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4.1 INTRODUCTION

The basic objective of the Multi-Family 

Housing program is to provide decent, safe, and 

sanitary affordable rental housing for very low-, 

low-, and moderate-income family, elderly, and 

handicapped households. The Agency has a 

limited amount of funds to achieve this objective 

and, therefore, must ensure that the best and 

most appropriate projects are placed in rural 

areas of greatest need. It is the Agency’s goal to 

provide the maximum number of units possible 

without sacrificing the quality of the housing.

The Agency has determined that the best 

way to achieve this objective is to solicit initial 

applications for funding of projects in designated

places through a public Notice of Funding Availability (NOFA). Each State submits their list of 

ranked proposals to the National Office for nationwide ranking. Attachment 4-A is the 

summary sheet that States must use to provide information to the National Office on applications 

received. The National Office will notify States of the top-ranked initial applications selected for 

further processing, and final applications will be solicited and processed by the States through 

Stage 2 of the application process. Exhibit 4-1 shows a sample timeline for this process.

This chapter discusses the procedures Loan Processing Staff will use in Stage 1, the first 

step in the loan origination process. Specifically, this chapter presents the Agency’s procedures 

for:

• Publishing the NOFA;

• Accepting initial applications in response to the NOFA;

• Assessing preliminary eligibility of the initial applications;

• Forwarding application scores to the National Office;

• Assembling scores from all states to create a national ranking of initial applications; 

and

• Conducting preliminary feasibility analysis of initial applications.

CHAPTER 4: NOFA AND INITIAL APPLICATION 

PROCESS — STAGE 1

Key Origination Activities in Stage 1

• National Office publishes NOFA.

• States accept initial applications.

• States conduct preliminary eligibility review 

and score and rank initial applications.

• States forward applications to National Office.

• National Office assembles scores to create 

National ranking.

• National Office informs States of projects that 

may be selected for further processing.

• States conduct preliminary eligibility and 

feasibility review.
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Exhibit 4-1

Loan Origination Sample Timeline

(Best Case Scenario)

November 1 NOFA published.

January 2 (60 days after NOFA 

published or as specified in NOFA)

Initial applications due.

January 3–31 State Office completes preliminary eligibility, scores 

and ranks applications, submits list of applications to

the National Office, performs site visits, and begins to 

underwrite for feasibility. Attachment 4-A is a sample

of the summary sheet that States use to describe the 

applications received.

February 1–28 National Office ranks applications nationwide and

informs State Offices of which applications have been 

selected for further processing.

March 1 State Office sends out notification to applicants 

regarding status of initial applications

March 2–April 30 State Office continues underwriting process and orders

appraisals.

May 1 State Office invites final applications.

June 1 Final applications and appraisals due.

August 1–15 National pooling of unused funds.

September 30 End of fiscal year; deadline for obligating funds occurs 

shortly before this date.

The procedures for submitting and reviewing the final loan application package, or 

Stage 2 of the loan application process, are described in Chapter 5.

While the loan origination process for farm labor housing is very similar to that for multifamily housing, some differences do exist. Chapter 12 details these differences and should be 

reviewed whenever a Farm Labor Housing loan or grant is being processed.

4.2 OVERVIEW OF STAGE 1, PROCESSING THE INITIAL APPLICATION

During this stage, the National Office publishes the NOFA in the Federal Register 

soliciting housing proposals and setting a deadline by which the initial application must be 

submitted. Initial applications must describe the loan applicant, the applicant’s financial status, 

evidence that the applicant is unable to obtain credit elsewhere, the applicant’s experience in 

operating rent housing and related business, incorporation information (if applicable), and 

identity-of interest relationships. In addition, the applicant must provide economic justification 

for constructing the project with an analysis of the supply and demand for housing in the 

proposed location of the project, a brief description of the proposed project, a site description, 

and various disclosure and certifications.
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The Loan Originator has 30 days from the published submission deadline to review 

NOFA responses for preliminary eligibility and then score and rank those responses. The Loan 

Originator faxes a list of ranked responses to the National Office by close of business on the 

thirtieth day, which is the deadline for National Office ranking. The National Office will notify 

the States which applications scored high enough to be considered for funding during this stage 

of the application process. The Loan Originator will notify the applicants that their initial 

applications may be considered for funding, and State Offices will conduct their preliminary 

feasibility reviews of the proposed projects.

SECTION 1: INVITING INITIAL APPLICATIONS

4.3 FUNDING AND RENTAL ASSISTANCE LIMITS

The amount of funds available for new construction and repair and rehabilitation, and 

rental assistance is established annually both in RD Instruction 1940-L sent to the states by the 

National Office, and as a NOFA published in the Federal Register. The National Office may set 

a limit on loan sizes in the NOFA. For example, the National Office may limit loan applications 

to $1.5 million each. This does not mean that the total project cost would have to be limited to

$1.5 million. Using the same limits provided in the example, a loan applicant could propose a 

project with a total appraised value of $3 million, but the Agency loan might fund only half of 

the project, with other financing funding the remaining $1.5 million.

The National Office ranks all eligible loan applications submitted by the States 

nationwide to select applications for further processing.

4.4 STATE ACTIONS TO PREPARE FOR THE NOFA

The NOFA appears soon after the start of the fiscal year. Prior to the publication of the 

NOFA, States must take several steps, including:

• Reviewing and updating the State list of designated places and submitting it to the 

National Office for concurrence. This list must be available to interested loan 

applicants upon publication of the NOFA.

• Submitting to the National Office no later than September 1 any State initiatives for 

which the State wishes to provide points in prioritizing their funding. Such initiatives 

must be submitted by the State Director for approval by the National Office prior to 

publication of the NOFA.

• Preparing an initial application package, which includes:

◊ The NOFA; and

◊ A request for the items listed in Exhibits 4-6 and 4-7.
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4.5 THE NOFA

The National Office publishes a NOFA in the Federal Register as soon after the start of 

the Federal fiscal year as possible. The exact timing of this publication depends on the date of 

Congressional appropriation of funds for the program and the time required to publish

RD Instruction 1940-L. Generally, the NOFA should be published on or around November 1.

The NOFA indicates:

• Individual loan limits;

• The information that applicants must submit in their initial application;

• The criteria that the Agency will use to evaluate and rank proposals, including any 

special National Office initiatives;

• Subsequent information that will be required from any applicants who are invited to 

submit a final application;

• The deadline for submitting NOFA responses; and

• The State Office address, contact name, and phone number where the following 

information may be obtained:

◊ A list of designated places for the State; and

◊ A complete initial loan application package including:

♦ A list of authorized loan uses (Exhibits 4-3 and 4-4);

♦ Applicant eligibility requirements (Exhibit 4-5);

♦ Any special conditions or limitations that are being applied on the amount of 

individual application packages or rental assistance requests;

♦ Any special State Office initiatives that will be awarded points that have been 

approved by the National Office;

♦ A listing of all of the information required from applicants (Exhibits 4-6 and 

4-7); and

♦ The address to which the initial application must be sent.

When the State Office receives a request for a loan application, Loan Processing staff 

will send the potential applicant a complete application package. Handbook Letter 103 (3560), 

Cover Letter to the Initial Application Package, must include the information in Exhibit 4-2.
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Exhibit 4-2

Items to be Included in Cover Letter to the Initial Application Package

• The maximum amount of funds available for the loan if the application is approved.

• A definition of a complete application. A complete application is one in which: (1) all 

information and forms requested by the initial application package are included, and (2) all 

necessary forms requested have been signed. The Loan Originator must make clear the effect of 

applications that are incomplete without acceptable explanation—they will be returned and not

considered during the funding cycle. The loan applicant must be informed that if they are 

unable to provide the necessary information, they must provide with the initial application an 

acceptable explanation of why the information is not available. The State Director will consider 

the explanation and decide whether to make an exception to the completeness rule.

• Notice to the applicant that they must be in compliance on all of any other Agency-financed 

projects they may own or have been in compliance with a workout agreement for at least 6

consecutive months as of the date that the initial application is due. The letter should explain to 

the applicant that they need to determine their eligibility with respect to this criterion early on so 

that they do not expend resources developing an initial application only to learn that they are not 

eligible due to this factor.

• Notice to the applicant that they must submit all requested information within 60 days. The 

applicant must be warned that any late submissions will be returned and will not be considered 

in this funding cycle unless the State Director grants an exception due to circumstances beyond 

the applicant’s control.

• A warning to the applicant not to incur any costs that the Agency will not cover and caution that 

if the application is not approved, none of the costs incurred will be covered.

• A deadline by which any applicant who plans to use other financing or funding must finalize a 

commitment for that financing or funding. This deadline must be far enough in advance of the 

National pooling date (generally 90 days beforehand).

• An invitation to the applicant to a preliminary meeting to discuss Agency requirements. The 

Loan Originator must set a specific time in the near future for the meeting to take place and ask 

the applicant to respond if the time is not convenient.

• An invitation to the applicant to a preliminary meeting to discuss Agency requirements. The 

Loan Originator must set a specific time in the near future for the meeting to take place and ask 

the loan applicant to respond if the time is not convenient.

The letter must include the following clauses:

◊ “The action taken herein is based upon representation made in your loan request. Any

changes therein, including but not limited to changes in complex cost, size, or scope of 

complex, rental rates, or subsidy costs to the Agency, scope of services, sources of funds, etc., 

may adversely affect this decision and must be reported to and approved by the Agency in 

writing. Any changes not approved by the Agency will be cause for the Agency to discontinue 

processing your request. All applicants requesting changes will be required to give full 

justification for each change and, if Agency approval is not given, written reasons will be 

given with a 30-day negotiation period to resolve the difference.” continued
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4.6 LOAN PURPOSES

Agency funding may be provided to qualified applicants to supply affordable rural rental 

or rural cooperative housing to eligible households in designated places.

A. Eligible Loan Purposes [7 CFR 3560.53]

Loan funds may be used for the purposes established in 7 CFR 3560.53. Exhibit 4-3 

outlines the types of allowable loan purposes. Attachment 4-B defines each eligible loan 

purpose in greater detail.

Exhibit 4-2 (cont.)

Items to be Included in Cover Letter to the Initial Application Package

◊ “This action should not be construed as a reservation of funds, the availability of funds, or 

loan approval.”

◊ “Loan processing will continue based upon a loan not to exceed the amount specified in this 

notice.”

◊ “If a complete initial application has not been submitted to the Agency by the date specified 

in this notice, the Agency reserves the right to discontinue processing your loan request.”

◊ “You are advised against taking any actions or incurring any obligations which would either 

limit the range of alternatives to be considered or which would have an adverse effect on the 

environment. Satisfactory completion of the environmental review process in accordance 

with RD Instruction 1940-G must occur prior to loan approval. The issuance of this review 

action does not constitute site approval.”
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B. Prohibited Uses of Loan Funds [7 CFR 3560.54]

Prohibited uses of loan funds appear in 7 CFR 3560.54 and are summarized in 

Exhibit 4-4. A detailed description of prohibited loan uses is presented in 

Attachment 4-C.

C. Eligible Applicants [7 CFR 3560.55]

Applicant eligibility requirements appear at 7 CFR 3560.55 and are summarized in 

Exhibit 4-5.

Exhibit 4-3 

Eligible Loan Purposes

A. New construction;

B. Purchase and rehabilitation;

C. Site acquisition and development;

D. Necessary systems;

E. Landscaping/site improvement;

F. Tenant facilities;

G. Management facilities;

H. Customary equipment and appliances;

I. Initial operating capital for nonprofits;

J. Packaging fees for nonprofits;

K. Fees incurred in the formation or incorporation of the loan applicant entity for nonprofits;

L. Technical assistance by nonprofits to nonprofits;

M. Builder’s profit, overhead, and general requirements;

N. Legal, technical, environmental, and professional services;

O. Permit fees;

P. Tax credit application;

Q. Educational programs for cooperative boards;

R. Interest and charges on interim financing;

S. Purchase housing from an interim lender;

T. Demonstration projects; and

U. Section 502 conversions.
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Exhibit 4-4 

Prohibited Uses of Loan Funds

A. Housing for temporary or transient tenants (except for migrant labor housing);

B. Nursing homes or assisted living facilities;

C. Facilities not meeting program design requirements;

D. Commercial space;

E. Specialized equipment for training and therapy;

F. Operating costs of a dining facility;

G. Nonaffixed items (except in labor housing);

H. Value of contributed land in excess of equity requirements;

I. Refinancing debt;

J. Fees for referrals;

K. Payments to any members of the applicant entity;

L. Obligations incurred before loan closing except as permitted by 

7 CFR 3560.54(b); and

M. Developer’s fees.
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Revised (12-08-22) PN 572

Exhibit 4-5

Applicant Eligibility Requirements [7CFR 3560.55]

To be eligible for Agency assistance, applicants must meet the following eligibility requirements:

A. Be a U.S. citizen or qualified alien(s); a corporation; a state or local public Agency; an Indian tribe as 

defined in § 3560.11; or a limited liability company (LLC), nonprofit organization, consumer 

cooperative, trust, partnership, or limited partnership in which the principals are U.S. citizens or 

qualified aliens.

B. Be unable to obtain similar credit elsewhere at rates that would allow for rents within the payment 

ability of eligible residents.

C. Possess the legal and financial capacity to carry out the obligations required for the loan.

D. Be able to maintain, manage, and operate the Multi-Family Housing project for its intended purpose 

and in accordance with all Agency program requirements.

E. With the exception of applicants who are nonprofit organizations, housing cooperative, or public 

bodies, be able to provide the equity contribution from their own resources (this contribution must be in 

the form of cash, or land, or a combination thereof).

F. Have or be able to obtain a minimum of 2 percent of the total development costs for use as initial 

operating capital (for nonprofit organizations, cooperatives, or public bodies, this amount may be 

financed through the loan).

G. Not be suspended, debarred, or excluded based on the “list of Parties Excluded from Federal 

Procurement and Non-procurement Programs.”

H. Additional requirements for applicants with prior debt:

1. The applicant must be in compliance with any existing loan agreements and with all legal and 

regulatory requirements or must have an Agency-approved workout agreement and have been in 

compliance with the provisions of the workout agreement for a minimum of 6 consecutive months

as of the date the initial loan application is received.

2. The applicant must be in compliance with the Civil Rights Act of 1964 and all applicable civil 

rights laws.

I. Additional requirements for nonprofit organizations (in addition to meeting the requirements of A-H):

1. The applicant must have received a tax-exempt ruling from the IRS designating them as a 501(c)(3) 

or 501(c)(4) organization.

2. The applicant must include as part of their organization purposes the provision of decent, safe, and 

sanitary housing that is affordable to very low-, low-, and moderate-income persons.

3. No part of the applicant’s earnings may benefit any of their members, founders, or contributors.

4. The applicant must be organized under state and local law.

5. The applicant’s board of directors should reflect the demography of the community and be 

composed of:

•No more than one-third being representatives of the public sector.

