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Rural Development

Joaquin Altoro 

Administrator 

Rural Housing Service 

1400 Independence Ave, SW 

Room 5011-S 

Washington, D.C. 20250 

TO: All RHS MFH National Office Directors

 Rural Development 

ATTN: Leadership Designees

 All Multifamily Housing Program Staff

 Rural Development 

FROM: Joaquin Altoro 

 Administrator

 Rural Housing Service 

SUBJECT: Set-Aside Unit Preferences at Properties with Other Funding Sources 

PURPOSE

This Unnumbered Letter (UL) provides guidance for the allowance of set-aside unit 

preferences as they pertain to Rural Developments (RD) Multi-Family Housing 

(MFH) Section 514, 515, 516, and 521 housing programs, specifically those 

properties that have recapitalized with locally awarded funding sources and/or other 

third-party funding sources. 

BACKGROUND

The U.S. Department of Agriculture (USDA) has previous guidance on set-asides 

and preferences in MFH properties in Handbook 2-3560, Chapter 6, Section 6.22 – 

Priorities for Units. However, the Agency acknowledges that recapitalization and 

rehabilitation for an aging affordable housing property often requires locally 

awarded funding sources such as Low-Income Housing Tax Credits (LIHTC). To

receive consideration for these funding sources, owners must often commit to setting 

aside a small number of units with a preference for a certain population, for example, 

residents with disabilities or residents coming from homelessness. Some such 

preferences have been instituted by states as part of a settlement with the Department 

of Justice on Olmstead vs. L.C., and other priorities may be due to state or local 

priorities for the funding of affordable housing. 

 

EXPIRATION DATE: FILING INSTRUCTIONS:

December 31, 2024 Housing Programs 
Page 2 

IMPLEMENTATION

Given the prevalence of set-asides and preferences in state and locally awarded funding, RD will 

allow owners and management agents to include a set-aside or preference for a specific population 

in their occupancy policy and management plan, under the following conditions: 

• The set-aside or preference must be part of the owner’s effort to recapitalize and perform 

needed rehabilitation with the goal of long-term preservation of affordable housing in rural 

communities, either as part of a state’s Qualified Allocation Plan (QAP) so the property can 

compete and receive a LIHTC award, or as a requirement imposed by other third-party 

funding sources. 

• The set-aside or preference must not violate any provisions of the Fair Housing Act and 

must not violate any state or local discrimination laws.

• The set-aside or preference units shall consist of no more than 20% of the units at the 

property. 

• The set-aside or preference must not result in unreasonable vacancies at the project. If setaside units are vacant for longer than 90 days, owners must request an exception to rent the 

units to Agency qualified tenants, if allowed by third-party funding sources. 

• The set-aside or preference must be clearly documented in the property’s management plan 

and occupancy policy, the edits to which must be approved by the Agency. 

• With prior RD review and concurrence, a Use Agreement that restricts a certain number of 

units may be executed. 

• A separate waiting list may be utilized for the set-aside or preferences, in accordance with 

the third-party funding source or the set-aside governing Agency. 

• The Housing and Urban Development (HUD) lease may be used for the set-aside or 

preference units/tenants if required by the third-party funding source or set-aside governing 

Agency. The HUD lease cannot be used for non-set-aside or non-preference units/tenants. 

• Owners must continue to meet all RD reporting requirements.

• Participants must continue to use the RD budget-based rent structure on ALL units. 

Borrowers are responsible for funding any gap between basic rent and any restricted setaside or preference rent collected from the tenant when basic rent exceeds the restricted 

rent.

If the number of set-asides or preferences change, the owner must advise the RD servicing 

specialist of the change.

This UL is effective immediately upon publication. All other provisions and procedures contained 

in Chapter 6 of HB 2-3560 remain unchanged. Guidance will be updated to contain the changes in 

this UL. 

If you have any questions regarding this UL, you should contact Deb Reed, Finance & Loan 

Analyst, Asset Management Division, Policy and Budget at deb.reed@usda.gov or (712) 254-

4365.