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SECTION 1: AN OVERVIEW OF THE PROCESS

4.1 PURPOSE 

This chapter describes the process to obtain a guarantee.

SECTION 2: THE NOTICE OF PROGRAM FUNDING PROCESS

4.2 PUBLICATION OF GRRHP REQUIREMENTS

The Agency will publish a notice in the Federal Register. The notice will state the amount of GRRHP 

funding available and the period it will be available. 

4.3 RESPONSE TO THE NOTICE

In response to the Notice, lenders must submit a response to the Agency in the state where the proposed 

project will be located. The Agency reviews, scores and ranks the response. Lenders state in their responses the 

type of guarantee sought; Option One, the permanent financing guarantee; Option Two, the construction advances 

and permanent financing guarantee; or Option Three, the continuous guarantee. The lender must provide 

information that includes the project’s purpose, its location, and how it meets the established funding priorities. 

Lenders must submit their response to the Notice in accordance with Paragraph 4.4. 

Lenders must submit responses during the prescribed period specified in the Notice. The Agency will 

determine the highest ranked responses based on priority criteria and a threshold score. Lenders with top ranked 

proposals will receive a “Notice to Proceed with Application Processing," inviting them to submit a GRRHP 

application to the Agency where the project is located. Once the "Notice to Proceed with Application Processing" is 

issued, lenders have 90 calendar days from its receipt to respond with an application. Lenders withdrawing their 

requests for a guarantee must notify the Agency in writing. All lenders who submit a response to the Notice will 

receive a written response from the Agency within 30 calendar days of the receipt of the response. 

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Key Topics in this Section

• Notice is Published

• Project Proposals are Accepted by the Agency

• Proposals are Reviewed by the Agency for Fundamental 

Eligibility

• Selected Borrowers Receive a Notice to Proceed with Processing

CHAPTER 4: LOAN GUARANTEE 

APPLICATION PROCESSING
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4.4 INFORMATION TO BE INCLUDED IN RESPONSE TO THE NOTICE

A. Descriptive Information

1. The Project

• A brief description of the proposed location of the project, including town, county, state, and

congressional district.

• A description of the property and improvements, including lot size, number of units, building type, 

type of construction, etc., including preliminary drawings, if available.

• The proposed development schedule.

• Total project development cost.

• The proposed rent structure and area median income (published AMIs can be found online at 

https://www.rd.usda.gov/files/RD-GRHLimitMap.pdf.

• Evidence of site control by the proposed borrower or a purchase option.

• Description of any environmental issues that may affect the project.

• Amount of loan to be guaranteed.

• Type of project (e.g. elderly or family).

2. The Proposed Financing

• Proposed loan amount and the proposed borrower’s equity.

• Proposed financing option: Option One, permanent financing guarantee only; Option Two, 

construction advances and permanent financing guarantee; or Option Three, a single continuous loan 

guarantee.

• Proposed use of interest credit, if applicable. If the lender proposes to use interest credit, this 

section should include the maximum basis points the lender will charge the borrower for the project. 

Selection and scoring criteria that the project must meet to receive interest credit will be published in a 

Notice.

• Estimated development budget (total and cost/unit) and the proposed sources and uses of funds. 

This information should include all proposed financing sources – the amount, type, rates and terms of 

loans, tax credits, or grant funds. Letters of application and commitment letters should be included, if 

available.

• Estimated loan-to-development cost ratio for the guaranteed loan.

• Proposed Agency guarantee percentage for guaranteed loan (under no condition can the 

percentage exceed 90 percent of the loan amount).

• Collateral. This is all the security, in addition to the real property, proposed to secure the loan.

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 3. The Proposed Borrower

• The name of the borrower and the type of ownership entity. List the general partners if a limited 

partnership, officers if a corporation, or members if an LLC (include Organizational chart). 

• Borrower’s contact name, mailing address, phone and fax numbers, and email address.

• Evidence that the borrower or principals of the ownership are not barred from participating in Federal 

housing programs and not delinquent on any Federal debt.

• Borrower’s unaudited or audited financial statements.

• Statement of borrower's housing development experience.

B. Lender Eligibility and Approval Status

The response must include evidence that the lender is either an approved lender in the GRRHP or 

that the lender is eligible to become an approved lender. If not approved, the lender can submit its 

application with the response to the Notice. The application must be received by the National Office no 

later than 30 calendar days of the lender's receipt of the "Notice to Proceed with Application Processing."

C. Competitive Criteria

Information that shows how the proposal is responsive to the selection criteria specified in the 

Notice. 

D. Lender’s Commitment Letter

The lender submits its signed commitment letter on its organization’s letterhead, indicating that it

will make a loan to the borrower for the proposed project, under specified terms and conditions subject 

only to the issuance of a guarantee by the Agency.

4.5 AGENCY REVIEW OF THE RESPONSE TO THE NOTICE

The Agency review of the response to the Notice is designed to assess preliminary eligibility and 

feasibility. A good project proposal is one that clearly and completely responds to the criteria set forth in the Notice. 

Project proposals will be returned if preliminary eligibility cannot be established. Preliminary eligibility means that 

the project meets the following criteria.

A. Was the Project Proposal on Time and Complete?

Project proposals will be date stamped when first received by the Agency. The reviewer can refer 

to the date stamp on the project proposal to determine whether the proposal was received by the submission 

deadline specified in the Notice. Late and/or incomplete proposals will not be considered and will be 

returned to the lender.

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B. Is the Borrower An Eligible Entity?

Eligible borrowers shall include individuals, corporations, State or local public agencies or an 

instrumentality thereof, partnerships, LLCs, trusts, Indian tribes, or any organization deemed eligible by the 

Agency. The ownership entity must be a valid entity in good standing under the laws of the jurisdiction in 

which it is organized. Borrowers must be U.S. citizens or permanent legal residents, a U.S. owned 

corporation, an LLC, or a partnership in which the principals are U.S. citizens or permanent legal residents. 

Borrowers and principals must not be delinquent on any other Federal debt. The Agency reviewer will 

determine whether these conditions are met. If these conditions are not met or are unclear, additional steps 

must be taken as outlined below.

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

Government: 

• Systems Award Management (SAM) ,” provides a monthly listing of all suspended and 

debarred individuals and is available on the Internet at

https://www.sam.gov/portal/SAM/#1. 

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

SAM and main menu. A hard copy of this publication can be mailed to lenders without Internet access 

upon request to the Agency. The Agency shall verify that the borrower does not appear on the list and 

provide evidence in the file such as a print out of the SAM page with the date the records were

checked and a copy of the AD-1047.

• HUD’s Credit Alert Interactive Voice Response System (CAIVRS) identifies all individuals with 

delinquent Federal debt. If CAIVRS indicates that the borrower has a delinquent Federal debt, the 

reviewer must verify with the point of contact that the information regarding the borrower is current. 

If the information is current and the borrower is delinquent, the borrower is ineligible. The Agency

will inform the borrower of the reason for their rejection and provide the CAIVRS list’s point of 

contact telephone number. 

The Agency reviewer will verify that there is satisfactory evidence that the borrower meets the other 

requirements of Paragraph 3.6.

C. Is the Lender Eligible?

Lenders requesting eligibility consideration per Paragraph 2.3 must submit an application to the 

National Office with supporting documentation within 30 calendar days of receiving the "Notice to Proceed 

with Application Processing" for the proposed GRRHP project. Information on the contents of an 

application for lender approval can be found in the Notice and Chapter 2. If a lender is deemed not 

eligible, the application will be rejected and returned to the lender. 

D. Is the Proposed Project Eligible?

The Agency will review the following evidence that the project meets basic program requirements.

• Is the proposed project located in a designated rural area as defined for all RHS programs? (See 

Paragraph 1.6 for the definition.) Prior to submitting a response to the Notice, lenders should contact 

the 

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• Agency where the project is located to determine whether the project site is located within a designated 

rural area in that state.

• Are the proposed uses of funds for eligible purposes?

• Does the proposed financing comply with the requirements set forth in Chapter 3, Section 5 (including 

occupancy and rent limits, 207(c) limits, maximum loan term, interest rate, and loan-to-value ratios)?

4.6 NOTICE TO PROCEED WITH APPLICATION PROCESSING

Complete responses to the Notice deemed eligible after the preliminary review for program requirements 

will be issued a Notice to Proceed with Application Processing (Notice to Proceed). The Agency will email a copy 

of the Notice to Proceed to the lender and follow up with a hard copy of the letter.

The Notice to Proceed will instruct the lender to contact the Agency staff to complete the application 

process. Once the lender contacts the Agency concerning the project, Agency staff will schedule a meeting with the 

lender, borrower, and other interested parties to review important programmatic, environmental, and civil rights 

requirements, using Attachment 4-E as a guide. 

The Agency will continue to accept responses to the Notice and issue Notices to Proceed until all available 

funds have been obligated or until the deadline announced in the Notice.

After the Notice to Proceed has been issued, changes in the borrower entity or substitution of the lender 

with another approved lender are permitted with prior Agency approval, so long as the loan purpose, scope of 

project, location, and terms related to scoring and ranking remain unchanged. The original lender must transfer the

Notice to Proceed to the substituting lender, and the new lender must issue a commitment letter for the project. 

Any costs incurred in the transfer of a Notice to Proceed from one lender to another approved lender cannot 

be charged to the project. The original lender may charge a fee to the borrower or the substituting lender for its 

work on the project that is being transferred to another approved lender. However, in no way will this cost be 

charged to the project. If the original lender is unwilling to transfer the Notice to Proceed, then the new lender must 

submit a new response to the Notice. Incomplete responses to the Notice will be sent to the lender with a letter 

notifying the lender of the incompleteness of the proposal. Lenders may resubmit the response to the Notice for 

consideration in the same fiscal year if the submission date for Agency review of responses to the Notice has not 

expired. A response to the Notice that has been resubmitted will be treated as a new response and will receive a new 

Agency receipt date.

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SECTION 3: APPLICATION FOR THE GUARANTEE

4.7 PURPOSE OF THE APPLICATION

In submitting an application for a loan guarantee, the lender is seeking a conditional commitment from the 

Agency. Before a conditional commitment can be issued, the Agency must determine if the project meets threshold 

requirements and is eligible for a commitment.

A. The Proposed Project Meets the GRRHP Threshold Requirements

To be approved for a guaranteed loan, proposed projects must be able to meet the threshold 

criteria. The application for a loan guarantee must clearly demonstrate that the following criteria are or can 

be met before the Agency issues a guarantee:

• Evidence that the owner and development team have the qualifications and experience sufficient to 

carry out development, management, and ownership responsibilities.

• Evidence that the property is located in an eligible rural area. 

(https://eligibility.sc.egov.usda.gov/eligibility/welcomeAction.do?pageAction=sfp&NavKey=prop

erty@12)

• Evidence of readiness to proceed, including submission of a complete application for a guarantee, with 

evidence of at least a proposed conditional commitment from the lender for financing.

• Evidence of market and financial feasibility.

• Evidence the loan is reasonable for the given borrower. 