•The remaining two-thirds being unrestricted.

continued
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4.7 CONTENTS OF THE INITIAL APPLICATION PACKAGE

The initial application package must include the necessary forms for the applicant to 

complete and return and must specify the additional information required from the applicant (as 

listed in Attachment 4-D). Exhibit 4-6 lists the forms required and their purpose. Exhibit 4-7 

lists the additional documentation that must be submitted by the applicant in the initial 

application.

Exhibit 4-5 (cont.)

Applicant Eligibility Requirements [7CFR 3560.55]

J. Additional requirements for limited partnerships:

1. The general partner must be able to meet the equity contribution requirements if the partnership is 

not able to do so at the time an initial application is submitted.

2. The general partners must maintain a minimum 5 percent financial interest in the residuals or 

refinancing proceeds of the partnership.

3. The partnership must agree that new general partners can be brought into the organization only 

with the prior written consent of the Agency.

K. Additional requirements for Limited Liability Companies (LLCs):

1. The authority of the members of the LLC must be limited, and an authorized agent to act on the 

LLC’s behalf to bind the LLC must be appointed.

2. The management functions of the LLC must be the responsibility of a member who holds at least 

a 5 percent financial interest in the LLC.

The LLC must agree that any new members to be brought into the organization must have prior 

consent of the Agency.

3. A single member must commit to meet the equity contribution requirement if the LLC 

partnership is not able to do so at the time an initial application is submitted.
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Exhibit 4-6

Items Included in the Initial Application Package

1. Form SF 424, Application for Federal Assistance, (include for construction) provides 

summary information about the project and the applicant, when completed.

2. Form RD 1924-13, Estimate and Certificate of Actual Costs, provides detailed cost 

estimates that the Loan Originator will review to judge reasonableness.

3. Form RD 1940-20, Request for Environmental Information, requests the applicant to 

provide specific environmental information about the proposed project. Instructions 

to the applicant are part of the form. The form will be used by the Agency to help it 

complete an environmental review of the proposed project.

4. Form RD 3560-7, Multiple Family Housing Project Budget/Utility Allowance, 

provides a schedule of proposed rents and utilities and anticipated operating and 

maintenance costs. The form will be used by the Loan Originator to conduct the 

project feasibility analysis and to determine whether the utility allowance is accurate.

5. Form RD 3560-25, Initial Request for Rental Assistance or Operating Assistance,

must be completed by the applicant if rental assistance is required for the project.

6. Form RD 1944-37, Previous Participation Certification, describes an applicant’s prior 

involvement with Federal assistance.

7. Form RD 410-9, Statement Required by the Privacy Act, (for individuals only), and 

Form RD 410-7, Notification to Applicant on Use of Financial Information from 

Financial Institution (for individuals only), will allow the Agency to verify 

information provided by a loan applicant.
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Exhibit 4-7

Information Requested in the Initial Application Package

A. To establish applicant eligibility:

1. Current financial statements (within 6 months) with the following paragraph signed by someone with the legal authority to 

do so:

“I/we certify the above is a true and accurate reflection of my/our financial condition as of the date stated herein. This 

statement is given for the purpose of inducing the United States of America to make a loan or to enable the United States 

of America to make a determination of continued eligibility of the applicant for a loan as requested in the loan application 

of which this statement is a part.”

2. A check in the amount of $28 from all individual applicants or $40 from all organizational applicants. This check must be 

made out to the United States Department of Agriculture, and is used by the Agency to pay for a credit report on the 

applicant.

3. Statement signed by applicant that they will pay any cost overruns.

4. Proposed limited partnership agreement and certificates of limited partners (if applicable). Agency requirements should be 

contained in one section of the agreement and their location identified by the applicant or their attorney in a cover sheet.

5. If a limited liability company:

• Copy of the Articles of Incorporation and all amendments; and

• Certified copy of the operating agreement and all amendments.

6. If a nonprofit organization:

 Tax-exempt ruling from the IRS designating them as a 501(c)(3) or 501(c)(4) organization. If the designation is 

pending, a copy of the designation request must be submitted.

 Purpose statement, including the provision of low-income housing.

 Evidence of organization under State and local law, or copies of pending applications.

7. If a trust, organizational documents and attorney opinion letter that the trust is validly formed and identifying the authorized 

representative to act on the trust’s behalf.

B. To establish project feasibility:

1. Market feasibility documentation, including complete market study if required by the Agency. Exhibits 4-10 and 4-11 

should be included for specific information on Agency requirements.

2. Location of project.

3. Brief description of nearby services and facilities.

4. Description of site and necessary improvements.

5. Project description (total number of units by bedroom size and square footage), including any related facilities, and 

development timeline.

6. Proposed rent structures and rental assistance requirements.

7. Evidence of site control.

8. Description of any anticipated environmental issues.

9. Schematic drawings:

• Site plan, including contour lines;

• Floor plan of each living unit type and other type spaces;

• Building exterior elevations;

• Typical building exterior wall section; and
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• Plot plan.

10. Description and justification of related facilities, schedule of separate charges for related facilities.

11. Type and method of construction (owner builder, negotiated bid, or contractor method).

12 Estimated costs (applicant completes Form RD 1924-13).

13. Statement of housing experience and proposed management.

14. Congregate services package/plan (if applicable).

15. Statement of support from other government services providers to the project (congregate housing only).

16. Response to the Uniform Relocation Assistance Act, if applicable.

C. To establish project financing:

1. Description of the proposed financing:

• Requested Agency loan amount;

• Leveraging sources (amount, type, rates and terms);

• Agency loan to value (percentage of security value that Agency loan represents);

• Agency lien position;

• Statement as to use of low-income housing tax credit (LIHTC); and

• Statement of budget and cash flow (loan applicant completes Form RD 3560-7), including type of utilities and utility 

allowance, if applicable.

2. Life-cycle cost analysis and reserve account funding.

3. Proposed construction financing (interim or multiple advances; if interim financing, letter of interest from intended lender).

4. Evidence of efforts to obtain leveraged sources, if applicable, including copies of tax credit or loan applications and grant 

requests.

5. Congregate services charges, if applicable.

D. To help establish environmental compliance:

1. Form RD 1940-20.

2. Evidence of compliance with Executive Order 12372, Intergovernmental Review, as applicable. Some States have no single 

point of contact for processing SF 424; in others, the process may have been assumed by regional planning commissions or 

similar organizations.

3. Any additional forms or documentation, specific to the proposal in question that the Agency requires from the applicant to 

ensure that an environmental review can be completed.

4. Compliance with historic and architectural laws, if applicable.

5. Comments regarding relevant offsite conditions.

6. Map showing location of support services.

E. Any other information specified in the NOFA.

4.8 PRELIMINARY MEETING WITH APPLICANT

The Loan Originator invites all applicants to meet to discuss the loan application process 

and borrowers’ responsibilities under the Multi-Family Housing program. This invitation is 

formally extended in the NOFA with the initial application package. This meeting must take
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place before the initial application submission deadline and is especially important for first-time 

loan applicants. It should take place in the Agency offices as a face-to-face meeting, unless the 

applicant has considerable prior experience with the program, in which case the meeting may

take place by telephone.

During this preliminary meeting with the applicant, the Loan Originator covers the 

following topics:

• Multi-Family Housing program requirements and application process. The Loan 

Originator must explain in general terms the Multi-Family Housing program and the 

application process and provide the applicant with any clarifications they might 

request or from which they might benefit. The Loan Originator should take particular 

care to discuss the extent of the applicant’s responsibilities for participation in the 

Agency’s environmental review process. In addition, the key requirements of the 

market feasibility documentation should be discussed.

• Loan applicant’s responsibilities. The Loan Originator must explain the applicant’s 

responsibilities during the next stages of the application process. The contents of the 

initial application package must be reviewed and the importance of submitting a 

complete package by the deadline must be stressed.

• Long-term commitments. The Loan Originator must explain the applicant’s longterm commitments as a borrower. First-time applicants, in particular, need to be 

made aware of the 30-year prepayment prohibition and the reporting requirements to 

the Agency. This meeting is also an opportunity for the applicant to consider the level 

of management required and special circumstances that might be involved in the 

ongoing operation of the project.

• Availability of alternative financing. The Loan Originator must ask the applicants

whether they can find other financing that would result in the same affordable rents to 

the tenants as those provided by Agency financing. This inquiry is important because 

it is a statutory requirement of the program that loans be made only where alternative 

financing would not result in affordable rents to tenants in the market area. As a 

condition of loan eligibility, the Loan Originator must make a note in the running 

record that the applicant is unable to find financing elsewhere.

The Loan Originator must be careful to be consistent in the way these meetings with the 

applicants are conducted. All applicants must be provided the same information, given sufficient 

time to cover all issues and have all questions answered, and be treated the same way throughout 

the loan application process.

4.9 ACCEPTING INITIAL APPLICATIONS

A. Date Stamping Initial Applications

Loan applicants must submit their initial applications by the due date specified in the 

NOFA. The Loan Originator must date stamp all the initial applications when they are
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received. Late applications must be returned to the loan applicant and will not be 

considered during the funding cycle.

B. 30-Day Agency Review

The Loan Originator must make an assessment of preliminary eligibility of the initial 

applications and prioritize them within 30 days following the initial application 

submission deadline. This review process must not begin until after the application 

submission deadline. The Loan Originator must not discuss any specific application with 

any applicants or any other outside parties until all initial applications have been 

reviewed and the National Office has advised the State of which initial applications may 

be selected for further processing.

SECTION 2: THE REVIEW PROCESS AND SCORING AND RANKING

4.10 OVERVIEW OF THE REVIEW PROCESS

The Loan Originator has 30 days following the initial application submission deadline in 

which to review the submitted initial applications, perform the required underwriting of the 

loans, and conduct site visits.

The Loan Originator may request additional supporting documentation from the applicant 

to establish feasibility, but may not request information that would make an otherwise ineligible 

application eligible. The Loan Originator must establish a deadline by which the loan applicant 

must submit this information, and the deadline may not cause the review process to extend 

beyond 45 days.

4.11 LOAN REVIEW COMMITTEES

The State Director must establish a Loan Review Committee. Loan Review Committees 

serve an oversight function and assist the Loan Originator in deciding which loan applications 

move through the loan origination process. The objective of these committees is to guarantee the 

fair and equitable review and scoring of initial applications.

The State Director appoints or approves members of the committee and determines its 

role. The Loan Review Committee is made up of at least three Federal employees, including the 

State staff member in charge of Multi-Family Housing, the staff person with primary 

responsibility for loan origination, and one or more additional Agency state staff with MultiFamily Housing underwriting experience, rotated annually where staffing permits. State 

Directors must not be members of this committee since they have the authority to approve all 

loans.

The role of the Loan Review Committee varies from state to state. In its simplest form, 

the Loan Review Committee only reviews the scoring and ranking of initial applications. In 

some states, it also supports or rejects the Loan Originator’s recommendations at the following 

decision points in the loan review process:

• When reviewing initial applications;
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• When inviting final applications; or

• When making recommendations for approval to the State Director.

Some states make greater use of their Loan Review Committees and have them actually 

perform some of the loan origination functions.

4.12 PRELIMINARY ASSESSMENT OF THE INITIAL APPLICATION

[7 CFR 3560.56(b)]

The preliminary assessment of the initial application conducted by the Loan Review 

Committee is designed only to assess preliminary eligibility, not project feasibility. Initial 

applications should clearly and completely respond to the criteria set forth in the NOFA and 

must be rejected if preliminary eligibility cannot be established. Preliminary eligibility means:

• The initial application was received by the submission deadline;

• The initial application is complete as specified by the NOFA;

• The applicant is an eligible entity type and none of its members are currently 

debarred, suspended, or in noncompliance with existing Agency loans;

• The applicant indicates the ability to provide the necessary financial resources;

• The applicant shows site control; and

• The project is for an authorized purpose in a designated place.

A. Was the Initial Application Submitted on Time?

The Loan Review Committee refers to the date stamp on the initial application to 

determine whether the application was received by the submission deadline specified in 

the NOFA. If not, it must be returned to the applicant.

B. Is the Initial Application Complete?

As a first step in processing initial applications, the Loan Review Committee must 

establish that the applications are complete. The Loan Review Committee must confirm 

that the application includes:

• All forms listed in Exhibit 4-6;

• All information identified in Exhibit 4-7; and

• The applicant’s signature on all of the required forms.

If any of these items are not included or incomplete, the applicant must provide an 

acceptable explanation of why this happened. Acceptable explanations are only those 

that describe circumstances beyond the applicant’s control. The State Director will make
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the final determination as to whether the explanation is acceptable and the completeness 

rule should be waived.

If during the review the Loan Review 

Committee finds items in the initial 

application that require clarification, these 

should be noted and identified to the 

applicant if and when the applicant is 

selected for further processing under 

Stage 1. These items must not be of a 

nature that would cause a project to be 

ineligible. For example, if a certain

required partnership clause is missing from 

the partnership agreement, the applicant 

will be told in the conditional commitment 

letter to make sure the clause is inserted 

into the partnership agreement by a certain 

time. If the applicant does not meet that 

deadline and there is no acceptable 

explanation as to why the item is missing, 

the package must be considered incomplete 

and returned to the applicant.

C. Establishing Applicant/Project Data

When an initial loan application is reviewed, the Loan Review Committee must take 

the following steps to establish applicant/project data on Automated Multi-Family Housing 

Accounting System (AMAS), using the following screens:

• Record Application Data [M1AA]; and

• Record Member Organization Data [M1AM].

D. Is the Applicant Eligible?

The Loan Review Committee must determine that:

• The applicant, or the principles of the applicant entity, is a U.S. Citizen or qualified 

alien; and

• If an organization, the applicant meets the definition in 7 CFR 3560.11; and

• No members of the applicant entity are debarred or suspended from any Federal 

programs or in noncompliance with existing Agency loans; and

• The applicant is not delinquent on any other Federal debt.

(02-24-05) SPECIAL PN 4-17

ACCEPTING EXPLANATIONS FOR 

MISSING INFORMATION

Acceptable explanation for missing 

information:

• Applicant submitted a timely (i.e., 

immediately following receipt of notice 

to submit the initial application) request 

to another Agency for information and 

that Agency has not provided it as of the 

submission deadline.

• Natural disaster.

Unacceptable explanation for missing 

information:

• Computer broke down.

• Key staff member unavailable to develop 

application.
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If any of the above criteria are not met, the applicant is not eligible for a loan, and the 

package must be returned to the applicant.

The following resources are available to establish the applicant’s good standing with 

the Federal Government:

• The publication List of Parties Excluded from Federal Procurement and 

Nonprocurement Programs provides a monthly listing of all suspended and debarred 

individuals and is available on the Internet at http://www.epls.gov. Once the site is 

entered, there are easy-to-follow instructions that will guide the user through the 

Excluded Parties List System (EPLS) and main menu. A hard copy of this 

publication is mailed to offices that are not hooked up to the Internet.

