basic procedures presented in Chapters 4 and 5. 

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