• Evidence that the loan risk is reasonable, taking conventional lending practices into account.

• Evidence that the loan risk is reasonable given factors related to concentration of risk in a given 

market.

B. The Proposed Project is Eligible to Receive a Conditional Commitment

In addition to the threshold requirements, the following conditions must be met before a 

conditional commitment can be issued to the lender:

• The borrower and the lender are both eligible to receive a guarantee under the option selected.

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Key Activities Discussed in this Section

• Purpose of the Application

• Interest Credit, if Applicable

• Receive and Process Applications

• Agency Review and Decision

 

 

 
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The lender has conducted its due diligence, and the results have been taken into consideration in the 

appraisal.

• The application fee is paid, if applicable

• The Agency has completed a satisfactory environmental review required under NEPA in accordance 

with RD Instruction 1970 and its associated RD Instructions.

4.8 APPLICATION FORM AND DOCUMENTATION

The lender is responsible for preparing an application that is complete and accurate. The lender must 

submit the application to the Agency where the project is located. The Section 538 GRRHP Application Checklist is 

Attachment 4-A. The application is comprised of two components: (1) the lender’s certification and (2) exhibits and 

supporting information to the lender’s certification. The lender is encouraged to schedule a meeting with the 

Agency prior to submission of the application to discuss transaction milestones and deadlines.

A. The Lender’s Certification

The lender’s certification will serve as assurance to the Agency that the borrower, the project, and 

the proposed financing meet the lender’s standards for making the loan. The lender must certify that:

• The information contained in the exhibits is consistent with the lender’s underwriting and loan making 

standards;

• The lender has completed its review as required by Paragraph 4.10 and has identified any significant 

findings in a narrative attached to this certification; and

• The lender agrees to make a loan to the borrower for the proposed project, subject to the Agency’s 

issuance of a guarantee.

B. Exhibits and Supporting Information to the Lender’s Certification 

In addition to the submission of the certification, the lender must submit the supporting 

documentation outlined in this paragraph.

Because the application, in many cases, will be prepared before working drawings and an 

appraisal are complete, the lender must submit proforma estimates at the application stage. Once the 

Agency issues a conditional commitment, the lender must submit complete documented information, as 

specified in that conditional commitment.

For more information about the complete requirements and documentation, see Chapter 3.

1. Forms Included in the Application Package

Form RD 400-4 “Assurance Agreement” (under Title VI Civil Rights Act of 1964). This form 

assures the U.S. Department of Agriculture that the Recipient is in compliance with and will continue to 

comply with Title Vi of the Civil Rights Act of 1964, 7 CFR Part 15 and Rural Housing Service 

regulations.

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Form 400-1,-“Equal Opportunity Agreement”. 

Form RD 3565-1, “Application for Loan and Guarantee.” This form is to provide information 

needed for the analysis and loan determination process.

 

Attachment 4-D, “Housing Allowances for Utilities and Other Public Services.” This attachment 

shows the utility allowance for the proposed project and how it was developed.

Form RD 1944-37, ”Previous Participation Certification.” This document describes a borrower’s 

prior experience with Federal assistance programs.

Form RD 3560-30,” Certification of No Identity of Interest (IOI).” This document describes the

IOI relationships between the borrower and other businesses with whom the borrower may contract for 

goods or services.

RD Instruction 1940-Q, “Exhibit A-2, Statement for Loan Guarantees.” The lender certifies that 

no funds have been or will be used in lobbying activities.

Form RD 3560-31, “Identity of Interest Disclosure/Qualification Certification.” This document 

provides information on organizations listed in the Form RD 3560-30.

Form RD 1910-11, “Applicant Certification, Federal Collection Policies for Consumer or 

Commercial Debts.” This document is a certification by the borrower that they are not delinquent on 

Federal debt.

Form HUD 9832, “Management Entity Profile.” This form outlines the proposed management 

agent and their organizational structure and discloses any IOI relationships the management agent may 

have.

Form HUD 935.2A, “Affirmative Fair Housing Marketing Plan (AFHMP) Multifamily Housing.” 

This document is required of all federally guaranteed and assisted housing (except when the borrower is a 

federally recognized Indian tribe and the housing units will be located on land over which the tribe has 

sovereignty/civil jurisdiction). It describes the process borrowers will use to assure that marketing and 

outreach efforts are targeted at all persons, regardless of race or disability, who are eligible for admission to 

the available housing.

AD 1047, “Certification Regarding Debarment, Suspension, and Other Responsibility Matters –

Primary Covered Transactions.” This document certifies that the borrower entity is not debarred from 

participating in Federal housing programs.

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AD 1048, “Certification Regarding Debarment, Suspension, Ineligibility and Voluntary Exclusion 

– Lower Tier Covered Transactions.” This form is required of the general contractor and each 

subcontractor when the Agency is guaranteeing the construction loan.

2. Other Information Requested in the Application Package

• Borrower information:

◊ Financial statements with certification(s) (newly formed entities applying for an Option Two or Option 

Three guarantees do not need to provide financial statements at the time of application).

◊ Credit report for the entity and any guarantor.

◊ For any type of partnership, all organizational documents, including but not limited to the partnership 

agreement. Agency requirements should be contained in one section of the agreement and their 

location identified by the borrower or their attorney in a cover sheet.

◊ For any type of corporation, all organizational documents, including but not limited to the Articles of 

Organization and its Operating Agreement.

• If the borrower is 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.

◊ Evidence of organization under State law or copies of pending applications.

◊ A list of board members.

• If the borrower is a public body:

◊ The enabling statute or the State law of organization.

• Project information:

◊ Project name, location, number and type of units, the development team, property manager, lawyer, 

and syndicator. The development team includes the developer (including all principals), architect, and 

contractor.

◊ Appraisal

◊ Market Study.

◊ Capital Needs Assessment (for rehabilitation loans only).

◊ Reserve for Replacement Schedule.

◊ State Clearinghouse comments or recommendations.

◊ Certification that the lender has reviewed and approved the management plan and agreement and 

confirmed that they are consistent with Agency requirements.

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Site plan, including contour lines.

◊ Plot plan.

◊ Floor plan of each living unit type and other type spaces.

◊ Building exterior elevations.

◊ Typical building exterior wall section.

◊ Description and justification of any related facilities and schedule of separate charges for related 

facilities, if any.

◊ Design development/working plans/construction specifications.

◊ Management plan and proposed management agreement.

• Project financing information:

◊ Lender’s conditional commitment on the lender's letterhead with lender’s signature specifying the 

GRRHP option under which the project loan is to be guaranteed.

◊ Lender’s narrative.

◊ Sources and Uses Comprehensive Evaluation (SAUCE) disc and hard copy (to be completed by the 

Agency) or comparable document.

◊ A copy of the proforma budget detailing the first year and a typical year’s operation.

◊ Form RD 1924-13, “Estimate and Certificate of Actual Cost”.

◊ Disclosure of any change in financing since response to the Notice submission.

◊ Type of utilities and utility allowances (Attachment 4-D), if applicable.

◊ Interest Credit Request, if applicable.

• Required environmental information:

◊ Most current version of the ASTM Standard E 1528-14, Phase I Environmental Site Assessment 

Process published by the American Society for Testing and Materials (ASTM).

◊ Compliance with historic and architectural laws, if applicable.

◊ Comments regarding relevant off-site conditions.

◊ Land survey.

◊ FEMA Form 086-0-32, “ Special Flood Hazard Determination.”

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4.9 INTEREST CREDIT REQUEST AND DOCUMENTATION – IF APPLICABLE

Interest credit (when available) requests must be made in the response to the Notice if interest credit is part 

of the proposed financing. Interest credit awards will be based on a numerical value earned on the scoring of 

priority criteria identified in the Notice. Lenders will be notified of interest credit awards in the Notice to Proceed 

with Processing. Lenders must justify the need for the interest credit award in the application package submitted to 

the Agency. Proformas with and without the interest credit award will serve as justification for the interest credit 

award.

The Agency will not accept the resubmission of a project proposal with an interest credit request if the 

project has been previously submitted without an interest credit request and demonstrated financial feasibility.

A. Amount of Interest Credit Subsidy

The Agency may choose to regulate the maximum interest rate charged on GRRHP loans; if it 

does it will be announced in a notice published in the Federal Register.

 The process for allocating interest 

credit, when available, may be competitive in years when there are more requests than credits available. 

The Agency may give preference to proposals that require less interest credit subsidy.

B. Demonstrated Need

The interest credit justification must demonstrate why the interest credit subsidy is needed. The 

Agency will review the proposed rents and operating budget and give preference to applications that 

demonstrate that the interest credit will result in lower rents or in a higher level of services for tenants in 

the event that demand for interest credit exceeds available funds.

C. Limits on Allocation of Interest Credit

In order to fairly distribute the amount of credit available in a given year, the Agency may set a 

limit on the amount of interest credit allocated to a single project. The Agency expects to accomplish this 

by limiting the size of loans eligible for interest credit to an amount published in a written notice in the 

Federal Register. For highly ranked projects, the Agency may guarantee two parity loans -- one with 

interest credit (up to the maximum amount) and one without interest credit.

D. Payment of Interest Credit

Lenders may only request and receive interest credit payments once a project is in its permanent

financing phase and a permanent guarantee is issued. For Option Three guarantees, before the lender is 

eligible to request and receive interest credit, it must document and receive the Agency’s written 

concurrence, that the project met all of the requirements for a permanent guarantee.

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The Agency is not obligated to fund the maximum allowable amount of interest credit. The use of 

the applicable federal rate to determine the interest rate has been eliminated by the enactment of the 

Housing and Economic Recovery Act of 2008. The lender and borrower have two alternatives for 

calculating the rate to the borrower:

Alternative 1 – Apply the interest credit amount to a new loan note guarantee’s interest rate 

negotiated between the borrower and the lender. The lender may change the previously calculated effective 

interest rate to the borrower. The new effective rate may be higher than the previously negotiated rate.

Alternative 2 – Continue to process these deals with the existing loan note guarantee’s interest rate 

under the program guidance in effect at the time the conditional commitment was issued, thereby not 

changing the effective interest rate to the borrower.

The amount of the interest credit and the loan note rate are not locked until the closing of the loan. 

The interest credit is not used to reduce the rate on a loan until the date that amortization commences.

Of the total amount guaranteed, no project will receive interest credit on more than the amount 

established by the Agency in a notice published in the Federal Register. If the loan amount exceeds the 

amount established by the Agency in a notice published in the Federal Register, the lender is required to 

separate the loan amount that will receive interest credit from the loan amount that is not eligible for the 

interest credit award. A separate amortization schedule is necessary for each loan amount. Yearly 

payments of the interest credit award will be based on the declining balance of the amount established by 

the Agency in a notice published in the Federal Register. 