• The U.S. Department of Housing and Urban Development’s (HUD) Credit Alert 

Interactive Voice Response System (CAIVRS), identifies all individuals with 

delinquent Federal debt. CAIVRS can be accessed by dialing 1-888-827-5605 and 

leaving requested information in the voice mail as prompted. If CAIVRS indicates 

that the applicant has a delinquent Federal debt, the Loan Review Committee must 

verify with the point of contact listed that the information regarding the applicant is 

current. If the information is indeed current and the applicant is delinquent, the Loan 

Review Committee must reject the applicant as ineligible. The applicant must be 

informed of the reason for their rejection and be provided with the telephone number 

CAIVRS lists as a point of contact. Also, the Agency should send Form RD 1944-37 

to HUD for review.

E. Does the Applicant Entity Have the Financial Resources to Commit to the

Project?

The applicant must submit a financial statement of net worth and cash resources that 

indicates that they have the ability to provide the necessary financial resources to the 

project—either 3 or 5 percent of the loan as equity and, if not a nonprofit, up to 2 percent 

initial operating capital. For a limited partnership or LLC, if the applicant entity has not 

been established and funded, then the assets of the individual general partners must be 

able to meet these program requirements.

F. Does the Applicant Show Site Control?

The applicant must show documentation of site control. At this early stage of loan 

processing, site control is ideally in the form of an option to purchase from the owner of 

public record (since the applicant should not have purchased land in anticipation of a loan 

that may not be forthcoming), but can also be in the form of a deed (ownership), purchase 

contract, lease, or agreement to lease. Options for the site should be valid for 1 year with 

the option of extending for an additional sum. The applicant may use Form RD 440-34, 

Option to Purchase Real Estate Property, to show evidence of site control.
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G. Is the Project for an Authorized Purpose and in a Designated Place?

The Loan Review Committee must make a preliminary determination regarding 

project eligibility, which involves a basic analysis of the project proposal to establish 

that:

• The project is for an authorized purpose; and

• The project is located in a designated place.

To make a determination of preliminary project eligibility, the Loan Review 

Committee must review the proposed uses of loan funds for the initial application and 

compare these to Attachments 4-B and 4-C, describing the eligible and prohibited uses 

of loan funds. If any of the proposed uses in the project proposal are prohibited or not 

eligible, the initial application must be rejected, returned to the applicant, and not 

considered during the funding cycle.

The Loan Review Committee checks the list of designated places to make sure that 

the location in which the project is proposed is a designated place. If not, the housing 

proposal is not eligible and must be returned to the loan applicant.

H. The Site Review

During the site review, the Loan Originator and other Agency staff actually look at 

the site to establish eligibility, consider the environmental issues, and perform a civil 

rights impact analysis. In conducting the site review, the Loan Originator must make sure 

that the proposed project meets the environmental and site criteria of an Agency-funded 

project as described in Chapter 3. Attachment 4-E provides a checklist that can be used 

to evaluate a site.

The site review is conducted as soon as possible after the State Office has 

preliminarily ranked its housing proposals. The site review is conducted to determine 

that there are no eligibility issues that might prohibit a project from going forward. The 

major feasibility considerations are enumerated in Chapter 3 and are:

• Environmental factors;

• Costs of site development; and

• Location.

The Loan Originator must solicit the input of the State Architect or State Engineer 

and the State Environmental Coordinator (SEC) regarding the site and if possible, these 

individuals should participate in the physical site review. If a site does not meet the 

standards set forth by the Agency as described in Chapter 3, the initial application must 

be rejected. ASTM Standard E-1528 (TSQ) available through the State Environmental 

Coordinator, or Attachment 3-A, can be completed by Agency staff during the site 

review to alert them to any contamination issues about which they should be aware.
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I. Environmental Review

Form RD 1940-20, completed by the applicant, provides specific environmental 

information about the proposed project. To begin preparation of the Agency’s 

environmental review, the Loan Originator reviews the information provided with 

Form RD 1940-20 and conducts a site visit to gather additional information. The TSQ 

may be used during the site visit to help the Loan Originator identify potential 

contamination of the site from hazardous substances, hazardous wastes, or petroleum 

products. Chapter 3 provides additional information on environmental requirements.

J. Is There a Market for the Project?

The need and demand analysis that the applicant must include as part of the initial 

application provides a narrative description of the market need and demand for the type

of housing being proposed in the area. This analysis may be completed by the applicant 

personally through telephone surveys and face-to-face interviews. Alternatively, the 

applicant may hire an independent contractor to conduct the research. However, hiring

an independent researcher to analyze the market is not required at this point. A complete 

market study or market feasibility documentation, depending upon the size of the project, 

will be required in the next stage of the application process, if the applicant is invited to 

proceed. Regardless of the method that is used to complete the need and demand 

analysis, the applicant must certify that they or their representative has visited the site and 

the market area.

The need and demand analysis should include enough information to provide the 

Loan Originator with information about the need for the type of project that is being 

proposed in the area and its sustainability. The Loan Originator should review this 

analysis carefully at this stage and discuss any concerns about it with the applicant if the 

applicant is invited to submit an initial application.

For more information about the required contents of a market analysis, refer to

Attachment 4-F.

4.13 SCORING AND RANKING INITIAL APPLICATIONS

Based on the information contained in the initial application, the Loan Review 

Committee will score and then rank those proposals determined to be preliminarily eligible. 

Applicants must not be requested to submit additional information, and any additional 

information submitted after the deadline date must not be considered. Exhibit 4-8 provides an 

example of how initial applications are scored and ranked.

Initial applications must be scored in accordance with the priorities identified in the 

regulation and the NOFA. The Loan Review Committee must use its best judgment in applying 

points to proposals. In some cases, it may not be entirely clear whether the project or applicant 

will meet all of the criteria for awarding points. The Loan Review Committee must have some 

comfort level in applying points and must inform applicants who are invited to submit initial 

applications that they may be repointed and reranked if subsequent information proves that 

points were awarded inappropriately. For example, it may not be entirely clear that an applicant
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meets all of the conditions necessary for points to be applied for donated land. The Loan Review 

Committee that gives such points must inform the applicant that the Agency reserves the right to 

rework them at a later date if necessary. The NOFA will identify some or all of the following 

factors and list the number of points that will be applied for each factor:

• Leveraged assistance;

• High-need communities;

• Agency initiatives; and

• Donated land.

A. Scoring Leveraged Assistance

1. Eligibility Requirements

Points will be given to initial applications that are enhanced through the use of other 

financing or which include value contributed by the applicant in excess of their required 

contribution, such as land value or tax credits. Leveraged assistance may benefit a 

project either through operating cost savings or through construction cost savings.

Several conditions must be met for the points to be applied:

• The applicant must show evidence that application has been made for the additional 

funds or financing and that this leveraging is reasonably assured to be available by the 

time the applicant is in Stage 2 of the loan application process.

• Agency funds must only finance units for program income-eligible tenants. If the 

developer is building a mixed-income complex, only the portion of leveraged 

assistance that is being used to finance units for program income-eligible tenants will 

be considered in determining points.

• For those units that are financed by the Agency, the use of the leveraged assistance 

must not result in project rents that exceed Conventional Rents for Comparable Units 

(CRCU) in the area. The Agency may only approve rents above the CRCU under 

limited circumstances, as described in Chapter 3, paragraph 3.20 B.

• There must be reasonable assurance that any leveraged assistance in the form of 

rental subsidy to tenants will be available for the term of the loan. For example, a 

State-funded rental subsidy program that is expected to continue to be funded in 

future years would meet this requirement.

• Leveraged assistance in the form of operating cost savings must be for a minimum of 

5 years.

• If the applicant uses value of land in excess of the required contribution as leveraged 

assistance, the applicant must be advised that if the appraisal shows the land value to 

be less than estimated, their ranking may be affected and they will have to provide to 

the project additional funds from their own resources to preserve their position.
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2. Calculating the Percentage of Leveraged Assistance and Applying Points

Leveraged assistance is calculated differently, depending upon whether the cost 

savings are operational cost savings or construction cost savings.

• Calculating operating cost savings and applying points.

Operating cost savings, such as tax abatements, tenant subsidies, or donated services, 

are calculated as a per-unit cost savings for the term of the savings. Savings must be 

available for at least 5 years.

To calculate the savings, take the total amount of savings and divide it by the number 

of units in the project that will benefit from the savings to obtain the per unit cost savings. 

In a mixed income complex that will serve other than Agency income-eligible tenants,

use only the number of units that will serve Agency income-eligible tenants. Round 

percentages to the nearest whole number, rounding up at 0.50 and above and down at

0.49 and below. For example, 25.50 becomes 26; 25.49 becomes 25. 

Use the following table to apply points.

Per-Unit Cost Savings Points

$15,000 and above 20

$10,001–$15,000 18

$7,501–$10,000 16

$5,001–$7,500 12

$3,501–$5,000 10

$2,001–$3,500 8

$1,000 –$2,000 5

• Calculating construction cost savings and applying points.

Construction cost savings is calculated as a percentage of the total development cost 

(TDC), excluding any costs prohibited by the Agency as loan expenses. In a mixed 

income project that will serve other than Agency income-eligible tenants, use the TDC 

for only those units that will serve Agency income-eligible tenants and divide that by the 

number of units that will serve Agency income-eligible tenants. Round percentages to 

the nearest whole number, rounding up at .50 and above and down at .49 and below. For 

example, 25.50 becomes 26; 25.49 becomes 25.

Use the following table to award points for leveraged assistance:

Percentage Points Percentage Points

75 or more 20 35–39 12

70–74 19 30–34 11

65–69 18 25–29 10

60–64 17 20–24 9

55–59 16 15–19 8
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50–54 15 10–14 7

45–49 14 5–9 6

40–44 13 0–4 0

B. Scoring Other Factors

1. High-Need Communities

Projects to be developed in a 

colonia, tribal land, 

Empowerment Zones (EZs), 

Enterprise Communities (ECs), 

or Rural Economic and Area 

Partnership (REAP) 

communities, or in a place 

identified in the State 

Consolidated Plan or State

needs assessment as a high need 

community for multi-family 

housing will receive points.

2. National Office Initiative

Initial applications that 

support a National Office 

initiative announced in the 

NOFA will receive points. 

When an initial application has 

been awarded MOU or National 

Office Initiative points, a copy 

of the MOU or other

documentation evidencing the applicant’s eligibility for the points must be maintained 

with the Section 515 Application Review Checklist and Point Score Sheet. These 

documents are contained in Attachment 2 of the Section 515 Processing UL for the 

current fiscal year, and are submitted to the National Office on or before the deadline 

stated in the UL on Processing Section 515 New Construction Loan Requests.

3. State Initiatives

Initial applications in support of an optional factor developed by the State that 

promotes compatibility with special housing initiatives in conjunction with Stateadministered housing programs such as HOME funds or low-income housing tax credits 

will receive priority points. A factor thus developed cannot duplicate factors already 

included in the NOFA and must be approved by the National Office prior to the NOFA 

publication.

Types of Leveraged Assistance

The following types of leveraged assistance are 

eligible to receive points:

• Grants;

• Loans from other sources, including from the 

applicant, that have an interest rate such that, 

when added to all funding sources in the project, 

results in rents that do not exceed the CRCU 

standard;

• Contributions (including appraised value of land) 

from the applicant’s own resources above the 

required contribution indicated by the Sources and 

Uses Comprehensive Evaluation;

• Non–Agency-financed rentalsubsidy;

• Tax abatements or other savings in operating costs 

provided that, without the abatement, the basic 

rents in the project do not exceed the CRCU 

standard;

• Tax credit proceeds applied to the project; and

• Tenant subsidies, provided they are appropriate 

for tenant income levels and are for the term of 

the loan.
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4. Donated Land

For donated land to be eligible for priority points, all of the conditions listed below 

must be met. Some of these conditions may have to be confirmed at a later date; the 

Agency reserves the right to withdraw points if all of the following are not met.

• The land is donated by a State, unit of local government, public body, or a nonprofit 

organization.

• The land appears to be suitable and meeting Agency requirements.

• Site development costs do not exceed what they would be to purchase and develop an 

alternative site. (For example, if the site development costs of the donated site are

$50,000 and purchasing an alternative site would cost $20,000 and $15,000 to 

develop, for a total of $35,000, donation of the site would not be cost effective or 

qualify for additional priority points.) Applicants must be informed that regardless of 

their investment in the site, the site may not be accepted if the Agency’s 

environmental review indicates the potential for impact on protected resources or 

other important land uses, or if a potential for contamination exists from hazardous 

substances, hazardous wastes, or petroleum products.

• Operational costs are not increased by the land (such as would be the case if high 

insurance premiums for flood insurance were required).

• The overall cost of the project is reduced by the donation of the land.

• The donor of the site has owned it for at least one year. (The State Director may 

waive these criteria when it can be shown that the purchase was not made to 

circumvent the intent of this paragraph.)

• The applicant provides the value of the donated land, which must later be confirmed 

by the Agency. A return on investment (ROI) is not paid to the applicant for the 

value of the donated land nor is the value of the land considered as part of the 

applicant’s contribution.

C. Ranking Initial Applications

Initial applications must be ranked in order of highest point score. When there are 

point score ties, the following rules apply:

• Preference must be given in the case of equally pointed initial applications to the 

applicant that qualifies as a nonprofit applicant according to the following 

requirements:

◊ The applicant is a local nonprofit organization, public body, or Indian tribe whose 

principal purposes include the planning, development, and management of lowincome housing.

◊ The applicant is exempt from Federal income taxes under Section 501(c)(3) or 

501(c)(4) of the Internal Revenue Code.
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◊ The applicant is not wholly or partially owned or controlled by a for-profit or 

limited-profit type entity.

◊ The applicant’s members, or the entity, do not share an identity-of-interest (IOI) 

with a for-profit or limited profit type entity.

◊ The applicant is not co-venturing with another entity; and

◊ The applicant entity or its members will not be receiving any direct or indirect 

benefits pursuant to the LIHTC.

• If the tying initial applications are both from nonprofit organizations who meet the 

description above, or if neither one is a nonprofit, a lottery must be held and 

preference given to the first drawn applicant. An acceptable form of selection by 

lottery would be to throw the names of all of the tying applicants into a hat and draw 

a name. The Loan Originator should only do this in the presence of the loan review 

committee so that no charges of favoritism can be leveled against the Loan Originator 

by any of the applicants who are not drawn first.