Interest credit is established in accordance with Form RD 1980-24, “Request Interest Assistance/Interest 

Rate Buydown/Subsidy Payment to Guaranteed Loan Lender.” Form RD 1980-24 is due to the Agency no 

later than February 28 of each year. The calculation will be done in accordance with item 17, “Interest 

Payable.” The interest credit will be paid upon receipt and Agency approval of the form. The interest 

credit calculation and the request will be part of the project’s annual report (per Paragraph 7.6 C.) provided 

to the Agency. The interest will be calculated from the effective date of the permanent loan note guarantee 

until the end of the year, so interest credit will always be paid in arrears for interest credit accrued for the 

previous calendar year. The Agency will review the calculation for accuracy and then forward the 

document on to the Finance Office for processing. The formula for calculation is:

Interest Payments Received +

Accrued Interest at the End of the Period -

Accrued Interest at the Beginning of the

Period x

Interest Assistance Rate ÷

Effective Interest Assistance Rate =

Interest Payable

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Interest credit will be paid to the lender. It is anticipated that the lender will use the interest credit 

to reduce the interest rate on the loan and therefore, enable the borrower to pass the savings on to the tenant 

in the form of reduced rents. 

Due to the deferred nature of interest credit, an interest credit reserve must be established by the 

borrower prior to closing of the permanent loan (Option One), or the construction loan (Options Two and 

Three). See Paragraph 3.10.C.

E. Cancellation of Interest Credit

The interest credit is tied to a specific loan. If a loan guarantee application is rejected or 

withdrawn, the interest credit application is similarly terminated. If the borrower defaults on a GRRHP 

guaranteed loan, the interest credit contract will be canceled no later than when the liquidation plan is 

approved by the Agency. Any unearned interest credit must be repaid to the Agency.

F. Closing of a Loan with Interest Credit

In order to assist the Finance Office in timely and accurate payments of interest credit, the Agency

will complete only Blocks 1, 4, 7, 8, and 9 of Form RD 3560-9, “Multiple Family Housing Interest Credit 

Agreement,” as described below. The Agency should complete Form RD 3560-9 as follows:

Block 1: Enter Borrower’s Case Number.

Block 4: Enter 241.

Block 7: Enter the Promissory Note Rate.

Block 8: Enter the Interest Credit Rate/ Reduced Loan Payment.

Block 9: Enter the difference between Blocks 7 and 8.

 This form will be completed for the sole purpose of assisting the Finance Office in the tracking 

of interest credit and will, therefore, not be completed in accordance with the FMI or signed by the 

borrower. This form will be submitted to the Finance Office when the Form RD 1980-19, “Guaranteed 

Loan Closing Report,” is submitted as described in Paragraph 4.17.

4.10 LENDER REVIEW OF THE BORROWER SUBMISSIONS

The lender must review all elements of the proposed project prior to submission of an application to the 

Agency for review. The lender must certify to the Agency that program requirements have been met and highlight 

significant information for Agency review.

A. Borrower Eligibility

The lender will review the following documents submitted by the borrower and assess whether 

they adequately establish that the borrower meets the eligibility criteria of Chapter 3, Section 3.

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1. Acceptable Borrower Entity

The lender will determine whether the borrower is an acceptable borrower entity by reviewing the 

following documents.

• Draft organizational documents. This includes the organizational documents or a Certificate of 

Good Standing if the borrower is an existing organization.

• Certification Regarding Debarment. The lender will have already checked the list of debarred 

individuals against the applicant’s Form RD 1944-37 when the project proposal was first submitted. 

This certificate by the borrower on Form AD-1047 or AD-1048 must confirm the borrower’s status as

an entity in good standing with the Federal Government. The website to confirm this information is 

https://www.sam.gov. 

2. IOI Disclosure

The lender will review the IOI disclosures in order to understand the borrower entity. Form RD 

3560-30 and/or Form RD 3560-31 will be used.

3. Certification Regarding Debt Collection

The borrower must sign Form RD 1910-11 to certify to their understanding of the collection 

policies that will be taken by the government to recover delinquent or defaulted debts. The lender must 

ensure that this form is included in the application and signed.

B. Project Eligibility

The lender must ensure that the property meets all program requirements.

1. Property Requirements

In reviewing the application, the lender must determine that any site or design issues and any 

issues raised by the due diligence report (relating to potential contamination from hazardous substances, 

hazardous wastes, and petroleum products) have been identified and resolved in a manner consistent with 

Agency requirements. If they cannot be resolved at the time of application, the lender must notify the 

Agency and propose an appropriate remedy.

The lender must submit the design development or final plans and construction documents to the 

Agency Architect who will review them for compliance with program design requirements. The State 

Architect must approve the plans prior to issuance of an Agency obligation of funds.

2. Clear Title and Necessary Local Approval

The preliminary title report is a part of the application. The lender must make sure that it does not 

show any encumbrances to the title that would affect the lender’s ability to obtain a first lien.

The lender must ensure that all the necessary State or local approvals have been obtained, 

including proper zoning and necessary utility rights.

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C. Project Feasibility Analysis

The lender must carefully review the borrowers proposed cost estimates to ensure that project 

costs are reasonable and customary for the type of project.

1. Sources and Uses Comprehensive Evaluation (SAUCE) or a Comparable Document

The Agency SAUCE program is a software tool to help underwriters determine whether the 

projected income stream will match projected costs. The lender must conduct a feasibility analysis using 

SAUCE or a comparable document that the Agency will review. If the projected income and costs do not 

closely match, the lender or borrower must revise the project costs and rent structure to bring the two in 

line; otherwise, the project is not feasible.

2. Adequacy of the Operating & Maintenance (O&M) Reserve

All borrowers must contribute cash from their own resources prior to loan closing in an amount 

equal to at least two percent of the loan amount as O&M reserve (or provide the lender with a letter of 

credit, as provided by Paragraph 3.10 C., in lieu of a cash contribution). The lender must provide the 

Agency with proof of deposit for the initial payment into the O&M reserve account, or proof of the letter of 

credit prior to or at closing. Agency staff should verify that the initial payment for O&M reserves has been 

made in accordance with the Reserve Account Agreement or any other mortgage document governing 

O&M reserve accounts. Agency staff will monitor the balance in the O&M reserve account on an annual 

basis, or monitor the continued existence of the letter of credit from the lender’s annually audited financial 

statements to verify consistency with the Reserve Account Agreement or other relevant mortgage 

documents.

The items that are typically funded by the O&M reserve amount include, but are not limited to, 

property and liability insurance premiums, fidelity bond premiums when the borrower is also the 

management agent, utility installation charges and deposits, maintenance equipment, lease forms, loan 

payments that may become due during construction, purchase of office equipment and furniture, 

community room furnishings, other movable equipment and furnishings, congregate items, advertising 

expenses, management fees, etc.

The O&M reserve funds will be kept in a separate account and held by the lender. The lender must 

ensure that the items are necessary for the project, and the costs are similar to other comparable projects in 

the area. The lender will authorize all disbursement of funds from the O&M reserve account as needed 

prior to utilization. The lender may release any remaining funds from the O&M reserve account only in 

accordance with Paragraph 3.10 C. 

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3. Management Systems

The lender must certify that the borrower has adequate systems to manage the property 

successfully in accordance with Agency requirements. In order for an application to be approved, 

borrowers must show that they will provide professional management to ensure the successful operation of 

the project. The lender must evaluate the acceptability of the management proposed for the project by 

analyzing Form HUD 9832 and the proposed management plan. Chapter 8 provides details on how to 

evaluate the management profile information. 

4.11 AGENCY REVIEW OF THE LOAN GUARANTEE APPLICATION

The analysis conducted at this stage is intended to verify and document feasibility and eligibility. Any 

changes to the proposal submitted in response to the Notice must be carefully considered to ensure that the project 

continues to meet the selection and priority criteria. The application review consists of eight parts as listed below.

A. Determination that the Loan Guarantee Application Package is Complete

The Agency will determine if the lender has submitted all of the required application 

documentation and met the conditions in the Notice.

B. Environmental Review by Agency

The lender will provide the Agency with the information required for the environmental review 

process. The environmental review process must be concluded by the Agency in accordance with National 

Environmental Policy Act (NEPA) of 1969 and 7 CFR part 1970 and its associated RD Instructions prior to 

taking any official action on an application for a loan guarantee. The RHS processing office will begin the 

environmental review process as soon as supporting documentation is received from the lender and 

borrower. The required information that must be provided by the lender and borrower is listed under 

Paragraph 4.8 B.

C. Civil Rights Impact Analysis

The Agency will conduct 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 will complete Form RD 2006-38, 

“Environmental Justice (EJ) and Civil Rights Impact Analysis Certification”. The State Civil Rights 

Coordinator and, as necessary, the State Environmental Coordinator, will be consulted if problems are 

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

D. Review of Other Federal Requirements

The Agency will determine that all Civil Rights Impact Analysis Certifications and 

all other Federal requirements, including intergovernmental review (RD Instruction 1970-I) 

and flood insurance requirements (RD Instruction 426.2), have been met prior to taking any 

official action on an application for a loan guarantee.

___________________________________________________________________________________________

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E. Review of Affirmative Fair Housing Marketing Plan (AFHMP)

As part of the application, borrowers 

(except when the borrower is a Federally 

recognized Indian tribe and the housing units will 

be located on land over which the tribe has 

sovereignty/civil jurisdiction) must submit to the 

lender Form HUD 935.2A to describe their 

marketing plan for the project. The intent of this 

plan is to ensure that eligible persons and families 

are made aware of the availability of GRRHP 

multifamily rental housing units. While the lender 

must review the submission, the Agency must 

approve and sign this form. An approved AFHMP 

must be posted in the rental office so that eligible 

persons and families will be made aware of the 

availability of affordable multi-family rental 

housing in the GRRHP.

The lender will use Exhibit 4-1 when 

reviewing the AFHMP. This exhibit describes the 

plan and provides guidance on what to look for in 

each part. The Agency may require revisions to 

the plan if any changes need to be made based on 

the Agency review. 

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 Required AFHMP Attachments

Copies of the specific page(s) from the census report 

on which the plan was based

Photograph or drawing of the project sign

Copies of the newspaper advertisement or sample of 

proposed advertisement

Sample community contact letters

Brochures, leaflets, or handouts used

Written instructions provided to staff concerning 

Federal, State, and local fair housing laws and 

regulations as well as concerning the AFHMP
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Exhibit 4-1 

Actions to be Taken By the Lender 

in Reviewing the Affirmative Fair Housing Marketing Plan (AFHMP)

A. Part 1 of the plan provides general information about the borrower and the project’s location.

1. Make sure the Census Tract is identified. Copies of the specific page(s) from the census report on which

the plan was based must be attached. The areas considered to be the market area should be identified 

(highlighted) by the borrower. 

2. Information on the rental rates should indicate the lowest to the highest rents. If there is rental assistance, 

the lowest rent should be shown as zero.

B. Part 2 of the plan indicates whether the market area is a minority, non-minority, or mixed area. Verify that the 

response corresponds directly to the census data.

C. Part 3 of the plan indicates the groups toward which the marketing efforts are going to be directed. It should 

also correspond directly with the census data and the community contacts that are identified.

D. Part 4 describes the marketing program.

1. Ensure that the borrower has indicated they will advertise on an annual basis. 

2. Check to see if minority newspapers have been considered as part of the advertising plan.

3. Make sure the borrower has attached a sample of the proposed advertisement. 

4. Review any copies of brochures, leaflets, or handouts that the borrower intends to use. Review them to 

ensure the equal housing opportunity statement, logo, or slogan is used.

5. A photo or rendering of the project sign must be provided. The dimensions of the project sign must be 

indicated and described in terms of feet and/or inches. The logo and the words “Equal Housing 

Opportunity” must be distinguishable in the photo or rendering. If it does not appear, recommend use of 

the accessibility logo.

6. The proposed community contacts must reflect efforts directed towards groups identified in Part 3. Ensure 

each blank in this section is completed (address, phone numbers, etc.). The frequency of contacts must be 

stated, at a minimum, as “at least once annually” or “(date) and annually thereafter.” Sample community 

contact letters must be attached.

E. Part 5 describes future marketing activities. Make sure the borrower has indicated future marketing activities 

that include, as a minimum, “newspapers, a site sign, and community contacts.”

F. Part 6 describes the borrower’s experience and the instructions given to staff regarding fair housing marketing. 

Make sure that the borrower has attached the instructions given to staff concerning Federal, State, and local fair 

housing laws and regulations, as well as instructions concerning the AFHMP.

G. Part 7 describes additional considerations that are planned to outreach to groups not previously mentioned in the 

plan or to groups identified as least likely to apply for the housing. If this plan is for an elderly project, the 

borrower must have included community contacts for the disabled, who are also eligible to reside at the project. 

If for a family project, make sure they have included efforts to make the units with special design features 

known to mobility impaired persons. 

H. Part 8 is the signature block. It must be signed by the legal borrower or by the borrower’s agent.

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F. Decision on Interest Credit Subsidy Awards, If Applicable

The processing Agency will review any information justifying the request for interest credit and 

will determine whether interest credit will be reserved for the project.

G. Decision on the Guarantee Amount

The guarantee amount, up to 90 percent of the loan amount, will be negotiated between the lender 

and the Agency. Normally, to obtain a 90 percent guarantee, the property must meet all program 

requirements and be determined to be at least an average or better risk. Factors affecting this determination 

include but are not be limited to:

• A construction period that is appropriate based on the type of construction contemplated, the market, 

and the number of units to be leased.

• A debt service coverage (DSC) ratio and a loan-to-value (LTV) ratio that is appropriate given the size 

and complexity of the project.

• The strength of the market, as indicated by a market vacancy factor appropriate for the market.

• A financially strong borrower and ownership entity

• A lender that has originated and/or serviced 3 or more prior GRRHP loan guarantees.

• An owner or members with extensive experience in the operation of similar housing.

• Other factors as determined by the National Office.

If the lender has proposed a project, which is not qualified for a 90 percent guarantee, the lender 

may ask the Agency to consider a lesser guarantee.

H. Determination that the Loan is Acceptable for a Conditional Commitment

The lender must underwrite the loan and determine that it is a sound investment. The Agency will 

review the lender’s underwriting and determine if the proposed guaranteed loan meets all program 

requirements. Such requirements include but are not limited to:

• The lender has certified that the proposed loan amount (for such part of the property that may be 

attributable to dwelling use) and the applicable maximum per unit dollar amount limitations under 

section 207(c) of the National Housing Act have not been exceeded; 

• The proposed loan term, including construction, is not more than 40 years but not less than 25 years;

• The proposed sources and uses of funds comply with the use of proceeds and lien;

• The LTV ratio does not exceed program limits;

• The Agency guarantee percentage does not exceed 90 percent;

• The borrower has contributed at least two percent of the loan amount for O&M reserves (or provided 

the lender with a letter of credit, as provided by Paragraph 3.10 C., in lieu of a cash contribution);

• If the Agency is providing a construction guarantee, a construction contingency reserve will be 

established and funded prior to or at the closing of the construction guarantee; and

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• The proposed interest credit rate, if applicable, is set in accordance with the alternatives presented in 

Paragraph 4.9 D. 

4.12 AGENCY DECISION 

The Agency will review, assess, and approve applications. An application, which the Agency determines to 

be acceptable for a guarantee, with any one of the following criteria must first be sent to the Director of MultiFamily Housing Guarantee Loan Division (Director) at the National Office for review and concurrence after the 

Agency’s initial determination that the application is acceptable for a guarantee, but prior to Agency approval. 

These criteria include any one of the following: (1) congregate care facilities for any loan amount; (2) a property 

with a loan-to-cost (LTC) or LTV of 75 percent or higher; (3) an application for a loan amount greater than $5 

million; or (4) any application at the discretion of the Director. Applications that are sent to the National Office for

review and concurrence must be accompanied by the Agency’s written assessment of the application. 

If the Agency deems an application unacceptable, the application does not need to be sent to the National 

Office for review and concurrence.

Decisions on applications will normally be rendered within 90 calendar days of receipt of a complete

application. In most cases, the Agency will be able to notify the lender of its decision in about 60 calendar days; 

however, the timing will vary depending on the intergovernmental review and the environmental assessments. If an 

application is determined ineligible to receive a conditional commitment, it will be returned to the lender. In this 

case, the Agency will send to the lender his/her appeal rights along with the rejection letter explaining the reasons 

for rejection. Approved applications will receive a conditional commitment as discussed in Paragraph 4.13. 

SECTION 4: ISSUANCE OF A CONDITIONAL COMMITMENT

4.13 GENERAL REQUIREMENTS

A conditional commitment to guarantee the loan will be made upon an Agency determination that:

• The borrower and the lender are both eligible under the GRRHP;

• All other program requirements have been met;

• The lender has determined that the project is financially feasible and has made a conditional loan 

commitment; 

• The Agency has completed a satisfactory environmental review required under NEPA, in accordance 

with RD Instruction 1970 and its associated RD Instructions; and

• The application fee has been paid, if required. 

If a project cannot meet all of the above conditions, then a conditional commitment will not be 

issued to the lender, and funds will not be obligated to the project.

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Form RD 3565-2, “Conditional Commitment”, is an agreement between the Agency and the 

lender in which the Agency agrees to guarantee the loan at a future date, if the conditions in the 

commitment are met within the term specified in the Conditional Commitment. Prior to the issuance of a 

Conditional Commitment, the Agency will complete and execute the “Request for Allocation of FY 20XX 

Section 538 Loan Funds” form (this form is updated each fiscal year) for the proposed project. This form, 

which constitutes an obligation request, along with the summary page of the response to the Notice Priority 

Score Worksheet is faxed or emailed to the National Office for allocation and obligation of loan guarantee 

funds. Once the Agency receives the signed and approved Request for Allocation of FY 20XX Section 538 

Loan Funds form back from the National Office (confirming the National Office has allocated and 

obligated funds), it may issue the Conditional Commitment. The Director, Multifamily Housing, 

Guaranteed Loan Division, is the loan guaranteed funds obligation approval authority.

4.14 TERMS OF CONDITIONAL COMMITMENT

The conditional commitment is valid for the length of time specified in the commitment letter not to exceed 

24 months which is the maximum term of the commitment. If a commitment has been issued for fewer than 24 

months, it may be extended up to 24 months. 

On a case-by-case basis and after a thorough due diligence, the State Director may grant an extension to a 

loan commitment period for a project deemed to remain viable. If it is in the Government’s best interest, the State 

Director may extend a conditional commitment up to 12 months beyond the initial 24-month period (the total 

cumulative commitment period may not exceed 36 months). The extension must be requested by the lender prior to 

the expiration of the conditional commitment. The request must include a written justification for the extension and 

a certification from the lender that the failure to fulfill the conditions for the issuance of a permanent guarantee 

within the commitment period was beyond the control of the borrower [and the lender], and that those conditions 

can be fulfilled within the extension period. The lender must also certify that all application documents have been 

updated and are current, including but not limited to the initial credit and financial underwriting of the borrower and 

the project. Any changes or updates to the application documents must be submitted to the Agency for its review 

and approval prior to the issuance of a commitment extension. The lender will also be charged a flat fee [which will 

be defined by the Agency in a Notice published periodically in the Federal Register] for each extension that is 

granted.

If an extension beyond a cumulative 36-month period is requested and deemed warranted by the State 

Director, the extension request must be submitted to the National Office to the Director, Multi-Family Housing 

Guaranteed Loan Division, for review and concurrence. All supporting documentation must be submitted to the 

National Office along with the State Director’s extension approval recommendation. 

Please note that in cases where the Government has committed to issue an Option Two guarantee, the 

commitment extensions cannot to be used as a conduit to extend the construction guarantee period beyond the 

regulatory maximum of 24 months. The purpose of these conditional commitment extensions is not to extend the 

guarantee period for construction advances, but rather to extend the Government’s commitment to issue a permanent 

guarantee once the conditions for a permanent guarantee have been met. 

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A. Subsidy Layering Review (if applicable)

Because the loan guarantee and interest credit assistance are government resources, the Agency must 

conduct a subsidy layering review on transactions that include interest credit. The SAUCE or other 

comparable document review completed by the lender as part of the application will be reviewed by the 

Agency in accordance with Paragraph 4.10 C.1. at the conditional commitment stage, with an updated 

review at the permanent loan closing. The Agency can also rely upon any subsidy layering reviews 

conducted by state housing finance agencies.

B. Guarantee Fee, Application Fee and Annual Guarantee Renewal Fee (If Applicable)

If Congress has authorized it and the program requires it, at the issuance of the Loan Note Guarantee, the 

lender must pay a loan guarantee fee. The guarantee fee is calculated as a percentage of the note principal 

amount times the percentage of guarantee. 

The guarantee fee will be defined by the Agency in a Notice published periodically in the Federal 

Register. Where the lender intends to make an Option Two guaranteed loan, the guarantee fee is 

calculated as a percentage of the sum of the note principal actually disbursed for all approved draws 

multiplied by the percentage of guarantee. Although the fee is paid by the lender, it may be passed on to 

the borrower. 

A sample of the calculation of the guarantee fee is discussed in Paragraph 6.1 and 6.2 A. The guarantee fee 

is to be collected by the Agency at closing of the loan and transmitted to the Finance Office on Form RD 

451-2, “Schedule of Remittances”. Code "30" should be entered into the "Miscellaneous Collection" box,

and it should be coded as a regular payment (R) in column #1 under “Loan Coding.” The check and Form 

RD 451-2 will be sent by Agency staff to the address shown on the internal Rural Development staff 

website. 

If authorized a payment of an application fee and an annual guarantee renewal fee will also be collected 

from the lender. These fees will also be defined by the Agency in a Notice published periodically in the 

Federal Register.

C. Transactions Backed by Ginnie Mae

Lenders who intend to have the GRRHP loan securitized by Ginnie Mae will inform the Agency of their 

intentions. Agency staff will include the limit acceptable to Ginnie Mae and the Agency in the Conditional 

Commitment. Ginnie Mae’s limit may be found at 

http://www.ginniemae.gov/products_programs/Documents/chap31.pdf.

D. Termination of the Conditional Commitment

The conditional commitment will expire if the terms are not met or if the lender decides not to originate the 

loan. 