Exhibit 4-8

Example of Scoring and Ranking NOFA Responses

Project

Applicant and 

Project Description

Total 

Points Ranking

Green Acres Limited Partnership

Leveraged Assistance: 20

65 1

EZ/EC: 20

Agency Initiative: 20

Donated Land: 5

Belrose Place Limited Partnership

Leveraged Assistance: 15

55 2

EZ/EC: 20

Agency Initiative: 20

Meyton Place Limited Partnership

Leveraged Assistance: 20

45 3

Agency Initiative: 20

Donated Land: 5

Awesome Apartments Nonprofit

Agency Initiative: 20

40 4

EZ/EC: 20

Delaplane Mews Limited Partnership

Leveraged Assistance: 20

40 5

Agency Initiative: 20
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D. Review of Highest Ranked Initial Applications

The Loan Originator must conduct a review of top-ranking initial applications to 

identify potential issues that will need to be specified as concerns in the letter notifying 

applicants that their applications have been considered for further processing. The 

following evaluations must be made:

• Does the applicant have some housing experience, and if not, are they proposing to 

hire someone who will help them? An applicant who does not have housing 

experience will not necessarily be disqualified. However, the Loan Originator must 

advise them that an Agency loan will be contingent upon their hiring someone who 

does have housing experience.

• Is there a market for the project at the rental rates projected? The market feasibility 

documentation provided by the applicant at this stage is only cursory; however, if the 

Loan Originator is familiar with the market and has any concerns about it, these must 

be raised with the applicant if they are invited to submit an initial application. The 

market must show the strongest need for the type of units proposed.

• Do rents seem reasonable, and will they cover projected costs? Rents must appear to 

be affordable to program-eligible applicants within the market area.

• Are there any known or suspected environmental problems that will need to be 

addressed in the development of the Agency’s environmental review?

• What are the other leveraging sources? Are they likely to be obtained and might 

there be some timing issues in coordinating these sources with Agency funding?

• Is the applicant planning to use the LIHTC? Use of LIHTC will affect the amount of 

equity required from the applicant.

• Are the proposed security and the Agency’s lien position acceptable?

E. Forwarding Initial Applications to National Office for National Ranking

Once the State Offices score and rank the initial applications, they forward their 

ranking lists with the required attachments to the National Office. The required 

attachments are those that are listed in the applicable fiscal year’s UL on Processing 

Section 515 New Construction Loan Requests. The National Office will then verify the 

scoring of each initial application, and then prepare a national ranking to determine which 

initial applications have the opportunity to move to the next stage of processing. The 

National Office will forward this list to the State Offices.

4.14 INFORMING THE APPLICANTS OF RESULTS OF INITIAL APPLICATION 

REVIEW

Once the NOFA responses have been scored and ranked and the National Office has 

advised States of the proposals selected for further processing, the Loan Originator must respond 

to all applicants with one of three types of letters:
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• Handbook Letter 106 (3560), Notice of Pre-Application Review Action. These letters 

go to the applicants who have top-ranked, fundable projects that will be invited to go 

on to the next phase of processing. These letters will include a description of the 

Agency’s concerns about issues raised in the application, as described in paragraph

4.13 D.

• Handbook Letter 107 (3560), A Letter Informing the Applicant of the Lack of Funds. 

These letters go to applicants whose projects did not rank high enough to be 

considered in the current funding cycle. These applicants must be informed that they 

can resubmit their application in a future funding cycle. The original initial 

application must be returned to the applicant with the letter, and a copy of the initial 

application should be kept on file in the event of an appeal.

• Handbook Letter 108 (3560), Letter Denying Funding due to Ineligibility. These 

letters go to applicants who have submitted applications for an unauthorized purpose 

or who are ineligible applicants. Their initial applications must be returned to them 

with the reason(s) for their rejection specified, and the applicants must be given 

appeal rights in accordance with 7 CFR Part 11 (Appendix 2). A copy of the initial 

application must be retained by the Loan Originator in the event of an appeal.

SECTION 3: PROJECT FEASIBILITY REVIEW

4.15 UNDERWRITING THE PROPOSED PROJECT

Through the underwriting process, the Loan Originator evaluates an applicant’s 

circumstances and the value of the property to determine whether making a particular loan is a 

prudent use of Agency funds. Underwriting also identifies factors that may affect the 

performance of the loan over the term or at maturity.

Underwriting has both objective and subjective elements. For example, project eligibility 

is an objective factor—if the project is located in a floodplain zone with no insurance, the project 

is not eligible and the loan applicant cannot receive a program loan. On the other hand, 

analyzing an applicant’s financial statements and estimating the value of the property both 

involve some degree of judgment. The underwriter’s challenge is to make both objective and 

subjective decisions in a fair and impartial manner for all applicants.

This paragraph provides a broad overview of the key decisions and special considerations 

that the Loan Originator must make in the underwriting process. The remainder of this chapter 

goes into further detail about loan underwriting.

A. Key Decisions

The Loan Originator must make the following key underwriting decisions in 

evaluating the initial application:

• Is the applicant eligible?
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• Is the project eligible?

• Does the project appear economically feasible?

• Do the project costs appear reasonable?

• Does the project comply with Agency environmental standards?

• Do the Agency’s interests appear to be secure?

These questions, when answered in the affirmative, set the standards by which loans 

requests are evaluated. The questions are answered by analyzing the initial application 

package, conducting a site visit, and completing the environmental review. The Loan 

Originator reviews current credit reports and organizational documents to determine if

the applicant is eligible, looks at preliminary plans and cost estimates to see if the project 

is feasible, analyzes market feasibility documents to determine that the project is needed, 

conducts a site visit, and completes the appropriate level of environmental review. The 

Agency staff will complete a civil right impact analysis as a further project eligibility test.

The environmental review process is a vital part of the underwriting process and may 

take longer to complete than any other component of the underwriting process. Chapter 3 

provides further details on the environmental review process.

The Loan Originator does not have to reject an initial application that is weak in a 

particular area and requires some improvement. The Loan Originator must consider the 

results of the underwriting process as a whole to determine whether to move the initial 

application to the final application stage. However, should the results of a review show 

the answer to one of the five above-listed underwriting standards to be an unequivocal 

“no,” meaning that the applicant cannot or will not correct the deficiency, then that initial 

application must be rejected.

B. Ordering the Appraisal

The Loan Originator must order the appraisal as soon as the applicant has submitted 

the schematic drawings for the proposed housing. The appraisal is important because it is 

used to determine the maximum loan limits for the proposed project.

The appraisal may be done by an in-house Agency appraiser. In all likelihood, 

however, the appraisal will have to be ordered either from a list of appraisers used by the 

state or by sending out a bid proposal to the known appraisers in the state. Chapter 7 

provides the specifics on ordering and reviewing appraisals. Paragraph 3.13 of Chapter 3 

provides additional guidance to appraisers regarding potential contamination from 

hazardous substances, hazardous wastes, and petroleum products.

C. Documenting Underwriting

The Loan Originator must provide documentation of the underwriting process to the 

Loan Approval Official or Loan Review Committee. This is the evidence of how and
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why the Loan Originator reached a decision on whether to recommend funding a loan and 

at what level. The Loan Approval Official makes the final decision based on the 

information presented by the Loan Originator and the Loan Review Committee.

4.16 APPLICANT ELIGIBILITY [7 CFR 3560.55]

To be eligible for Agency assistance, the applicant must meet the following eligibility 

requirements:

A. U.S. Citizenship/Qualified Alien Status Requirements

Individual applicants and organizational applicants must provide to their attorney 

acceptable evidence of U.S. citizenship and/or qualified alien status. Acceptable 

evidence of U.S. citizenship may include a valid U.S. birth certificate, a valid U.S. 

Passport, a valid U.S. Certificate of Naturalization, or other acceptable evidence of U.S. 

citizenship proposed by the applicant and determined by the Agency. Acceptable 

evidence of qualified alien status may include valid documentation issued by the U.S. 

Citizenship and Immigration Services (USCIS), or other acceptable documentation of 

qualified alien status proposed by the applicant and determined by the Agency.

Attorney Certification. The applicant’s attorney must review all applicable 

evidence to verify U.S. citizenship and/or qualified alien status, must certify that the 

Agency’s U.S. citizenship and/or qualified alien status eligibility requirements are met 

by all applicants, and must submit the certification for Agency review.

The Loan Originator will review the attorney certification to ensure the outlined 

citizenship/qualified alien status requirements are met.

B. Organizational Requirements

In addition to meeting the above requirements, organizational entities have additional 

requirements that they must meet. Once the Loan Originator has established that the 

applicant entity’s organizational documents appear to be in order, the Loan Originator 

submits the organizational documents to the Office of General Counsel (OGC) for final

verification of their acceptability.

1. Limited Partnerships

The Loan Originator must determine whether the organizational requirements of 

limited partnerships are met by analyzing the partnership agreement, certificate of limited 

partnership, and applicant financial statements that must have been included in the initial 

application to ensure that they meet the criteria identified below. The partnership 

agreement and certificate of limited partnership must also be forwarded to the OGC for 

their review.

• Partnership term. The term of the partnership must be at least equal to the term of 

the mortgage that is, 30 years, or until the Agency debt is satisfied.

• Five percent general partnership interest. The terms of the limited partnership 

agreement must require that the general partners maintain a minimum of 5 percent 

financial interest in the residual or refinancing proceeds of the partnership. The 

general partner will not be required to have a minimum 5 percent interest in current 
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profits, losses, and cash distributions of the partnership. For example, an agreement 

where the general partners have such a 5 percent interest in a limited partnership and 

receive only 1 percent of the profits while the limited partners receive 99 percent of 

the profits is allowable.

• Prior Agency consent. The limited partnership agreement must contain a clause that 

provides for obtaining prior consent from the Agency when any of the following 

actions are taken:

◊ Withdrawing a general partner;

◊ Adding a general partner;

◊ Substituting or deleting a general partner;

◊ Amending the limited partnership agreement or the partnership’s certificate of 

limited partnership;

◊ Selling all or substantially all assets of the partnership;

◊ Dissolving or terminating the partnership; and

◊ Borrowing funds from general partners or third parties.

• Program contribution requirements. Limited partnerships must deposit into an 

account the required 2 percent initial operating capital and the equity contribution 

requirement. The certified financial statements of the general partners must confirm 

that the assets of the general partners are sufficient to meet this contribution 

requirement. Paragraph 4.16 C provides further information on financial 

requirements.

2. Nonprofit Organizations

The Loan Originator must verify the status of any nonprofit organization applicants 

since they may have received a preference in ranking and are eligible to receive a larger 

loan that covers the 2 percent initial operating capital and the equity requirements for 

which other types of applicants are not eligible. A description of the information that a 

nonprofit applicant must submit as part of the initial application and guidance to the Loan 

Originator in reviewing this information to establish eligibility follows:

• Tax-exempt ruling from the IRS designating the nonprofit as a 501(c)(3) or 

501(c)(4) organization. If the designation is pending, a copy of the letter requesting 

the designation must be submitted. The Loan Originator must verify that the request 

for designation has been submitted to the IRS if the designation has not already been 

received.

• Purpose statement. The Loan Originator must ensure that the nonprofit 

organization’s purpose statement includes the provision of decent housing that is 

affordable to low- and moderate-income persons.
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• Evidence of organization under State and local law, such as articles of 

incorporation or copies of pending applications. The Loan Originator must ensure 

that these are current and match the applicant entity.

• List of Board of Directors. The Loan Originator must verify that the loan 

applicant’s Board of Directors reflects the demography of the community and is 

composed of:

◊ No more than one-third being representatives of the public sector; and

◊ The composition of the remaining two-thirds being unrestricted.

If the board is unable to satisfy these requirements, the nonprofit organization must 

provide a written explanation to the Loan Originator indicating why it is not feasible to 

meet these requirements. The Loan Originator will review the circumstances and the 

board’s explanation and determine whether the board represents the best possible 

composition reflecting the community.

3. Limited Liability Companies (LLC)

The Loan Originator must review the LLC’s proposed operating agreement to ensure 

that the following conditions are met:

• Individual members do not have the authority to act on behalf of the LLC. An 

authorized agent to act on the LLC’s behalf to bind the LLC must be appointed.

• The management functions of the LLC are the responsibility of a member who holds 

at least a 5 percent financial interest in the LLC.

• The LLC has agreed that any new members may be brought into the organization 

only with prior consent of the Agency.

• The financial statement of the single member who has committed to meet the equity 

contribution requirements demonstrates that the person is financially able to do so.

4. Trusts

If the applicant entity is a trust, the Loan Originator must review:

• The trust’s organizational documents to ensure that it is validly formed under federal 

and State law; and

• The opinion letter from the trust’s attorney certifying that the trust is validly formed 

and identifying the representative of the trust who is authorized to act on its behalf.

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Exhibit 4-9

Indicators of Unacceptable Credit

 A foreclosure that has been completed in the last 36 months.

 An outstanding IRS tax lien or any other outstanding tax liens with no satisfactory arrangement for 

payment.

 Outstanding collection accounts with a record of irregular payments with no satisfactory

C. Financial Requirements

The Loan Originator must review the individual financial statements and credit 

reports of the principals provided in the initial application to establish that the loan 

applicant is not a credit risk and has the financial ability to meet the requirements of the 

loan.

1. The Credit Report

Upon receipt of the initial application, the Loan Originator must immediately order a 

credit report on the individual applicant or the principals of a partnership, as appropriate.

Any indications of unacceptable credit must be explained by the applicant or the 

applicant must be rejected due to unacceptable credit. When this occurs, appeal rights in 

accordance with 7 CFR Part 11 (Appendix 2) must be given.

Exhibit 4-9 provides indicators of unacceptable credit.

2. Analysis of Financial Documents

The Loan Originator must verify that the loan applicant’s financial documents show 

that the applicant possesses the financial capacity to carry out the following obligations:

• With the exception of nonprofit applicants, the applicant is able to provide the equity 

contribution from their own resources in the form of cash, land, or a combination 

thereof.

• With the exception of nonprofit applicants, the applicant has or is able to obtain a 

minimum of two percent of the total development costs for use as initial operating 

capital. Nonprofit organizations may have this amount funded through the loan.

3. Assets

In evaluating a corporation/partnership’s assets, the Loan Originator must consider 

the assets of each member or stockholder. The partnership must have the financial ability 

to meet the program financial requirements (equity contribution and 2 percent initial 

operating capital); if the partnership is unable to do so at this point, the general partners 

must be able to meet this requirement.
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arrangement for repayment, or collection accounts that were paid in full within the last 6 months,

unless the applicant had been making regular payments previously.

• Non–Agency debts written off within the last 36 months, unless the debt was paid in full at least 12

months ago. In situations where the Agency debt has been considered for debt settlement or a Rural 

Development property has been foreclosed on, the State Director may determine the applicant, 

including principals, in compliance if the file is documented to show that the borrowers acted in 

good faith but are in noncompliance through circumstances beyond their control, including 

substantial local economic downturn, natural disaster, assuming responsibility for a troubled loan 

through substitution of the general partners, or assuming a loan with an existing workout plan.