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Withdrawal of an Application. The lender must notify the Agency immediately of its intention 

to withdraw an application. In this case, the Agency will retain the loan application fee. The 

Agency will prepare Form RD 1940-10, “Cancellation Of U.S. Treasury Check and/or 

Obligation” and fax it to the National Office to request the de-obligation of funds to the project. 

National Office staff will de-obligate the funds to the project in the GLS. The de-obligation 

request will be faxed back to the Agency with the date and initials of the person in the National 

Office who de-obligated the funds.

Lapse of a Conditional Commitment. If the loan guarantee is not issued within the period 

specified in the commitment letter, the commitment will automatically expire. On a case-by-case 

basis, the Agency may allow extensions of the loan commitment period following the procedure 

outlined in paragraph 4.14 of this handbook TERMS OF CONDITIONAL COMMITMENT.

E. Substitution of Lender

There are some circumstances, such as bank mergers, which require a substitution of lender and a transfer 

of conditional commitment from one eligible/approved lender to another eligible/approved lender. A 

transfer of a commitment is permitted if the transfer is approved by the Agency and the substitute lender 

agrees to the underwriting terms approved in the conditional commitment. The substitute lender must 

provide the Agency with written approval from the original lender for the substitution and the transfer of 

the application and supporting documentation. To obtain Agency approval, the borrower and substitute 

lender must certify that there are no changes in the borrower’s ownership or control and that the loan 

purposes and all other elements of the application supporting the conditional commitment remain the same. 

See Paragraph 2.14 for a full description of the requirements for a substitution of the lender.

F. Lender’s Agreement

The lender must execute Form RD 3565-3, “Lender’s Agreement,” prior to the issuance of the loan 

guarantee, unless a current Form RD 3565-3 is already on file with the Agency. The lender signs the 

Lender's Agreement with the Agency, which processes and closes the lender's first Loan Note Guarantee. 

The State Director or his designee will sign the Lender's Agreement on behalf of the Agency. The Agency

will forward the original to the National Office and keep a copy of the Lender's Agreement on file. Once a 

lender has a signed Lender's Agreement with the Agency, a copy of Form RD 3565-3 must be included in 

each subsequent submission of responses to the Notice for proposed projects. Lenders who have been 

active for a long period of time may be required to sign an updated Lender’s Agreement.

G. Loan Note Guarantee Agreement

Form RD 3565-4, “Loan Note Guarantee,” is the only form used to execute the GRRHP guarantee. For 

guarantee Option One, the guarantee becomes effective upon execution of the form by the State Director 

and the lender. For guarantee Options Two and Three, the guarantee for the construction loan becomes 

effective when funds are first drawn down. Under Option Two, the construction and permanent guarantee, 

once the requirements for the permanent guarantee are met, the Agency gives written confirmation to the 

lender of the date the Agency deemed those requirements were met. 

Even though the Agency provides a single, continuous guarantee for construction and permanent loans 

under Option Three, [7 CFR 3565.52(c)(3)], the Agency must nonetheless require confirmation

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from the lender when construction is complete and its loan has transitioned from the construction financing 

phase to the [fully amortizing] permanent financing phase. The Agency will provide the Finance Office 

and National Office with a copy of the written confirmation of the conversion to the permanent guarantee 

phase of a transaction for their records. 

SECTION 5: RESPONSE TO THE 

CONDITIONAL COMMITMENT AND LOAN CLOSING

4.15 GENERAL CONDITIONS TO THE COMMITMENT

Once a lender receives a conditional commitment from the Agency, the lender must respond to the 

conditions detailed in that commitment within 60 calendar days of receipt. When all of the conditions are resolved 

and the other requirements outlined in Section 7 of this chapter and in [7 CFR 3565.303(d)] are met, the Agency will 

issue a permanent guarantee to an approved lender in good standing with the program. 

As part of loan closing procedures, the Agency must review the lender’s underwriting calculations, 

proformas, and mortgage documents for consistent use of the same interest rate in all documents. The lender must 

correct any discrepancy prior to loan closing.

Among the conditions specified in the conditional commitment, the lender must submit the following for 

Agency approval before loan closing occurs. Regional OGC review of these documents is mandatory for the 

issuance of the State’s first Loan Note Guarantee and is encouraged thereafter.

• Final organizational documents for the borrower entity or Certificate of Good Standing, if applicable;

• An opinion letter from lender’s Legal Counsel (see Attachment 4-B); and

• A copy of the proposed closing documents (see Attachment 4-C).

4.16 DEVELOPMENT OF THE REGULATORY AGREEMENT

A regulatory agreement governing the relationship between the borrower and lender must be developed by 

the lender and executed by both the borrower and the lender. The regulatory agreement must contain the provisions 

specified in Paragraph 7.14 D.1. While the Agency will not be a party to the agreement, the agreement will state 

that the Agency may assume the role of the lender if necessary to force borrower compliance with the agreement.

As a part of the closing documents, the lender’s attorney must certify that the regulatory agreement 

submitted for Agency review meets the requirements of this paragraph.

4.17 LOAN CLOSING

Once the closing documents have been approved by the Agency, the lender should prepare a closing 

statement showing how funds will be disbursed and begin to coordinate and schedule the closing date for the loan. 

All conditions of the conditional commitment must be fulfilled prior to the issuance of the Loan Note Guarantee. If 

the loan is an Option Two guarantee, then the requirements of Section 6 of this chapter will apply, and the 

construction guarantee will only cover advances for construction. If the loan is an Option Three loan guarantee, the

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guarantee will be issued in accordance with the requirements of Section 6 of this chapter pursuant to [7 CFR part 

3565.212 and .305]. If the loan is an Option One guarantee, then the guarantee will be issued in accordance with 

Section 7 of this chapter. In addition to the regulatory agreement, Form RD 3565-3 must be executed prior to the 

issuance of the guarantee. Once the loan is closed, Form RD 1980-19 will be prepared by the lender, signed by both 

the lender and the Agency, and submitted to the Finance Office. If the loan will receive interest credit, Form RD

3560-9 must also be completed and submitted in accordance with Paragraph 4.9. Forms RD 1980-19 and 3560-9

and the executed Loan Note Guarantee will be faxed or emailed to the Finance Office, ATTN: Guaranteed Loan 

Branch. Contact the Agency for the current fax number or email address.

SECTION 6: GUARANTEE DURING CONSTRUCTION

4.18 CONTINUOUS GUARANTEE AND CONSTRUCTION GUARANTEE AND RELATED 

RESERVES

In the case of Options Two and Three guarantees, the construction guarantee will go into effect with the 

first draw of the construction loan. The construction guarantee is only intended to cover construction advances under

the construction contract. 

Option Two guarantee. The Agency may provide a guarantee which will cover construction loan advances 

(advances) during construction. The maximum guarantee of construction advances related to a construction and 

permanent loan will not at any time exceed the lesser of 90 percent [or the percent established by the Agency and 

announced through a Notice in the Federal Register] of the amount of principal and accrued interest up to default 

for amounts which exceed the original advance for eligible uses of loan proceeds or 90 percent of the original 

principal amount and accrued interest up to default of the loan. The Agency’s guarantee will cover losses to the 

extent aforementioned once all sureties/insurances and/or performance and payment bonds have fully performed 

their contractual obligations. A construction contingency reserve is required. This guarantee will be enforceable 

during the construction period but will cease to be enforceable once construction is completed unless and until the 

requirements for the continuation of the guarantee contained in the Conditional Commitment and this part are 

completed and approved by the Agency by the date stated in the Conditional Commitment and any Agency 

approved extension(s) (7 CFR 3565.303 (d)). The Agency will provide written confirmation to the lender when all 

of the requirements for continuation of the guarantee to cover the permanent loan have been satisfied. Any losses 

sustained while the guarantee is unenforceable (after the end of the construction period and, if applicable, before the 

continuation of the guarantee) are not covered by the guarantee. For purposes of this guarantee, the construction 

period will end on the earlier of:

(i) Twenty-four months from the closing of the construction loan, if the certificates of occupancy for all units in 

the project have not been issued by then, or

(ii) The date of the issuance of the last certificate of occupancy, if the certificates of occupancy for all units in 

the project are issued on or before 24 months from the closing of the construction loan. 

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Option Three guarantee. The Agency may provide a single, continuous guarantee for construction and permanent 

loans. Only projects that have low loan-to-cost ratios, which will be defined by the Agency in a Notice published 

periodically in the Federal Register, are eligible for this type of guarantee. A construction contingency reserve is 

required. If the lender opts to set up the lease-up reserve (in lieu of 90% occupancy for 90 continuous days), the 

lease-up reserve must be funded 30 days before the first Certificate of Occupancy is anticipated. This lease-up 

reserve is an additional amount, over and above the required initial operating and maintenance contribution. The 

maximum guarantee of construction advances will not at any time exceed the lesser of 90 percent [or the percent 

established by the Agency and announced through a Notice in the Federal Register] of the amount of principal and 

interest up to default advanced for eligible uses of loan proceeds or 90 percent of the original principal amount and 

interest up to default.

Under either Option Two or Option Three, the Agency will guarantee construction advances by the lender, 

not to exceed 90 percent of the work in place, if the lender provides acceptable credit enhancements. Acceptable 

credit enhancements include any of the following:

• Surety bonding or a performance and payment bond acceptable to the Agency (the preferred 

enhancement); 

• An irrevocable letter of credit acceptable to the Agency; or

• A pledge to the lender of collateral that is acceptable to the Agency.

For Options Two and Three the lender must require an operating and maintenance reserve and provide the 

Agency adequate evidence of the funding of all required reserves. For both options the Construction Contingency 

reserve must be fully funded prior to or at the closing of the construction guarantee. For Option Two the funding 

schedule for the lease-up reserve and the operating and maintenance reserve must be included in the Agencyapproved construction budget and be fully funded before the issuance of the permanent guarantee. For Option Three 

the operating and maintenance reserve must be fully funded before the issuance of the guarantee. 

 Chapter 5 provides additional details regarding the requirements for a construction guarantee.

SECTION 7: PERMANENT GUARANTEE

The requirements for issuing the permanent guarantee are identified below.

 

4.19 OCCUPANCY

The permanent guarantee may not go into effect until the lender has provided the Agency with copies of 

rent rolls showing occupancy levels at 90 percent for 90 consecutive days (90/90 test). The project must meet the 

90/90 test in the 120-day period immediately prior to the issuance of the permanent guarantee. In lieu of meeting 

the minimum level of occupancy, borrowers may establish a lease-up reserve as outlined in Paragraph 3.10 C.

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To calculate the required lease-up reserve amount, add the monthly amount of the Operations and Maintenance 

expense, the monthly amount of the Debt Service, and the monthly amount of the Reserve Deposit, then multiply 

this sum by three. The required lease-up reserve is a cash contribution and is an additional amount, over and above 

the required initial O&M reserve contribution which is defined in Paragraph 3.10 C. The Conditional Commitment 

must state the permanent guarantee will not go into effect until EITHER the lender provides RHS staff with copies 

of rent rolls showing occupancy levels at 90 percent for 90 consecutive days (90/90 test) or the lender fully funds a 

lease-up reserve using the calculation above. 