 Agency debts that were settled within the past 36 months, or are being considered for debt 

settlement.

 Delinquency on a Federal debt.

 A court-created or court-affirmed obligation or judgment caused by nonpayment that is currently 

outstanding or has been outstanding within the last 12 months, except when a bankruptcy occurred:

◊ In which debts were discharged more than 36 months prior to the date of application;

◊ Where an applicant successfully completed a bankruptcy debt restructuring plan and has 

demonstrated a willingness to meet obligations when due for the 12 months prior to the date of 

application; or

◊ Where a judgment was satisfied more than 12 months before the date of application.

4. Cost Overruns [7 CFR 3560.63(f)]

As a final financial condition, the applicant must provide as part of the initial 

application package a statement agreeing to pay cost overruns after the maximum debt 

limit is reached at no cost to the project, and without pledging the project as security.

D. Compliance Requirements for Current or Previous Borrowers

1. Previous Participation Form

As a further indication of eligibility, the applicant must submit Form RD 1944-37.

This form identifies any current or prior participation in Federal housing projects that the 

applicant may have had and identifies any problems such as defaults, noncompliance, or 

suspensions that may have occurred. The Loan Originator must send this form to the 

HUD for their review and comment.

The Loan Originator should also contact HUD staff directly to verify the applicant’s 

status with HUD. If the applicant has had any problems with payment on a HUD loan or 

management of a HUD project, further explanation is required of the applicant. If the 

applicant is found to be in default, serious noncompliance, or suspended, the applicant 

must be rejected. In such a case, the loan applicant will be provided with appeal rights in 

accordance with 7 CFR Part 11.
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2. Suspension or Debarment

Individuals who are suspended, debarred, or voluntarily excluded from participation

in Federal programs are not eligible for assistance. Such applicants should have been 

rejected as a first step when the preliminary assessment of the initial application was 

made (see Paragraph 4.12). If applicants are found to be suspended or debarred at any 

stage of the process, their application must be rejected and they must be given appeal 

right in accordance with 7 CFR Part 11. 

3. Complete Compliance or Workout Agreement

The applicant must be in compliance with any existing Agency debts in all states and

in accordance with all legal and regulatory requirements and agreements. If not, the 

applicant must have an Agency-approved workout agreement and must have been in 

compliance with the provisions of the agreement for at least 6 months as of the date the

initial application was due to the Agency. Loan Originators must telephone their Agency 

counterparts in other states where an applicant has projects to verify the applicant’s status 

with their loans in those States. If the Loan Originator discovers noncompliance with the 

provisions of a workout agreement or that the applicant has been in compliance with a 

workout agreement for less than 6 months as of the due date of the initial application, the 

applicant must be rejected.

4. Compliance with Civil Rights Laws

For an applicant entity to be considered eligible to receive new loan funds from the

Agency, the following must apply:

• The applicant, including the principal partners, must be in compliance with applicable

civil rights laws in all projects where they are either a borrower or principal partner.

For a borrower to be considered in noncompliance with civil rights laws for loan

eligibility purposes, the borrower’s project must be coded on the Multi-Family

Housing Information System (MFIS) as being in nonmonetary default. In accordance

with Agency policy a nonmonetary default on MFIS when the Loan Servicing Office

has notified the borrower of a violation using the three servicing letter process, and

the borrower has not addressed the violation to the satisfaction of the Loan Servicing

Office within 60 days of the first servicing letter.

• For a borrower to be considered eligible to receive rehabilitation or equity funds, the

project to be funded must either be in compliance, or be brought into compliance with

applicable civil rights laws or physical accessibility standards with the receipt of loan

funds.

4.17 PROJECT ELIGIBILITY [7 CFR 3560.58, 3560.59, and 3560.60]

The Loan Review Committee assesses the preliminary eligibility of the project by 

determining that the project is located in a designated place, and will be completed for an 

authorized purpose, and that the applicant shows true evidence of site control. The underwriting 

now goes a step further when the Loan Originator ensures that the applicant has submitted 
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adequate documentation to show that the project meets all applicable site and design 

requirements.

A. Civil Rights Impact Analyses

The Agency conducts civil rights impact analyses to determine whether proposed 

actions will negatively and disproportionately affect minorities, women, or persons with 

disabilities who are employees, program beneficiaries, or applicants for employment or 

program benefits in USDA-conducted or assisted programs, by virtue of their race, color, 

sex, national origin, religion, age, disability, or marital or familial status. At the time of 

the site visit, a trained staff member completes Form RD 2006-38. The State Civil Rights 

Coordinator and, as necessary, the State Environmental Coordinator, are consulted if 

problems are noted. RD Instruction 2006-P provides further guidance on these 

requirements.

B. Working with the State Historic Preservation Office (SHPO)

Applicants must work with the SHPO to determine the site’s and/or building’s 

archaeological or historical significance. Refer to RD Instruction 1940-G for further 

information.

C. Flood Hazard Determination

At this time, the Loan Originator must complete Form FEMA 81-93. This form 

documents whether the site is in a Special Flood Hazard Area (SFHA) identified by 

FEMA and, if so, states the availability of flood insurance for this property through 

FEMA’s National Flood Insurance Program (NFIP). Property in a SFHA is not eligible 

for Federal financial assistance unless flood insurance is purchased through the NFIP. 

The information regarding floodplains on this form will assist in the preparation of the 

environmental review document.

D. Design Review

The Loan Originator must submit all project plans and drawings to the State 

Architect/Engineer who will review the design and determine if it meets program 

requirements. Paragraph 4.21 provides further details on the role of the State Architect.

E. Prohibited Conditions

In accordance with 7 CFR 3560.57(d), the Loan Originator at this point must confirm 

that no conditions that would prohibit the Agency from processing the loan request have 

developed in the area in which the project is being located. The existence of the 

following conditions would result in an application being rejected:

• The Agency has selected another Multi-Family Housing proposal in the designated 

place for processing. An exception may be made to this when a group home is being 

proposed for persons with disabilities in an area where the existing multi-family 

housing is insufficient or unavailable for their needs, or where there is a need for

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additional multi-family housing and the housing proposed would provide a different 

type of housing than that already selected.

• A previously funded Agency, HUD, LIHTC or other similar assisted multi-family 

housing in the designated place has not been completed or has not reached projected 

occupancy level.

• Existing assisted multi-family housing in the designated place is experiencing high 

vacancy levels. High vacancy is considered to be 5 percent or higher. If a State 

wishes to apply a different standard for high vacancy rates, that standard must be 

published in a State notice.

• A Special Note Rent (SNR) or other loan servicing tool is pending or in effect for 

other assisted housing in the designated place; or

• The need in the market area is for additional rental assistance and not for additional 

units.

The Loan Originator must confirm that none of the above conditions exist by 

checking with the HUD Area Office, State agencies, and the local Field Office.

4.18 PROJECT FEASIBILITY

Project feasibility is determined by:

• Feasibility of security as evidenced by an appraisal that shows the Agency’s lien 

position is secure.

• Market feasibility as evidenced by specified data on the market that show a clear need 

and demand for the proposed units.

• Financial feasibility as evidenced by anticipated project income being sufficient to 

meet projected costs.

A. Feasibility of Agency’s Security

The Agency conducts an appraisal to establish whether the Agency’s loan will be 

secured by the real estate to be developed. If the appraisal shows the project to be of 

lower value than the total development cost, and therefore, does not support the Agency’s 

lien position, the Agency must inform the applicants that they must reduce their costs or 

find the funds to make up the difference between the appraised value and the total 

development cost. Chapter 7 provides additional details on appraisals and establishing 

security.

B. Market Feasibility

The applicant must provide market feasibility documentation that shows that the need 

and demand in the market area in which a project is located is greatest for the proposed
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type of multi-family housing (i.e., elderly or family) and unit mix of bedroom sizes. The 

market area is considered to be the community in which a project is to be located and 

only those outlying rural areas that will be affected by the project (excluding all other 

established communities). Except in specific cases of congregate housing projects where 

an expanded market may be justified, the market area will not include the entire county 

(or parish, township, or other similar subdivision).

The project type, number of units, and unit mix must be based on the housing need 

and demand from eligible prospective tenants who are permanent residents of the 

community. The market feasibility documentation must be based on information obtained 

from current census reports and other reliable sources such as state or county data

centers, individual employers, local realtors, public housing agencies, and chambers of 

commerce.

1. Market Survey or Market Study?

Market feasibility documentation will consist of a professional market study for 

projects of 12 units or more.

The State Director may authorize a market survey, which is a less formal analysis, to 

document market feasibility in the following circumstances:

• There is an overwhelming market demand evidenced by waiting lists and a housing 

shortage confirmed by local housing agencies and realtors; or

• For projects of less than 12 units.

Market surveys can be prepared through the use of telephone inquiries, mailed or 

door-to-door surveys, and interviews, but, like a market study, must include a site visit by 

the applicant or their representative.

All USDA Multi-Family Housing properties with 50 or more units must comply with 

the HUD’s Multifamily Accelerated Processing (MAP) guidelines when preparing a 

“Market Study”. All properties with less than 50 units will comply with the current 

regulations as established and further defined in the handbooks.

2. Evidence of Reliable Markets

In looking at the market feasibility documentation, the Loan Originator must be able 

to answer the following questions in the affirmative in order to conclude that there is a 

reliable market for the project:

• Is there a demand in the area? For example, do other Multi-Family Housing projects 

in the area have waiting lists with names of people who are currently interested or 

have recently applied for housing, and are vacancy rates low?

• Is the greatest demand for the type of housing project proposed (i.e., family or 

elderly)?

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• Does the market finding confirm the 

proposed unit mix of bedroom sizes?

• Is the vacancy rate of units in 

comparable housing within the State’s 

acceptable range?

3. Requirements of Market Feasibility 

Documentation

The market feasibility documentation 

for both market surveys and market 

studies must clearly show that the

following requirements have been met or it will be rejected as unacceptable and the initial 

application will be rejected.

• Site visit. The results of the survey or study must be based on the analyst’s visit to 

the site and interviews with knowledgeable members of the community. There must 

be a list of names of people interviewed with a brief description of their qualifications 

as knowledgeable community members and a summary of the comments they made.

• Conventional Rents for Comparable Units. The analyst must address the CRCU 

and how they compare with the proposed unit rents for other housing projects in the 

immediate area. Chapter 3 provides further guidance on CRCU.

• Single-family housing. A discussion of the existing housing supply must include 

reference to the single-family housing rental and sale units available.

• Low-income housing tax credits. If the applicant is requesting LIHTC, the market 

feasibility documentation must provide the number of LIHTC units and the maximum 

LIHTC incomes and rents by unit size. If rental assistance is not being requested for 

use in the project, the study must show that there are tax credit-eligible households 

that could pay the rent without rental assistance.

• Eligible permanent residents. Since the intent of the Multi-Family Housing 

program is to provide housing for the eligible permanent residents of the community, 

temporary residents of a community, such as college students, military personnel, or 

others not claiming their current residence as their legal domicile, may not be 

included in determining need and project size.

• Homeowners. The market feasibility documentation must include a discussion of the 

current market for single family houses and how sales, or the lack of sales, will affect 

the demand for elderly rental units. The market study may discuss how elderly 

homeowners may reinforce the need for rental housing, but only as a secondary 

market and not as the primary market.

Items Covered in Market Surveys. All market surveys must include those items 

listed in Exhibit 4-10 and a signed statement by the analyst indicating that:

◊ The information presented is accurate to the best of the analyst’s knowledge;

Market Study Methodology

• Mathematical calculations must not be 

expressed in percentages alone, but must be 

backed up by the actual numbers that resulted in 

those percentages.

• Source references must be identified for each 

table or section of the market study.

• A brief statement of the methodology used in 

the study must be included.
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◊ Reliable sources were used to collect the information and data presented; and

◊ A site visit was made by the analyst or their representative.

• Items Covered in Market Studies. Market studies must include those items listed in 

Exhibit 4-11, a table of contents, and the following:

◊ The analyst’s statement of qualifications;

◊ Certification as to the accuracy of the study;

◊ Certification that the analyst visited the site;

◊ Affirmation that the analyst will not receive any fees that are contingent upon 

approval of the project by the Agency; and

◊ Certification that the analyst will have no interest in the project.

Attachment 4-F provides guidance on verifying that the market study and survey 

show these requirements are met.
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Exhibit 4-10

Required Contents of a Market Survey

• A complete description of the proposed site and a map showing the site, location of 

services, and their distances from the site.

• Names and qualifications of members of the community interviewed during the site 

visit and a discussion of their comments.

• Major employers in the area and year established.

• Employment opportunities and rates for the area for the past 5 years.

• Services available in the area, including shopping, schools, and medical facilities as 

well as community services such as recreational, transportation, and day care that are 

available.

• Population by year plus the annual increase or decrease for the past 5 years.

• Population characteristics by age.

• Number of households by year and number of persons per household for the past 5 

years.

• Historical breakdown of households by owners and renters.

• Households by income groups.

• A survey of existing or proposed rental housing, including complex name, location, 

number of units, bedroom mix, family or elderly type, year built, rent charges, 

vacancies, waiting lists, amenities, and the availability of RA or other subsidies.

• Available mobile homes, if part of housing stock.

• The existing vacancy rate of all available rental units in the community, including 

houses.

• Proportionate need for project type.

• Building permits issued per year for the last 3 years for single and multiple unit 

dwellings.

• For proposals where the applicant is requesting LIHTCs, the number of LIHTC units 

and the maximum LIHTC incomes and rents by unit size. This information will 

determine the levels of incomes in the market area, which will support the basic rents 

while also qualifying the applicant for tax credits.

• The amount of RA necessary to ensure the project’s success.

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Exhibit 4-11

Required Contents of a Market Study

1. All of the items required for a market survey (see Exhibit 4-10).

2. Major employment data including the name, location, and date of establishment of any 

major employers within the community; the product or service of each employer; the 

number of employees; and salary range for each employer; and business permits 

issued.

3. Housing stock as defined by total number of units: one-unit buildings, two- or more

unit buildings, mobile homes, and the number of these lacking some or all plumbing 

facilities (substandard housing).

4. Number of rent-overburdened households.

5. An expanded analysis of existing vacancy rates for all available rental units in the 

community, including mobile homes. The analysis must make a distinction between 

“owned properties,” “available for rent,” and “for sale—not available for rent,” as well 

as available apartments and other rental units.

6. Population characteristics by age.

7. A projection of housing demand based on:

(a) Household growth;

(b) Units constructed since the last U.S. Census;

(c) Number of owned and rented units;

(d) Number of replacements; and

(e) Number of households in the eligible-income range.

8. All market studies or market surveys must provide a summary of the sample of 

farm workers used to document the need for off-farm labor housing. This 

summary should quantify eligible tenants according to 7 C.F.R. part 3560 subpart 

L section 3560.577 within the farm worker demographics sample and provide the 

reference/source of the information.

C. Financial Feasibility

The Loan Originator must analyze sources and uses of funds identified in the initial 

application to make the following determinations:

• The income (i.e., rent stream) in a proposed project matches up with anticipated debt 

service and costs.

• The proposed project costs are reasonable. If too high, the loan applicant may be 

including unnecessary or ineligible items, and the project becomes unaffordable. If 

too low, the low costs might be due to inferior quality materials and could create 

deferred maintenance problems later on. Paragraph 4.21 provides further details on 

project costs and Chapter 3 of HB-2-3560 provide guidance on analyzing a budget.
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• The availability of any proposed leveraged funds is realistic.

• The Agency will not be providing excess assistance to the project. This is determined 

by conducting a subsidy layering review at this stage, and then again at Stage 2 of the 

loan origination process. Paragraph 4.19 provides details on the subsidy layering 

review process.

• Construction financing has been arranged.

1. Will Project Income Cover Expenses?

The Loan Originator must review several items in the initial application to assess 

adequacy of project income and acceptable expenses. The primary document available to 

the Loan Originator that provides information to determine project feasibility is the 

project budget, Form RD 3560-7.

The operating budget must show a schedule of proposed rental rates for the first year 

and a typical year’s operation. The first year covers the period from the date of the loan 

closing to the end of the first year’s operation. This first year’s budget must show that 

the applicant has sufficient operating capital on hand to pay all operating costs and meet 

scheduled loan payments during the construction period and prior to occupancy. A 

typical year’s budget must show that once the project is fully operational, there is 

sufficient income to pay all operating costs, make loan payments, and accumulate 

reserves.

The first year’s budget may include an allowance of up to 10 percent for vacancies, 

nonpayment of rent, and contingency expenses for a new housing project. This 

allowance can be adjusted for future budgets based on past project history. The budget 

must also provide for accumulating a reserve equal to what the life-cycle capital needs 

analysis shows will be necessary (see discussion below). All real estate taxes, utility 

costs, and other operating expenses must be identified. The Loan Originator must 

carefully review Form RD 3560-7 to establish that utility allowances and projected utility 

costs are reasonable.

2. Is the Contribution to the Reserve Account Appropriate and Adequate?

The loan applicant’s architect should include as part of the Stage 1 application 

submission a capital needs assessment (CNA) for use in determining annual contribution 

to the reserve account. The Loan Originator should send this assessment to the State 

Architect/Engineer for review.

The CNA will be reviewed to determine if the recommended reserves are sufficient to 

cover the expected needs without driving project rents above CRCUs. The Agency may 

grant exceptions to the CRCU in limited circumstances, as described in Chapter 3, 

paragraph 3.20 B.

Annual contributions to the reserve will be at a minimum of 1 percent of the total 

development cost and no more than the higher of the required amount as shown by the

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CNA or that which brings rents up to the CRCU. The aggregate, fully funded reserve 

amount must equal at least 10 percent of the greater of the total development cost or 

appraised value. If the reserve contribution at 1 percent of total development cost results 

in rents that are above the CRCU standard as discussed in Chapter 3 and the applicant is 

unable to modify the proposal to meet the minimum reserve requirement without 

exceeding the CRCU standard, the project must be rejected as infeasible.

3. Are Rents Reasonable?

The Loan Originator must confirm that basic rents are not in excess of CRCU in the 

area. If they are, the project must be rejected as infeasible. Chapter 3 provides details on 

establishing CRCU.

Rents for a project must be proportionate, based on square footage. Attachment 4-G

provides an example of how to establish whether rents are proportionate.

4. Is the Project Assured of Receiving Proposed Leveraged Funds?

The Loan Originator will have already given the applicants a deadline by which they 

must demonstrate their intent to apply for leveraged funds. The Loan Originator should 

verify with any other financing or funding sources known at present, if any, any 

information the applicants provide regarding the status of such funds and also begin to 

work with any other lender(s) to develop the participation, or intercreditor agreement.

Chapter 6 provides additional guidance on working with other funding sources.

5. Has Construction Financing Been Arranged? [7 CFR 3560.71]

Applicants must describe in their initial application how they will finance the 

construction of the project. If using interim financing, the applicants must include in their 

initial application a letter of intent or a letter of interest from the interim lender that the 

applicants intend to use. The Agency requires the applicant to seek interim financing for 

any construction that will require more than one payment. Interim financing from an 

interim lender is the preferred method of construction because it minimizes the 

administrative burden to the Agency.

When interim financing is unavailable at reasonable rates from another lender and 

multiple advances are assessed to be in the best interest of the Government and are 

necessary to make the project feasible, the Agency may agree to provide multiple 

advances for construction financing.

When interim financing is used, the applicant must include in their final application a 

copy of the interim lender’s commitment letter with evidence of the lender’s license to do 

business in the state. The applicant entity or its IOI entities may not provide interim 

financing to its own project.

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When multiple advances are used, the following requirements apply to protect the 

Agency’s investment during the construction process:

• The Agency will provide financing at the market interest rate during construction. 

The borrower receives no interest credit until the construction is completed and the 

Agency loan has been closed.

• The Agency will withhold a percentage of the loan from the general contractor until 

construction is complete in accordance with the contract.

4.19 SUBSIDY LAYERING [7 CFR 3560.63]

The Agency has an obligation under law to make sure that the total funds provided to any 

project by all sources do not exceed the minimum amount necessary to make the project feasible.

A. Fee Norms

1. Acceptable Fee Norms

In evaluating the amount of financing that is necessary for a project, the Loan 

Originator must use the following fee norms:

• Builder’s profit: Take up to 10 percent of the construction contract.

• General overhead: Take up to 4 percent of the construction contract.

• General requirements: Take up to 7 percent of the construction contract.

• Developer’s fee: Take up to 15 percent of the total development costs for tax credit 

purposes for new construction and rehabilitation costs; up to 8 percent of the 

acquisition costs only for the acquisition rehabilitation costs.

These fee norms may differ if the State agency allocating LIHTCs and the Agency 

have agreed to different levels in the Memorandum of Understanding (MOU). 

(Attachment 6-B provides a sample of the MOU.) However, in no case may the 

builder’s profit, general overhead, and general requirements total more than 21 percent of 

the construction contract.

In cases where there is no MOU with the State authority that allocates LIHTCs, 

housing tax credits, the above fee norms, or those used by the State, whichever are less, 

will be used in analyzing the amount of subsidy proposed for the project.

2. Deviation from Fee Norms

Any deviation in the MOU over the 21 percent cap for builder’s profit, general 

overhead, and general requirements or over the developer’s fee norm on new construction 

or acquisition cost must be submitted by the State Director to the National Office with
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justification and documentation for the Administrator’s review and concurrence. The 

Administrator will consider:

• An explanation of the data being used to justify the deviation;

• The applicability of the deviation (i.e., to the entire jurisdiction, or for specific 

markets, or for project types within a jurisdiction);

• Sources of conventional development information that support the deviation;

• The position of the State agency on the requested deviation;

• The effect of not granting the deviation; and

• The history of rental housing development in rural areas, developer’s fee levels, and 

effect of developer’s fees on development in the rural area of the state.

3. Review of Fee Norms

The Loan Originator must review the fee norms:

• Annually, if there is no MOU in place with the State agency allocating the LIHTC; or

• As needed if there is an MOU in place with the State agency allocating the LIHTC.

B. Excess Assistance

The Agency defines excess assistance to a project as allowable sources exceeding 

allowable uses by more than $25,000. In all cases where the results of the analysis 

indicate that there will be excess assistance, the Loan Originator must consult with the 

applicant, as well as with the State agency, and reach an agreement for reducing the 

excess assistance by taking one of the following actions:

• Reduce the number of tax credit units requested;

• Reduce the level of assistance provided by one or more of the sources of funds;

• For participation loans, revise the uses to include additional costs that enhance the 

project, are allowed by participating partners, are consistent with the intent of the 

multi-family housing program, and will assist the resident population being served by 

the housing; or

• As a last resort, reduce the amount of equity contribution through the reduction of the 

loan amount. If the loan amount is reduced, the Loan Originator must provide the 

loan applicant with formal notification and inform the State agency and the National 

Office.

4-45

(02-24-05) SPECIAL PN

Revised (05-27-09) PN 429
HB-1-3560

4-46

4.20 INITIAL APPLICATIONS WITH RENTAL SUBSIDY

Special consideration must be given to initial applications that include rental subsidy.

A. Agency-Funded Rental Assistance

Initial applications that include a request for Agency rental assistance must include 

market documentation that shows the need for such subsidy. The number of rental 

assistance units requested must be based on the market feasibility documentation, the 

proposed rental rates as reflected in the budget for the project, and the income levels of 

the prospective tenants.

B. Non–Agency Rental Subsidy

If non–Agency rental subsidy is to be provided with the project, the requirements of 

Chapter 8 in HB-2-3560 must be met.

As evidence of market feasibility for projects that are expected to use rental subsidy 

from sources other than the Agency, applicants are required to demonstrate that:

• The assistance will be provided for the term of the loan;

• A market exists for persons and families eligible for the assistance (the amount of 

rental subsidy to be provided must be considered when determining the number of 

families that would be income-eligible for the project); and

• During the term of the rental subsidy contract, the provider will make available the 

amounts required at least annually.

4.21 PROJECT COSTS

The Loan Originator must establish that the project meets economical development 

requirements and project costs are reasonable. Operating costs and debt service and the 

contribution to reserves must equate to rents that are at or below the CRCU standard for the 

market area, or the application must be rejected. Preliminary plans must be in conformance with 

Agency goals to contain costs without jeopardizing quality and causing increased maintenance in 

the long term. The initial application must also show that maximum consideration has been 

given to energy conservation. Loan Originators should refer to Paragraph 3.17 for additional 

guidance in evaluating project costs. Other technical resources, within the Agency, such as the 

State Architect/Engineer, may assist the Loan Originator in making these determinations.

A. The State Architect’s Role

The Loan Originator must submit all project drawings, specifications, cost estimates, 

and analysis to the State Architect/Engineer. The State Architect will:

• Complete an evaluation of a project’s preliminary planning documents and an 

evaluation of the proposed construction costs. During this evaluation, the architect
HB-1-3560

will compare the proposed construction costs to similar costs in the same geographic 

area and make a determination as to whether the proposed costs are reasonable and 

customary.

• Consult with the State Environmental Coordinator and Loan Originator if either have 

noted any issues of environmental concern.

• Send a written evaluation of the project to the applicant, with a copy to the Loan 

Originator for the case file.

B. Cost Databases

There are several databases available to Agency staff that are useful in determining 

reasonable construction costs. Exhibit 4-12 provides a brief explanation of these 

databases and how they can be used to assist in the underwriting process and in 

establishing reasonableness of cost.

Exhibit 4-12

Tools Available to Assist in Underwriting

NAME FUNCTION LOCATION

Marshall & Swift 

System 84 (New 

Construction)

Sources and Uses 

Comprehensive 

Evaluation 

(SAUCE)

PC-based construction cost database 

with information by zip code used to 

evaluate new construction costs.

PC-based (Excel spreadsheet) 

underwriting tool used to evaluate the 

sources and uses of funds proposed 

for a project.

The Agency Appraiser or the Agency 

Architect should have this program. It 

may be shared without restriction.

The State Office Specialist or MultiFamily Housing Coordinator has this 

disk. The program should be shared 

with developers and State housing 

finance agencies.

Automated MultiFamily Housing 

Accounting System 

(AMAS)

A database that contains construction 

cost information on all projects 

financed by the Agency.

Each Field Office has online access 

through the St. Louis Office. Contact 

AMAS Coordinator. Cost data may be 

used for analysis by Agency staff.

FOCUS A database extracted from 

information stored in AMAS, which 

can be used to create reports. There 

are also several menu-driven reports 

for multi-family housing.

Each Field Office has online access to 

FOCUS.

(02-24-05) SPECIAL PN

Revised 05-27-09) PN 429

4-47
HB-1-3560

4-48

C. Acceptable and Unacceptable Legal Costs

Loan applicants must have written contracts for any legal services that are to be paid 

for out of loan funds. This does not include the services provided by a title company.

The Loan Originator must review these contracts to ensure that:

• All costs are for an authorized purpose;

• All costs are reasonable; and

• All costs match estimates.

D. Unacceptable Construction 

Costs

The results of these analyses can 

be used by the Loan Originator to talk 

with the applicant about any 

unacceptable proposed construction 

costs. Unacceptable costs may be 

costs that are too high or those that 

are too low. Projects must not come 

in using materials that are below 

average quality as defined by 

Marshall & Swift; doing so is likely

to lead to excessive long-term 

maintenance costs.

4.22 ADEQUATE SECURITY

The Loan Originator must not recommend for funding any applications that do not have 

adequate security. Security is determined by an appraisal, which the Loan Originator must order 

as one of the first steps in Stage 2 of the loan origination process. Chapter 7 covers security 

requirements in detail.

All initial applications for congregate housing, group homes, manufactured housing, and 

cooperative housing must be reviewed by the National Office to move on to the final application 

stage unless a statewide exception is authorized by the Deputy Administrator, Multi-Family 

Housing. Since this additional step means additional time may be required to process special 

property type applications, Loan Originators should process any special property type 

applications before others. The State Director must submit to the National Office the initial 

application for the special property type. The application must be accompanied by the State’s 

review comments and a written recommendation on the loan.

Authorized Legal Costs

 Organizational costs for nonprofit applicants;

 Owners and mortgage title insurance 

premiums;

 Escrow fees;

 Appropriate attorney fees for loan closing;

 Recording fees;

 Construction contract reviews;

 UCC opinion;

 Interim loan closing costs;

 Waiver of mineral lease ownership; and

 Review of lease and certification that it meets 

the law.

Prohibited legal costs include:

 Services related to developing a loan 

application, except in the case of a nonprofit 

applicant;

 Services related to getting land zoned; and

 Tax credit consultation.
HB-1-3560

4.23 COMPLETING THE INITIAL APPLICATION REVIEW

A. Notifying Applicants of Their Status

Following the Loan Originator’s 30-day review of the initial applications, loan 

applicants must be informed of the status of their loans. The Loan Originator will send 

one of three types of letters to the applicants:

• Handbook Letter 106 (3560), Notice of Pre-application Review Action. These letters 

go to applicants whose initial applications have been determined to be eligible and 

feasible. Once the environmental review is complete, this letter can be a letter of 

conditional commitment. This letter specifies the additional information and forms 

required in the final application and the deadline for submission of this information. 

Details on the letter inviting final applications appear in Chapter 5.

• Handbook Letter 108 (3560), Letter Denying Funding due to Ineligibility. These 

letters go to applicants whose initial applications are not eligible or feasible. Such 

letters will state the reason(s) for rejection and inform the applicant of their appeal 

rights under 7 CFR Part 11.