If tax credits are used in conjunction with any of the GRRHP options, the borrower must meet any 

occupancy requirements in the tax credit partnership agreement before the permanent guarantee is issued.

4.20 DOCUMENTATION REQUIREMENTS

The guarantee of a permanent loan provided under § 3565.52(c)(1) or (c)(2) will be issued once the 

following items have been submitted to and approved by the Agency: 

(1) Certification from the lender stating that the lender or its qualified representative inspected the property and 

found that the construction meets the Government’s requirements for the standards and conditions for housing and 

facilities in 7 CFR part 1924, subpart A and the standards for site development in 7 CFR part 1924, subpart C, or its 

successor regulations;

(2) Cash flow certification—the lender certifies, in writing, the project’s cash flow assumptions are still valid and 

depict compliance with the section 538 program’s debt service coverage ratio requirement of at least 1.15, based on 

the lender’s analysis of current market conditions and comparable properties in the project’s market area; 

(3) Documentation that either:

(i) The project has attained a minimum level of acceptable occupancy of 90% for 90 continuous days 

within the 120-day period immediately preceding the issuance of the permanent guarantee, or

(ii) Additional funds, supplementing the funds required under § 3565.303(d), have been added to the leaseup reserve in an amount the Agency determines is necessary to cover projected shortfalls. 

(4) A new appraisal based upon completion of construction. Upon a lender’s written request, the Agency may 

exempt a project from this requirement if requested by the lender and the project meets the following criteria: 

(iii) Original appraisal—the original appraisal that meets the Agency’s appraisal requirements with a 

valuation date no older than 36 months;

(iv) Valuation—the appraisal’s lowest valuation, regardless of valuation approach and rent restrictions 

considered, is greater than the section 538 guaranteed loan amount; and 

(v) Guaranteed loan balance—the Agency’s guaranteed loan’s principal balance does not exceed 50

percent [unless a different percent has been announced in a Notice published in the Federal Register] of 

the project’s total development costs.

(5) A certificate of substantial completion;

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(02-23-12) PN 455

Revised (09-07-22) SPECIAL PN
HB-1-3565

(6) A certificate of occupancy or similar evidence of local approval;

(7) A final inspection conducted by a qualified Agency representative;

(8) A final cost certification in a form acceptable to the Agency. The cost certification establishes the actual

construction costs incurred by the mortgagor and general contractor. If there is an identity of interest (IOI) 

between the sponsor and contractor, the cost certification must be performed by an experienced audit firm 

acceptable to the Agency. Where low income housing tax credits are a source of funding, the cost certification

should be performed by the agency that awards the tax credits. All IOI and State agency cost certifications must 

meet the standards 7 CFR 1924.13. All contracts must also indicate that when any IOI exists or comes into being, 

the contractor agrees to have construction costs as reported to the Agency on Form RD 1924–13 audited by a 

Certified Public Accountant or Licensed Public Accountant licensed prior to December 31, 1970, who will provide 

an opinion as to whether the Form RD 1924–13 presents fairly the costs of construction in conformity with eligible 

construction costs as prescribed in Rural Development regulations. It is the responsibility of the lender to ensure 

that the borrower has properly completed a cost certification within 60 days of 100% final completion of the project.

(9) A submission to the Agency of the complete closing docket;

(10) A certification by the lender that the project has reached an acceptable minimum level occupancy;

(11) An executed regulatory agreement;

(12) The Lender certifies that it has approved the borrower’s management plan and assures that the borrower is in 

compliance with Agency standards regarding property management contained in subparts E and F of this part;

(13) Necessary information to complete an updated necessary assistance review by the Agency under § 3565.204(c); 

and 

(14) Compliance with all conditions contained in the conditional commitment for guarantee.

The Agency will review all submitted documents and verify that the project is free and clear of liens prior to 

the issuance of the permanent guarantee.

The continuous guarantee will remain in effect once construction is completed. In order to remain in compliance 

with 7 CFR part 3565, the following items must be submitted to and approved by the Agency. The date that these 

items are due to the Agency must be indicated in the conditional commitment. A reasonable timeframe for 

submission of these items is 24 months. These items will be submitted to the Agency by the date stated in the 

Conditional Commitment and any Agency approved extension(s).

(1) Certification from the lender stating that the lender or its qualified representative inspected the property and 

found that the construction meets the Government’s requirements for the standards and conditions for housing and 

facilities in 7 CFR part 1924, subpart A and the standards for site development in 7 CFR part 1924, subpart C, or its 

successor regulations;

4-28 
HB-1-3565

(2) Cash flow certification—the lender certifies in writing the project’s cash flow assumptions are still valid and 

depict compliance with the section 538 program’s debt service coverage ratio requirement of at least 1.15, based on 

the lender’s analysis of current market conditions and comparable properties in the project’s market area; 

(3) Documentation that the funds required under § 3565.303(d), have been added to the lease-up reserve in an 

amount the Agency determines is necessary to cover projected shortfalls.

(4) An appraisal of the property;

(5) A certificate of substantial completion;

(6) A certificate of occupancy or similar evidence of local approval;

(7) A final inspection conducted by a qualified Agency representative;

(8) A final cost certification in a form acceptable to the Agency;

(9) A submission to the Agency of the complete closing docket; 

(10) A certification by the lender that the project has reached an acceptable minimum level occupancy;

(11) An executed regulatory agreement;

(12) The Lender certifies that it has approved the borrower’s management plan and assures that the borrower is in 

compliance with Agency standards regarding property management contained in subparts E and F of this part;

(13) Necessary information to complete an updated necessary assistance review by the Agency under § 3565.204(c); 

and 

(14) Compliance with all conditions contained in the conditional commitment for guarantee.

• Evidence that the annual guarantee fee has been paid, if applicable.

• A copy of the Option Three Loan Note Guarantee executed by the Agency with written confirmation 

from the Agency of the effective date of guarantee. 

• An executed regulatory agreement, if applicable.

• A management plan that has been approved by the lender and is in conformance with Agency 

standards regarding property management.

• Compliance with all conditions in the conditional commitment for guarantee. 

Under Option Three, the lender receives a commitment from the Agency for a continuous guarantee and all 

conditions of this commitment must be established and/or met at closing of the construction loan. 

4-29

(02-23-12) PN 455

Revised (09-07-22) SPECIAL PN
HB-1-3565

SECTION 8: TERMINATION OF THE LOAN GUARANTEE

4.21 REASONS FOR TERMINATION

Under any of the three options, if the GRRHP loan is terminated or if the lender fails to comply with the 

program requirements, the guarantee will be terminated or not issued. The guarantee will terminate under the 

circumstances identified below.

A. Repayment of the Loan 

Once the loan note has been completely paid off, the loan guarantee will automatically terminate.

B. Payment of a Claim

Once a claim has been paid, the loan guarantee automatically terminates.

C. Voluntary Termination of the Guarantee Agreement by the Lender

If a guarantee agreement is voluntarily terminated by the lender, the program restrictions must 

remain in place unless approved by the National Office pursuant to Paragraph 7.4.

D. Non-compliance with Program Requirements

The loan guarantee may be terminated for non-compliance with the program requirements. The

Agency will exercise its rights to cancel the guarantee only if:

• The Agency has given the lender notice of the acts or omissions that it considers to constitute such 

grounds, specifying the applicable provisions of the statute, regulations, Loan Note Guarantee, or 

Lender's Agreement,

• The lender has not cured the acts or omissions within 90 calendar days after such notice, and 

• The acts or omissions can reasonably be expected to have a material adverse effect on the credit quality 

of the guaranteed mortgage or the physical condition of the property securing the guaranteed mortgage. 

If such acts or omissions cannot be cured within a 90 calendar day period, the 90 calendar day cure 

period automatically shall be extended so long as curative activities commence during the 90 calendar 

day period. At no time shall the curative period extend more than 270 calendar days beyond the

expiration of the original 90 calendar day cure period. The lender will remain bound to all obligations 

under the Loan Note Guarantee, Lender’s Agreement, and the Agency program regulations. Noncompliance with program requirements includes, but is not limited to:

◊ Negligent Servicing

Failure to service the loan is a violation of program requirements (see Chapter 7). Negligent 

servicing is defined as the failure to perform services which a reasonably prudent lender would perform in 

servicing its own portfolio of loans. This includes not only the concept of a failure to act, but also not 

acting in a timely manner or acting in a manner contrary to that of a reasonably prudent lender.

4-30
HB-1-3565

◊ Failure to Pay the Annual Guarantee Renewal Fee (if applicable)

The guarantee may be reinstated upon payment of all past due annual loan guarantee fees. The 

Agency will charge interest penalties on any unpaid guarantee fee.

◊ Improper Sale

If the Agency determines that the loan has been sold or otherwise transferred without Agency 

approval, the guarantee may be terminated.

E. Fraud

If the Agency determines that fraud took place on the part of the lender in the loan application process, the 

Agency may terminate the loan guarantee.

In the event of termination, the lender is required to reimburse the Agency for any unused interest credit, if 

applicable. A termination is appealable under the adverse action procedures (see Paragraph 1.11).

4-31

(02-23-12) PN 455

Revised (12-21-18) PN 520
HB-1-3565

Attachment 4-A

Page 1 of 8

ATTACHMENT 4-A

SECTION 538 GRRHP APPLICATION CHECKLIST

This checklist is a consolidation of required information contained in the GRRHP Origination 

and Servicing Handbook (HB-1-3565) for the completion of a GRRHP application. 

The lender is responsible for preparing an application that is complete and accurate. The lender 

must submit the GRRHP application to the RHS Agency where the project will be located. The

GRRHP application is comprised of two components: (1) a list of lender certifications and (2) 

exhibits and supporting information. 

(1) The lender’s certification will serve as assurance to the Agency that the borrower, the 

project, and the proposed financing meet the lender’s standards for loan making. The lender 

must certify the following on the lender’s letterhead:

 The information contained in the application is consistent with the lender’s underwriting and 

loan making standards (HB-1-3565, Paragraph 4.8 A.).

 The lender has completed the lender’s review as required by Paragraph 4.10 of the GRRHP 

Origination and Servicing Handbook and has identified any significant findings in a narrative 

attached to this certification (HB-1-3565, Paragraph 4.8 A.).

 The lender agrees to make a loan to the borrower for the proposed project, subject to the 

Agency’s issuance of an appropriate guarantee option (HB-1-3565, Paragraph 4.8 A.).

 The lender must provide to the Agency a certification from the borrower that the borrower is 

not under any State or Federal order suspending or debarring participation in State or Federal 

loan programs and that the borrower is not delinquent on any non-tax obligation to the 

United States (HB-1-3565, Paragraphs 4.10 A.1. and A.3.).

 The lender must certify that the proposed loan amount (for such part of the property 

attributable to dwelling use) and the applicable maximum per unit dollar amount limitations

under section 207 (c) of the National Housing Act have not been exceeded (HB-1-3565, 

Paragraph 4.11 H.).

(02-23-12) PN 455

Revised (09-07-22) SPECIAL PN
HB-1-3565

Attachment 4-A

Page 2 of 8

 The lender must certify that the owner and development team have the qualifications and 

experience sufficient to carry out development, management, and ownership responsibilities 

(HB-1-3565, Paragraph 4.7 A.).

 The lender must certify that if it is applying for a continuous guarantee, the project has the 

appropriate low loan-to-cost ratio as determined by the Agency [7 CFR 3565.52(c)(3)].

 The lender must certify that the property is located in an eligible rural area (HB-1-3565, 

Paragraph 4.7 A.).

 The lender must certify that it has conducted due diligence and the results have been taken 

into consideration in the appraisal (HB-1-3565, Paragraph 4.7 B.).

 The lender must certify that it has reviewed and approved the management plan and 

agreement and confirmed that they are consistent with Agency requirements (HB-1-3565,

Paragraph 4.8 B.2.).

 Prior to the issuance of the guarantee, the lender must certify that construction meets basic 

construction requirements (HB-1-3565, Paragraphs 5.3 through 5.12).

(2) Exhibits and Supporting Information:

Forms to be included in the application package:

 Form RD 3565-1, Application for Loan and Guarantee (HB-1-3565, Paragraph 4.8 B.1.). 

 Form RD 3565-3, Lender’s Agreement.



 RD Instruction 1940-Q, Exhibit A-2, Statement for Loan Guarantees (HB-1-3565, Paragraph 

4.8.B.1). 

 Attachment 4-D, Housing Allowances for Utilities and Other Public Services (HB-1-3565, 

Paragraph 4.8 B.1.). 

 Form RD 1944-37, Previous Participation Certification (HB-1-3565, Paragraph 4.8 B.1.). 
HB-1-3565

Attachment 4-A

Page 3 of 8

 Form RD 3560-30, Certification of No Identity of Interest (IOI), if applicable (HB-1-3565, 

Paragraph 4.8 B.1.).

 Form RD 3560-31, Identity of Interest Disclosure/Qualification Certification, if applicable 

(HB-1-3565, Paragraph 4.8 B.1.). 

 Form RD 1910-11, Applicant Certification, Federal Collection Policies for Consumer or 

Commercial Debts (HB-1-3565, Paragraph 4.8 B.1.). 

 Form HUD 9832, Management Entity Profile (HB-1-3565, Paragraph 4.8 B.1.). 

 Form HUD 935.2, Affirmative Fair Housing Marketing Plan (HB-1-3565, Paragraph 4.8

B.1).

 AD 1047, Certification Regarding Debarment, Suspension, and Other Responsibility Matters 

– Primary Covered Transactions (HB-1-3565, Paragraph 4.8 B.1.). 

 AD 1048, Certification Regarding Debarment, Suspension, Ineligibility and Voluntary 

Exclusion – Lower Tier Covered Transactions (HB-1-3565, Paragraph 4.8 B.1.) for the 

borrower, contractor, subcontractors and suppliers (HB-1-3565, Paragraphs 5.5, and 4.10 

A.1.). 

 FEMA Form 086-0-32, Special Flood Hazard Determination (7 CFR 3565.254, HB-1-3565, 

Paragraphs 4.8 B.2., 9.3, and 11.7 A.).

 Form RD 1924-13, Estimate and Certificate of Actual Cost (HB-1-3565, Paragraph 4.8 B.2.).

 Form RD 400-4, Assurance Agreement, (HB-1-3565, Paragraph 7.14 C.3.).

 Form RD 1924-25, Plan Certification Form, (HB-1-3565, Paragraph 5.7).

 Form RD 400-1, Equal Opportunity Agreement. 

 Form RD 400-6, Compliance Statement.

 Form RD 400-3, Notice to Contractors and Applicants (prepared by the Agency).

(02-23-12) PN 455

Revised (09-07-22) SPECIAL PN
HB-1-3565

Attachment 4-A

Page 4 of 8

Other Required Supporting Information:

Borrower information:

 Financial statements with certification(s) (newly formed entities applying for a construction/ 

permanent guarantee do not need to provide financial statements at the time of application) 

(HB-1-3565, Paragraph 4.8 B.2.).

 Credit report for the entity and any guarantor (HB-1-3565, Paragraph 4.8 B.2.).

 Proposed limited partnership agreement and certificate of limited partnership (if applicable). 

Agency requirements should be contained in one section of the agreement and their location 

identified by the borrower or their attorney in a cover sheet (HB-1-3565, Paragraph 4.8 B.2.).

 If a corporate entity, its Articles of Organization and its Operating Agreement (HB-1-3565, 

Paragraph 4.8 B.2.).

If the borrower is 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 (HB-1-

3565, Paragraph 4.8 B.2.).

 Evidence of organization under State law or copies of pending applications (HB-1-3565, 

Paragraph 4.8 B.2.).

 A list of board members (HB-1-3565, Paragraph 4.8 B.2.).

If the borrower is a public body:

 The enabling statute or the State law of organization (HB-1-3565, Paragraph 4.8 B.2.).

Project Information:

 An application fee, if applicable (HB-1-3565, Paragraph 4.7 B.).

 An appraisal and market study (HB-1-3565, Paragraph 4.8 B.2.).
HB-1-3565

Attachment 4-A

Page 5 of 8

 Project information including project name, location, number and type of units, the 

development team, property manager, lawyer, and syndicator. The development team 

includes the developer (including all principals), architect, and contractor (HB-1-3565, 

Paragraph 4.8 B.2.).

 Capital Needs Assessment (for rehabilitation loans only) (HB-1-3565, Paragraph 4.8 B.2.). 

Does the Capital Needs Assessment and Capital Improvement Plan call for a replacement 

reserve escrow that meets or exceeds the $1,000/unit threshold by year three? If not, 

document underwriting explanation (7 CFR 3565.254 (b)(4), HB-1-3565, Paragraph 7.6 

D.4.). Include a Reserve for Replacement schedule.

 State Clearinghouse comments or recommendations (HB-1-3565, Paragraph 4.8 B.2.).

 Site plan, including contour lines (HB-1-3565, Paragraph 4.8 B.2.).

 Plot plan (HB-1-3565, Paragraph 4.8 B.2.).

 Floor plan of each living unit type and other type spaces (HB-1-3565, Paragraph 4.8 B.2.).

 Building exterior elevations (HB-1-3565, Paragraph 4.8 B.2.).

 FEMA Form 086-0-33, Elevation Certificate.

 Typical building exterior wall section (HB-1-3565, Paragraph 4.8 B.2.).

 Description and justification of any related facilities and schedule of separate charges for 

related facilities, if any (HB-1-3565, Paragraph 4.8 B.2.).

 Design development/working plans/construction specifications (HB-1-3565, Paragraph 4.8 

B.2.). Plans, specifications, and estimates must fully describe all of the work to be completed, 

including all landscaping, construction, repairs, and site development work. The plans must 

be clear and accurate with adequate dimensions and sufficient scale for estimating purposes.

Technical data, tests, or engineering evaluations needed to support the design of the development

must be included (HB-1-3565, Paragraph 5.7).

(02-23-12) PN 455

Revised (12-21-18) PN 520
HB-1-3565

Attachment 4-A

Page 6 of 8

Property Management Information:

 Management plan and proposed management agreement (HB-1-3565, Paragraph 4.8 B.2.).

 Details for managing a project with scattered sites (if applicable); completion of Form HUD 

935.2; procedures for determining applicant eligibility; demonstrated capacity to manage the 

unique leasing occupancy restrictions of the guaranteed program; description of rent 

collection; lease provisions covering termination and eviction; provision of a copy of tenant 

protection and grievance procedures to tenants; description of security plan (7 CFR

3565.351 (b), HB-1-3565, Paragraph 8.4, and Attachment 8-A).

 Plans for maintenance, repair, replacement, tenant work requests, management and 

maintenance staffing plans; detailed compliance with Federal and state environmental laws; 

description of energy conservation measures including recycling; detailed management and 

maintenance staffing plans; information on staff training programs (7 CFR 3565.351 (b), HB1-3565, Paragraph 8.4, and Attachment 8-A).

 Statement whether plan includes provision for access to project's books and records by 

USDA staff, USDA-IG, GAO, and the Department of Justice; information on accounting, 

record keeping, data systems, and software. (7 CFR 3565.351 (a)(7), HB-1-3565, Paragraph 

8.4, and Attachment 8-A).

 Qualifications of the property manager (HB-1-3565, Paragraphs 8.6 and 8.7).

Contractor Information:

 Demonstrated experience of the general contractor in building multifamily housing of the 

size design, scope, and complexity of the project. Note any exceptions (HB-1-3565, Chapters 

4 and 5).

Financing Information:

 Lender’s conditional commitment on the lender's letterhead with lender’s signature

specifying the GRRHP option under which the project loan is to be guaranteed (HB-1-3565, 

Paragraph 4.8 B.2.).

 Sources and Uses Comprehensive Evaluation (SAUCE) disc and hard copy (to be completed 

by the lender) or a comparable document.
HB-1-3565

Attachment 4-A

Page 7 of 8

 Lender’s narrative (HB-1-3565, Paragraph 4.8 B.2.).

 A copy of the proforma budget detailing the first year and a typical year’s operation (Proformas with and without the interest credit award will serve as justification for the interest 

credit award.) (HB-1-3565, Paragraph 4.8 B.2.).

 Disclosure of any change in financing since response to the Notice submission (HB-1-3565, 

Paragraph 4.8 B.2.).

 Type of utilities and utility allowances (Attachment 4-D), if applicable (HB-1-3565, 

Paragraph 4.8 B.2.).

 Confirm that Operating and Maintenance (O&M) Reserve is at least two percent of the total 

loan amount (not just guaranteed portion). Calculation of O&M reserve for congregate care 

facilities and larger projects should reflect absorption rates in the market study to cover 

shortfalls between estimated operating budget calculations and rent-up assumptions. Funds 

contributed as O&M reserves are contributed from the borrower’s own resources or an

irrevocable letter of credit and are not to be included as part of the total development cost 

calculation. (7 CFR 3565.402 (a)(2), 

HB-1-3565, Paragraph 7.7 B and Paragraph 3.10 C).

 Confirm that the construction contingency equal to two percent of the construction contract, 

inclusive of the contractor's fee and hard and soft costs. This is to be funded at or prior to 

closing by the contractor (7 CFR 3565.402 (a)(2), HB-1-3565, Paragraph 7.7 B and 

Paragraph 3.10 C.).

 Make sure that the loan is properly classified in accordance with the following: 

Existing property___________ (7 CFR 3565.252) 

515 Rehab_________ 

New construction___________ (7 CFR 3565.252)

Eligible rural area ___________ (7 CFR 3565.251)

General site requirements ___________ (7 CFR 3565.254)

General site standards ___________ (7 CFR 3565.254)

 Provide evidence of adequate insurance for the project (7 CFR 3565.351, HB-1-3565, 

Chapter 9).