• Handbook Letter 109 (3560), Letter Informing of National Office Review. If the 

initial application for a special property type is still under review at the National 

Office after 30 days, the applicant must be informed that the application is under 

review at the National Office and that the applicant will be advised of the results of 

the review as soon as it is completed. The National Office should take no more than 

30 days to complete its review of the initial application.

B. Returning Unused Funds

The State Office must notify the National Office immediately if funds are not going 

to be used so that the funds can be reallocated by the National Office in a timely manner.

C. Withdrawing and Rejecting Applications

The Loan Originator must reject any initial applications that do not meet the

Agency’s underwriting standards for eligibility and feasibility. The letter notifying the 

applicant of the rejection must specify the reasons for the rejection and offer the applicant 

appeal rights in accordance with 7 CFR Part 11.

Applicants may withdraw their initial applications at any time by notifying the 

Agency in writing.

4-49

(02-24-05) SPECIAL PN

Revised (05-27-09) PN 429
HB-1-3560

4-50

4.24 CONDITIONAL LETTERS OF COMMITMENT

Loan applicants who are requesting a participation loan from the Agency may request 

Handbook Letter 102 (3560), Letter of Conditions, Loan Approval, or Obligation of Funds from 

the Agency to help them to obtain other financing or funding. Such a letter is often requested 

from the applicant by other lenders as a sign of the commitment of funds from the Agency and 

assurance that the Agency will actually make the loan and the project will go forward.

The Agency is unable to provide such a letter to the applicant until the environmental 

review has been completed. The letter must identify all mitigation measures required in the 

environmental review and addressed in designs and cost estimates. Where mitigation requires an 

ongoing effort, these measures shall be included in management agreements. However, an 

applicant may be helped by the letter sent to them by the Agency inviting them to submit the 

final application. This letter states the loan funds that the Agency has available to fund the 

particular project should all of the requirements for loan approval be met. Once the loan has 

been approved at Stage 2, the Agency will send to the loan applicant a conditional letter of loan 

commitment, stating the loan terms the Agency is offering and the conditions which must be met 

in order to go to loan closing. This conditional letter of loan commitment is discussed in Chapter 

5, Paragraph 5.21.

Loan Originators will be assisted during Stage 1 by the Loan Review Committee and 

other key staff, such as the State Architect/Engineer. If the initial application is for a 

participation loan, the Loan Originator at this stage will begin working closely with the entity 

providing other funds or financing. Chapter 6 provides additional information about processing 

participation loans. Approved special property type applications, such as those for congregate 

housing, must be forwarded to the National Office for their review. Chapter 11 provides 

additional details on special property types.
HB-1-3560

Attachment 4-A

Page 1 of 2

ATTACHMENT 4-A

STATE NOFA RESPONSE SUMMARY SHEET

(02-24-05) SPECIAL PN
HB-1-3560

RURAL HOUSING SERVICE

SECTION 515 RURAL RENTAL HOUSING NOFA

APPLICATIONS 

STATE 

FY

R

A

N

K

S

C

O

R

E

APPLICANT NAME/

LOCATION

RACE/ETHNIC

CODE:

1=White

2=Black/AA

3=A/NH/PI

4=AI/NA

5=Hispanic/L

HIGH NEED

BY TYPE

EZ/EC/

REAP,

TRIBAL,

COLONIA

TYPE

FAM/

ELD/

CG

PROJ

CONG

DIST

RHS

TOTAL

DEV COST

(TDC)

RHS

LOAN

REQUEST

RHS

LEVERAGED

ASSISTANCE

%

LEVERAGING

TOTAL

NO.

OF

UNITS

NO. OF

TAX

CREDIT

UNITS

NO.

OF RA

UNITS

ALSO ELIG.

FOR NPSA

EZ/EC/REAP,

OR

UNDERSRVD

SETASIDE

(BY TYPE)

SECTION 515

NONPROFIT SET-ASIDE

HIGH NEED AREA

UNDERSERVED COUNTIES AND COLONIA SET-ASIDE

EZ/EC/REAP SET-ASIDE

STATE RA RESERVE

GROUP HOME

CO-OP HOUSING
HB-1-3560

Attachment 4-B 

Page 1 of 3

(02-24-05) SPECIAL PN

ATTACHMENT 4-B 

ELIGIBLE LOAN PURPOSES

1. Construct new multi-family housing.

2. Purchase and rehabilitate existing buildings that have not been previously financed by the 

Agency. In such an event, the rehabilitation must meet the definition of either moderate or 

substantial rehabilitation as defined in RD Instruction 1924-A. The building or project to be 

rehabilitated must be structurally sound, and the improvements to the project must be 

necessary to meet the requirements of decent, safe, and sanitary living units. The TDC for 

the purchase and rehabilitation of existing buildings must not be more than the estimated 

TDC for construction of a similar type and unit size property in the same area.

3. Develop housing in a downtown area provided the project is part of the community’s 

comprehensive plan.

4. Purchase and improve the project site. The amount of the loan funds used to purchase the site 

may not exceed the appraised market value of the site in its present condition. Loan funds 

may be used to purchase land in excess of what is needed only when:

• The applicant cannot acquire only the needed land at a fair price and agrees to sell the 

excess land as soon as practical and apply proceeds to the loan; and

• Program site density requirements are met in accordance with Chapter 3.

5. Develop and install necessary systems such as streets; a water supply; sewage disposal; 

heating and cooling systems, and electric, gas, solar, or other power sources for lighting and 

other features necessary for the housing. If such facilities are located offsite, the following 

additional requirements must be met:

• The applicant will hold title to the facility or have a legal right to use the facility for a 

period of at least 50 percent longer than the life of the loan, and the title or right is 

transferable to any subsequent owner of the site.

• The facilities will be provided for the exclusive use of the project. If not, Agency funds 

must be limited to the prorated part of the total cost of the facility according to the use 

and benefit to the project. In such cases, the applicant will agree in writing to apply, as 

extra payments on the loan, any subsequent collection by the loan applicant from other 

users or beneficiaries of the facility.

6. Landscaping and all site development related to the project such as lighting, walks, fences, 

parking areas, and driveways.

7. Tenant-related facilities which the loan applicant can document are needed by prospective 

tenants, such as a community room; central laundry facility; central cooking and dining in
HB-1-3560

Attachment 4-B 

Page 2 of 3

congregate housing and group homes; and passive recreation or active facilities, such as 

outdoor seating for elderly and tot lots for family projects.

8. Management-related facilities such as a maintenance workshop, storage facilities, and office 

and living quarters for the resident manager and other operating personnel.

9. Purchase and install equipment and appliances as customary and appropriate for the area in 

which the project is located.

10. For farm labor housing Section 514/516 only, funds may be used to purchase household 

furnishings.

11. Initial operating capital for any state or political subdivision thereof or Indian tribe or any 

broad-based public or private nonprofit applicant who is not receiving low income housing 

tax credits. Loan funds may be used to pay initial operating expenses up to 2 percent of the 

total development cost.

12. Builder’s profit, overhead, and general requirements as follows:

• Builder’s profit: up to 10 percent of the construction contract.

• General overhead: up to 4 percent of the construction contract.

• General requirements: up to 7 percent of the construction contract.

13. Legal, technical, environmental and professional services related to the project.

14. Application and permit fees related to the project. These include market studies; tax credit 

application and monitoring fees; legal (costs pertaining to the closing of the Agency loan 

only), archeological, architectural, engineering, environmental, and other appropriate 

technical and professional services.

15. Reimbursement to nonprofit organizations and public bodies. Loan funds may be used to 

reimburse a nonprofit organization or public body, up to 2 percent of total development cost, 

for:

• Development and packaging of a loan application and a multi-family housing proposal, 

including legal, technical and professional fees incurred in the applicant’s formation or 

incorporation; or

• Technical assistance from another nonprofit organization to assist in formation or 

incorporation and development and packaging of a loan application and multi-family 

housing proposal.
HB-1-3560

(02-24-05) SPECIAL PN

Attachment 4-B 

Page 3 of 3

16. Educational programs. The National Office may approve, on a case-by-case basis, during the 

first year of a cooperative’s housing operation, the use of loan funds to pay for the members 

of the cooperative to attend educational programs relative to the function and responsibilities 

of cooperatives.

17. Interest accrued and customary charges necessary to obtain interim financing, up to the 

maximum debt limit (MDL).

18. Purchase housing from an interim lender. Loan funds may be used to purchase housing from 

an interim lender that holds fee simple title to an Agency-financed project upon which 

construction had commenced and a letter of commitment had been issued by the Agency, but 

the original applicant for whom funds were obligated will not or cannot continue with the 

project. In order for the purchase to take place, there must be no unpaid obligations 

outstanding in connection with the project.

19. Relocation costs. Loan funds may be used to pay for necessary costs incurred to comply 

with the Uniform Relocation Assistance and Real Property Acquisition Act of 1970.

20. Demonstration projects involving innovative housing units and systems which do not meet 

existing published standards, rules, regulations, or policies, but do meet the intent of 

providing decent, safe, and sanitary rural housing when the Agency authorizes loan funds for 

this purpose. Such project applications must be forwarded to the National Office for its 

review.

21. Conversion of 502 properties. In accordance with program regulations, loan funds may be 

used to finance the conversion of real estate owned units originally financed under Section 

502 single family homeownership program to Section 515 multi-family housing.

22. Expenses incurred before loan approval when the project is funded and the conditions listed 

in Attachment 4-C, item 11 are met.
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This page intentionally left blank
HB-1-3560

Attachment 4-C 

Page 1 of 2

(02-24-05) SPECIAL PN

ATTACHMENT 4-C 

PROHIBITED LOAN USES

1. Housing to serve primarily temporary and transient residents (except migrant farm labor 

housing), nursing homes, special care facilities, or institutional-type homes. Group homes 

are not included in this prohibition.

2. Facilities that are not consistent with the design requirements specified in Chapter 3.

3. Any costs associated with space in a project that is leased for commercial use or any 

commercial facilities except essential service-type facilities when otherwise not conveniently 

available.

4. Specialized equipment for training and therapy.

5. Operating expenses for a central dining facility, or items that do not become affixed to the 

property, except for the household furnishings permitted by farm labor housing.

6. Compensation to a for-profit loan applicant for value of land contributed in excess of the 

initial equity contribution.

7. Refinancing of an applicant’s debt, except (a) to take out interim financing; or (b) when it is 

necessary to obtain a release of an existing lien on land owned by a nonprofit organization.

8. Payment of any fee, charge, or commission to a broker or anyone else for referral of a 

prospective applicant or solicitation of a loan.

9. Payment to any officer, director, trustee, stockholder, member, or agent of an applicant 

except for those payments made to a nonprofit organization providing technical assistance to 

another nonprofit applicant.

10. Developer’s fees.

11. Obligations incurred before loan approval. Any expense incurred by an applicant prior to 

loan approval is at the applicant’s own risk. Loan funds may be used for expenses incurred 

before loan approval only when the project is funded and all of the following conditions are 

met:

• The debts were incurred for eligible loan purposes;

• Contracts, materials, construction, and any land purchased meet Agency standards and 

requirements; and
HB-1-3560

Attachment 4-C

Page 2 of 2

• Payment of the debts will remove any liens that have been attached and any basis for 

liens that may be attached to the property on account of such debts.

12. In accordance with RD Instruction 1924-A, contractors will not be allowed to obtain a profit 

and overhead unless they are performing actual construction. “Actual construction” means 

“work” as defined in American Institute of Architects (AIA) documents: “. . . labor, 

materials, equipment, and services provided by the contractor to fulfill the contractor’s 

obligations.” Under this definition, contractors with an identity of interest with the applicant 

who choose to subcontract out construction of the project to another contractor will not 

obtain a builder’s fee (general overhead and profit) when:

• More than 50 percent of the contract sum in the construction contract is subcontracted to 

one subcontractor, material supplier, or equipment lessor, and/or

• Seventy-five percent or more with three or fewer subcontractors, material suppliers, 

and/or equipment lessors.

If two or more subcontractors have common ownership, they are considered as one 

subcontractor.
HB-1-3560

Attachment 4-C 

Page 1 of 4

(02-24-05) SPECIAL PN

ATTACHMENT 4-D

CONTENTS OF INITIAL APPLICATION PACKAGE

Stage 1 - Forms to be Included in Initial Application Package

A. Form SF 424, Application for Federal Assistance (when completed, this form provides the 

summary information about the project and the applicant);

B. Form RD 1940-20, Request for Environmental Information;

C. Form RD 3560-7, Multiple Family Housing Project Budget/Utility Allowance;

D. Form RD 1944-37, Previous Participation Certification;

E. Form RD 1924-13, Estimate and Certificate of Actual Costs;

F. Form RD 410-9, Statement Required by the Privacy Act (for individuals only); and

G. Any other information specified in the NOFA.

Stage 1 - Information Requested in Initial Application Package

I. To establish applicant eligibility:

A. Current (within 6 months) financial statements with the following paragraph certified 

by someone with the legal authority to do so:

“I/we certify the above is a true and accurate reflection of my/our financial condition as 

of the date stated herein. This statement is given for the purpose of inducing the United 

States of America to make a loan or to enable the United States of America to make a 

determination of continued eligibility of the applicant for a loan as requested in the loan 

application of which this statement is a part.”

B. Check for $28 from individual applicants and $40 from organizational applicants made 

out to United States Department of Agriculture. This will be used to pay for credit 

reports obtained by the Agency.

C. Statements signed by applicants that they will pay any cost overruns.

D. Proposed limited partnership agreement and certificates of limited partners, if 

applicable. (Agency requirements should be contained in one section of the agreement 

and their location identified by the applicants or their attorney in a cover sheet.)

E. If a nonprofit organization:
HB-1-3560

Attachment 4-D 

Page 2 of 4

1. Tax-exempt ruling from the IRS designating them as a 501(c)(3) or 501(c)(4) 

organization. If the designation is pending, a copy of the designation request must 

be submitted.

2. Purpose statement, including the provision of low income housing.

3. Evidence of organization under state and local law, or copies of pending 

applications.

4. List of Board of Directors.

F. If a limited liability company, proposed operating agreement and the authorized agent 

who has the authority to complete the loan application and loan closing documents.

G. If a trust, organizational documents and attorney opinion letter that the trust is validly 

formed and identifying the authorized representative to act on the trust’s behalf.

II. To establish project feasibility:

A. Market feasibility documentation: Either a market study or a market survey, as 

appropriate.

B. Type of project and structures proposed (total number of units by bedroom size, size of 

each unit type, size and type of other facilities).

C. Schematic drawings:

1. Site plan, including contour lines;

2. Floor plan of each living unit type and other spaces, such as laundry facilities, 

community rooms, stairwells, etc.;

3. Building exterior elevations;

4. Typical building exterior wall section; and

5. Plot plan.

D. Description and justification of related facilities, schedule of separate charges for 

related facilities.

E. Type and method of construction (owner builder, negotiated bid, or contractor method).

F. Estimated costs (Form RD 1924-13).

G. Statement of proposed management.

H. Congregate services package/plan (if applicable).
HB-1-3560

(02-24-05) SPECIAL PN

Attachment 4-D

Page 3 of 4

I. Statement of support from other Government services providers to the project 

(congregate only).

J. Response to the Uniform Relocation Assistance Act (if applicable).

III. To establish project financing:

A. Statement of budget and cash flow (applicant completes Form RD 3560-7), including 

type of utilities and utility allowance, if applicable and contribution to reserves.

B. Congregate services charges (if applicable).

C. Status of efforts to obtain leveraged funds.

D. Proposed construction financing (interim or multiple advance; if interim financing, 

letter of interest from intended lender).

IV. To understand environmental and site information:

A. Environmental information (applicant completes Form RD 1940-20).

B. Evidence of compliance with Executive Order 12372 (A-95) (if applicable) Form SF 

424 is sent to a clearinghouse for intergovernmental review.

C. Phase I due diligence (Environmental Site Assessment; see Chapter 3).

D. Map showing location of support services.

E. Evidence of submission of project description to SHPO with request for comments.

F. Comments regarding relevant offsite conditions.

Stage 2 - Forms and List of Necessary Information Provided to Applicant in Initial 

Application Package, But Not Due Until Stage 2

A. Form RD 1924-13; Estimate and Certificate of Actual Costs;

B. Form HUD-935.2, Affirmative Fair Housing Marketing Plan;

C. Form RD 3560-30, No IOI;

D. Form RD 3560-31, Identity of Interest Disclosure/Qualification Certificate;

E. Form RD 1910-11, Applicant Certification, Federal Collection Policies for Consumer or 

Commercial Debts;

F. Form RD 3560-13, Owner’s and Management Agent’s Certification;
HB-1-3560

Attachment 4-D 

Page 4 of 4

G. Form AD 1047, Certificate Regarding Debarment;

H. Form RD 400-1, Equal Opportunity Agreement ;

I. Form RD 400-4, Assurance Agreement;

J. Guide 1 of RD Instruction 1924-A;

K. Exhibit C of RD Instruction 1924-A;

L. Final planning, bidding, and contract documents;

M. Agreements/Documents: architectural/engineering, legal;

N. State or local approvals (zoning, utilities);

O. Confirmation of SHPO evaluation and comments;

P. Preliminary title report;

Q. Management plan with attachments;

R. Relocation plan (if relevant);

S. Schedule of charges for nonshelter services (congregate);

T. Services agreement (congregate);

U. Executed copy of a limited equity agreement (RCH; Attachment 11-E);

V. Completed subscription agreement (RCH; Attachment 11-I);

W. Disclosure of any change in financing;

X. Detailed operating budget showing a typical year’s operation (shown on Form RD 3560-7), 

the first year’s budget (also Form RD 3560-7) and use of 2 percent initial operating capital;

Y. Description of construction financing, including interim lender’s commitment letter with 

evidence of license to do business in state;

Z. Land survey;

AA. Final organizational documents or Certificate of Good Standing, if existing organization; 

and

BB. Attorney’s opinion letter that entity is in conformance with program requirements.
HB-1-3560

Attachment 4-E 

Page 1 of 4

(02-24-05) SPECIAL PN

ATTACHMENT 4-E

SITE EVALUATION CHECKLIST

DATE OF REVIEW: REVIEWED BY:

PROJECT: 

LOCATION: 

INTENDED USE: ELDERLY FAMILY CONGREGATE GROUP HOME

OFF-FARM LABOR HOUSING

PRESENT USE OF SITE:

REVIEWER’S DETERMINATION OF HIGHEST AND BEST USE OF SITE:

RELOCATION REQUIRED: YES NO IF YES, TYPE: FAMILY

BUSINESS

DIMENSIONS: AREA: SQ. FT. OR ACRES

ZONING (classification, uses, and densities permitted):

SITE IMPROVEMENTS: Public Water Private Well Public Sewer

Septic Tank Storm Sewer Sidewalk

Curb Gutters Alley

Street Lights Electricity Gas

Underground Electricity & Telephone

PRESENT IMPROVEMENTS DO DO NOT CONFORM TO ZONING REGULATIONS

ACCESS BY: Public Street Private Road Surface Street

MAINTAINED BY: Municipality Private Association (attach summary of association documents) 

INGRESS AND EGRESS (adequacy and safety):

TOPOGRAPHY, VIEW AMENITY, LOT DRAINAGE, FLOOD CONDITION, SLOPES, ETC.:
HB-1-3560

Attachment 4-E 

Page 2 of 4

Lot sketch showing lot dimensions, distance to nearest corner, and the location of any detrimental conditions:

EASEMENTS OR ENCROACHMENTS ON-SITE AND OFF-SITE (if any):

IS THE PROPERTY LOCATED WITHIN AN IDENTIFIED FLOOD HAZARD AREA? YES NO: 

FAVORABLE OR UNFAVORABLE CONDITIONS NOT MENTIONED ABOVE INCLUDING ANY 

NONCONFORMING USE(S) OF PRESENT IMPROVEMENTS:

CONTIGUOUS LAND USE (Not Zoning)

NORTH: 

SOUTH: 

EAST: 

WEST: 

(NOTE: IF RESIDENTIAL UNITS, SPECIFY APPROXIMATE AGE, COST, ETC.) 

SHOPPING

1. FOOD:

A. Type: Full service Convenience

B. Distance: Full service (Miles/Blocks) 

Convenience (Miles/Blocks)

C. Sidewalks to shopping: Yes No 

D. Controlled intersections: Yes No 

E. Excessive grades to food shopping: Yes No 
HB-1-3560

(02-24-05) SPECIAL PN

Attachment 4-E 

Page 3 of 4

2. MAJOR:

A. Type: Mall Central Business District Strip Other 

B. Specify types of stores, etc.

C. Distance: (Miles/Blocks)

D. Sidewalks to shopping: Yes No 

E. Controlled intersections: Yes No 

F. Excessive grades to major shopping: Yes No 

SCHOOLS (Family Projects Only)

1. Distance:

A. Elementary: (Miles/Blocks) Name: 

B. Middle: (Miles/Blocks) Name: 

C. Sr. High: (Miles/Blocks) Name: 

2. If within walking distance, is the route safe (i.e., sidewalks, controlled intersections, etc.)? Yes No 

If no, please explain:

3. If schools are not within safe walking distance, is school bus transportation available?

A. Elementary: Yes No 

B. Middle: Yes No 

C. Sr. High: Yes No 

TRANSPORTATION (PUBLIC)

1. Is public transportation available? Yes No 

2. If yes, distance from site: (Miles/Blocks)

3. Must excessive grades be traversed to reach public transportation? Yes No 

4. Destinations of public transportation (check all that apply):

Food shopping 

Convenience shopping

Other shopping

Recreational facilities 

Medical facilities

Religious institutions
HB-1-3560

Attachment 4-E 

Page 4 of 4

Recreational Facilities Available

1. 2. 

3. 4. 

Medical Facilities Available

1. 2. 

3. 4. 

ReligiousInstitutions Available

1. Name: Distance: (Miles/Blocks)

2. Name: Distance: (Miles/Blocks)

3. Name: Distance: (Miles/Blocks)

DOES THE SITE ISOLATE THE ELDERLY? Yes No 

Adverse Environmental Conditions

1. Excessive noise: Yes No Cause: 

2. P.O.L. storage: Yes No Distance: 

3. R.R. tracks: Yes No Distance: 

4. Highway: Yes No Distance: 

5. Manufacturing: Yes No 

6. Substandard dwelling units: Yes No 

Does the site have good visibility from major roadway? Yes No 

Is the site located in an area of minority concentration? Yes No 

Is the site located in an area of high concentration of subsidized housing? Yes No 

If yes, specify type:

Does the site have residential character? Yes No 

Comments: 

Recommendation: Accept site Reject site 

If rejection, reasons why:
HB-1-3560

Attachment 4-F 

Page 1 of 3

(02-24-05) SPECIAL PN

ATTACHMENT 4-F

ANALYZING THE MARKET FEASIBILITY DOCUMENTATION

This checklist is an aid to the Loan Originator in understanding the market feasibility documentation. It is 

designed so that if all items are checked off, the Loan Originator should be confident that the market 

feasibility documentation was prepared properly and that there is a need and demand for the housing 

proposed.

PART I: Required Elements of Market Feasibility Documentation (MFD)

Complete Information:

1. The MFD includes all of the information as required by Exhibits 4-10 and 4-11.

Site and Services:

2. Services available in the area include shopping, schools, and medical facilities as well 

as community services such as recreational, transportation, and day care. Services 

appear to be appropriate for the project type and within reasonable proximity of the

site.

Viability of the Community:

3.

4.

5.

Building permits issued during the past 3 years and new employment opportunities 

show the community to be growing, rather than declining.

Major employers in the area provide employment opportunities sufficient to support a 

population base of renters for the proposed project.

Employment rates for the area have been high over the past 5 years.

Realistic Recommendations:

6. The analyst makes realistic recommendations supported by the statistical information 

provided:

Population characteristics and household data for the community are 

stable or show an increase during the past 5 years.

Population characteristics by age shows support for the type of project 

being proposed and the type of complex proposed reflects the greater 

proportionate need and demand of the community. To establish this, 

compare the share or percentage of the community’s total rental units 

that are designated for the elderly (62 years or older or disabled) to the 

community’s share of elderly households, and the share of total rental 

units for families to the share of family households in the community.
HB-1-3560

Attachment 4-F 

Page 2 of 3

For mixed projects, the unit mix must reflect the proportionate need of 

each household type.

Statistical data showing households by income group shows that there 

are households in the eligible income group that could rent in the 

project.

Historical breakdown of households by owners and renters shows that 

there is a tradition of renters.

The MFD addresses the need for more than just one and two bedroom 

units.

The bedroom mix of the proposed units is proportional to the need in the 

market area based on renter household size and the bedroom mix of 

existing units.

The bedroom mix of fully accessible units (5 percent) is comparable to 

the bedroom mix of nonaccessible units.

Housing Demand:

7.

8.

9.

10.

11.

The MFD shows evidence of need for the housing in that there are rent overburdened 

households and/or households in substandard housing.

A discussion of existing housing supply includes reference to the single-family 

housing rental and sale units available and shows these to be inadequate.

Temporary residents of a community, including college students, military personnel, 

or others not claiming their current residence as their legal domicile, have not been 

included in determining need and project size.

The MFD includes a discussion on the current market for single-family houses and 

how sales, or the lack of sales, will affect the demand for elderly rental units. If the 

market study discusses how elderly homeowners reinforce the need for rental 

housing, it does so only as a secondary market and not as the primary market.

The vacancy rates in existing rental housing, including available single-family 

housing and mobile homes, is 5 percent (or the State-approved vacancy standard, if 

different) or less, or there is an acceptable explanation where higher rates occur.

Existing rental complexes should also show waiting lists.

Conventional Rents for Comparable Units:

12. The CRCU shown is less than or equal to the rents proposed for the project.

Low Income Housing Tax Credit:

13. For proposals where the applicant is requesting LIHTCs, the number of LIHTC units 

and the maximum LIHTC incomes and rents by unit size are provided. Statistical
HB-1-3560

(02-24-05) SPECIAL PN

Attachment 4-F 

Page 3 of 3

data provided show that there are households in the tax credit-eligible income group 

to rent in the project. If not, rental assistance is requested.

Rental Assistance:

14. The MFD makes clear the amount of RA that is necessary to ensure the project’s 

success.

COMMENTS ON MISSING OR INCOMPLETE ITEMS:

PART II: Certifications

For both surveys and studies, the analyst certifies that:

The information presented is accurate to the best of the preparer’s knowledge;

Reliable sources were used to collect the information and data presented (for a study, 

the analyst has included a statement of qualifications); and

A site visit was made by the preparer or their representative.

For studies, the analyst also certifies that:

The analyst will not receive any fees that are contingent upon approval of the project by 

the Agency; and

The analyst will have no interest in the project.

COMMENTS ON MISSING OR INCOMPLETE ITEMS:

Part III: Methodology for Market Studies

A brief statement of the methodology used in the study has been included.

All mathematical calculations are expressed in actual numbers, including percentages.

Source references are identified for each table or section of the market study. 

COMMENTS ON MISSING OR INCOMPLETE ITEMS:
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HB-1-3560

Attachment 4-G

Page 1 of 2

ATTACHMENT 4-G

EXAMPLE OF INTEREST CREDIT DETERMINATION 

FOR RURAL RENTAL HOUSING

$260,000 LOAN - APPROVED DURING 1987 FISCAL YEAR

PROJECT CONTAINS FOUR 1-BEDROOM UNITS (600 SQ. FT. EACH) 

AND FOUR 2-BEDROOM UNITS (700 SQ FT. EACH)

TOTAL FLOOR AREA = 5200 SQ. FT.

BUDGET FOR NOTE RATE RENT**-a/ BUDGET FOR BASIC RENT**

Operating, maintenance, vacancy and 

contingency allowance, reserve and return to 

investor, if applicable $10,560

Loan repayment at 9 1/2% interest

$260 M x $95.88 b/ $24,929 

TOTAL ANNUAL COST $35,489

$35,489 ./. 12 = $2958*

cost/month

One bedroom rent: 

600/5200=.1154x2958=341.35

Two bedroom rent: 

700/5200=.1346x2958=398.15 

(341.35x4)+(398.15x4)=$2,958

monthly income

$35,489 ./. 12 = $2958* cost/mo.

Operating, maintenance, vacancy and 

contingency allowance, reserve and return to 

investor, if applicable $10,560

Loan repayment at 1% interest

$260 M x $25.44 b/ $6,615 

TOTAL ANNUAL COST $17,175

$17,175 ./. 12 = $1432*

cost/month 

One bedroom rent:

600/5200=.1154x1432=165.25

Two bedroom rent: 

700/5200=.1346x1432=192.75 

(165.25x4)+(192.75x4)=$1432

monthly income

$17,175 ./. 12 = $1432* cost/mo.

(02-24-05) SPECIAL PN
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Attachment 4-G 

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a/ One budget form reflecting two rent levels must be prepared; one level for the note rate rent and 

another level for the basic rent. (The expense items in the budgets shown in this illustration are only for 

illustration purposes and are not itemized.)

b/ Annual amount using monthly amortization factor for 50 years. If the regular installment on the note 

was amortized using a factor for less than 50 years, substitute the appropriate factor for a corresponding 

number of years.

* Rounded to the nearest dollar.

** In cooperatives, the term "rent" shall mean "occupancy charge."