 Interest Credit Request, if applicable (HB-1-3565, Paragraphs 4.8 B.2. and 4.9).

(02-23-12) PN 455

Revised (11-15-19) PN 531
HB-1-3565

Attachment 4-A

Page 8 of 8

Environmental Information:

 Most current version of the ASTM Standard E 1528-14, Phase I Environmental Site 

Assessment Process published by the American Society for Testing and Materials (ASTM), 

(HB-1-3565, Paragraph 4.8 B.2.).

 Compliance with historic and architectural laws, if applicable (HB-1-3565, Paragraph 4.8 

B.2.).

 Comments regarding relevant off-site conditions (HB-1-3565, Paragraph 4.8 B.2.).

 Land survey (HB-1-3565, Paragraph 4.8 B.2.).

Legal and Regulatory Items:

 Standard Regulatory Agreement approved by the Agency. (7 CFR 3565.303 (d)(9).

 Non-Standard Regulatory Agreement(s) containing provisions for transferability between 

lenders, binding on the borrower and their successors (7 CFR 3565.351(a), HB-1-3565, 

Paragraph 4.17 and 7.14 D.1.), and requires that the borrower: make all principal and interest 

payments under the note, maintain the project as affordable housing in good physical 

condition; maintain complete project books and records; and comply with all Federal Fair

Housing requirements under the terms of the note (7 CFR 3565.351(a)).

 Confirmation in writing that the borrower is in compliance with the Affirmative Fair Housing 

Marketing Plan (7 CFR 3565.353, HB-1-3565, Paragraph 4.11 E., Exhibit 4-1, and 

Attachment 8-A).

 Verify use of security instruments prepared, executed, recorded and/or delivered per program 

guidelines and in compliance with the terms of the conditional commitment (HB-1-3565, 

Attachment 4-C).

 Verify use of the construction contract based on standard AIA Document A-101. If this 

document is used, it should be modified as described in Form RD 1924-25 or similar form 

(HB-1-3565, Paragraph 5.9).

 Verify use of contract specifications, documents and forms. Use Form RD 1924-6

“Construction Contract” or similar document as required by Executive Order 11246, NonDiscrimination in Employment by Construction Contractors (HB-1-3565, Paragraph 7.14, 

Exhibits 7-4 and 7-5).
HB-1-3565

Attachment 4-B 

Page 1 of 4

ATTACHMENT 4-B 

SUGGESTED FORMAT FOR THE OPINION 

OF THE LENDER’S LEGAL COUNSEL

(LEGAL OPINION TO BE RETYPED ON LENDER'S COUNSEL'S LETTERHEAD)

To: (Name of Lender)

I/we have acted as counsel to (Lender) in connection with a $ (amount) type loan 

by the (Lender) (hereinafter "the Lender") to (Borrower) (hereinafter "Borrower"), the 

terms of which loan are set forth in a certain Loan Agreement (hereinafter "the Loan 

Agreement") executed by the Lender and Borrower on (date) . In connection with this 

loan, I/we have examined: 

1. The corporate records of Borrower, including its organizational documents. 

2. The Loan Agreement between the Lender and Borrower. 

3. The Security Agreement executed by Borrower on (date) . 

4. The Guaranty (where applicable) executed on (date) by (personal 

guarantors) . 

5. Financing Statements executed by Borrower and the Lender. 

6. Real Estate Mortgages dated _______________ and executed by Borrower in favor of the 

Lender.

7. Real Estate Mortgages dated ________________ and/or other security documents dated 

________________ executed by (personal guarantors) in favor of the Bank. 

8. The appropriate title and/or lien searches relating to Borrower's property. 

9. The pledge of stock and instruments related thereto.

10. Such other materials, including relevant provisions of the laws of this state as I/we have 

deemed pertinent as a basis for rendering the opinion hereafter set forth.

(02-23-12) PN 455 
HB-1-3565

Attachment 4-B 

Page 2 of 4

IN SOME CIRCUMSTANCES

11. Lease(s) between Borrower and (lessor’s name) for the rental of (property being 

rented) , (if real property, give the address of the premises; if machinery equipment,

etc., give brief, precise description of property for a (length of lease) term 

commencing on (date) ).

Based on the foregoing examinations, I am/we are of the opinion and advise you that:

1. Borrower is a duly organized _______________ in good standing under the laws of the 

Commonwealth/State of (State) . 

2. Borrower has the necessary __________ power to authorize and has taken the necessary 

corporate action to authorize the Regulatory Agreement and to execute and deliver the Note, 

Security Agreement, Financing Statement, and Mortgage. Said instruments hereinafter 

collectively referred to as the "Loan Instruments."

3. The Loan Instruments were all duly authorized, executed, and delivered and constitute the 

valid and legally binding obligation of the Borrower and collectively create a valid (first) 

lien upon or valid security interest in favor of the Lender, in the security covered thereby, 

and are enforceable in accordance with their terms, except to the extent that the

enforceability (but not the validity) thereof may be limited by laws of bankruptcy, 

insolvency, or other laws generally affecting creditors' rights. The restrictive-use provisions 

will be contained in the mortgage or deed of trust and the regulatory agreement signed by 

the borrower.

4. The execution and delivery of the Loan Instruments and compliance with the provisions 

thereof under the circumstances contemplated thereby did not, do not, and will not in any 

material respect conflict with, constitute default under, or contravene any contract or 

agreement or other instrument to which the Borrower is a party or any existing law, 

regulation, court order, or consent decree or device to which the Borrower is subject.

5. All applicable Federal, State, and local tax returns and reports as required have been duly 

filed by Borrower and all Federal, State, and local taxes, assessments, and other 

governmental charges imposed upon Borrower or its respective assets, which are due and 

payable, have been paid. 
HB-1-3565

Attachment 4-B 

Page 3 of 4

6. The Guaranty has been duly executed by the Guarantors and is a legal, valid, and binding 

joint and several obligations of the Guarantors, enforceable in accordance with its terms, 

except to the extent that the enforceability (but not the validity) thereof may be limited by 

laws of bankruptcy, insolvency, or other laws generally affecting creditors' rights.

7. All necessary consents, approvals, or authorizations of any governmental agency or 

regulatory authority or of stockholders which are necessary have been obtained. The 

improvements and the use of the property comply in all respects with all Federal, State, and 

local laws applicable thereto. 

8. (In cases involving subordinate or other than first lien position.) That the mortgage/deed of 

trust on Borrower's real estate and (fixtures, e.g. machinery and equipment) and the security 

interest on (type of collateral, e.g., machinery and equipment, accounts receivables and 

inventory) both given as security to the Lender for the Loan, will be subordinate to (first 

mortgage) given as security for a loan in the amount of $______________ and the security 

interest in Borrower's (type of collateral, e.g., accounts inventory) given to (secured 

creditor) as security for a loan (state type of loan, i.e., revolving line of credit, if known) in 

the amount of $__________________. 

9. That there are no liens, as of the date hereof, on record with respect to the property of 

Borrower other than those set forth above. 

10. There are no actions, suits, or proceedings pending or, to the best of our knowledge, 

threatened before any court or administrative agency against Borrower which could 

materially adversely affect the financial condition and operations of Borrower. 

11. Borrower has good and marketable title to the real estate security free and clear of all liens 

and encumbrances other than those set forth above. I/we have no knowledge of any defect 

in the title of the Borrower to the property described in the Loan Instruments. 

12. Borrower is the absolute owner of all property given to secure the repayment of the loan, 

free and clear of all liens, encumbrances, and security interests.

13. Duly executed and valid functioning statements have been filed in all offices in which it is 

necessary to file financing statements to fully perfect the security interests granted in the 

Loan Instruments.

(02-23-12) PN 455 
HB-1-3565

Attachment 4-B

Page 4 of 4

14. Duly executed real estate mortgages/deeds of trust have been recorded in all offices in which 

it is necessary to record to fully perfect the security interests granted in the Loan Instruments.

15. (IN SOME OTHER CIRCUMSTANCES) The Indemnification Agreement has been duly 

executed by the Indemnitors and is a legal, valid, and binding joint and several obligation of 

the Indemnitors, enforceable in accordance with its terms, except to the extent that the 

enforceability (but not the validity) thereof may be limited by laws of bankruptcy, 

insolvency, or other laws generally affecting creditors' rights.

16. That the lease contains a valid and enforceable right of assignment and right of 

reassignment, enforceable in accordance with its terms, except to the extent the 

enforceability (but not the validity) thereof may be limited by laws of bankruptcy, 

insolvency, or other laws generally affecting creditors' rights.

17. The Lender's lien has been duly noted on all motor vehicle titles, stock certificates, or other 

instruments where such notations are required for proper perfection of security interests 

therein.

18. That a valid pledge of the outstanding and unissued stock and/or shares of Borrower has 

been obtained and the Lender has a validly perfected and enforceable security interest in the 

shares/stock of Borrower, except to the extent the enforceability thereof may be limited by 

laws of bankruptcy, insolvency, or other laws generally affecting creditors rights.
HB-1-3565

Attachment 4-C

Page 1 of 1

ATTACHMENT 4-C

CLOSING DOCUMENTS TO BE SUBMITTED

AS PART OF THE FINAL APPLICATION

After the conditional commitment for guarantee has been issued, the proposed closing

documents will be prepared by the lender and forwarded to the Agency with the lender's 

counsel's opinion in the suggested format of Attachment 4-B. Prior to issuing the loan note

guarantee, the State Director will forward the loan docket including all required documents to the 

Office of the General Counsel (OGC) for review unless otherwise directed by OGC. After an 

administrative review, the State Director will include with the docket a letter of recommendation 

indicating any special items, documents, or problems that need to be addressed. The docket will 

be assembled by the lender for OGC review in accordance with guidance listed below and 

indexed and tabbed.

DOCUMENTS TO BE SUBMITTED FOR OGC REVIEW

(1) Letter from Agency authorizing loan guarantee and containing conditions (if 

applicable);

(2) Form RD 3565-2;

(3) Promissory Notes;

(4) Security documents - Real Estate Mortgage, Security Agreement, Financing 

Statements, and Leases (if applicable);

(5) Personal or corporation guarantees with related security documents;

(6) Form RD 3565-3;

(7) Form RD 3565-4;

(8) Opinion of Lender's Counsel in form prescribed by OGC (Attachment 4-B); 

(9) Regulatory Agreement with attached certification from the lender’s attorney (see 

Paragraph 4.16); and

(10) Deed Restriction or other Agency/OGC approved recordable instrument that 

declares that housing must remain available for occupancy by low and moderate 

income households for the original term of the guaranteed loan.

Do not submit for OGC review feasibility studies, title information, or the original 

application unless specifically requested to do so. 

OGC will review the docket and furnish advice to the Agency on whether it may issue the

loan note guarantee after the loan is closed. Such advice is for the benefit of the Agency only 

and does not relieve the lender of its responsibilities under Agency regulations. OGC at his/her 

option may attend the loan closing.

(02-23-12) PN 455

Revised (09-07-22) SPECIAL PN
HB-1-3565

Attachment 4-D 

Page 1 of 2

ATTACHMENT 4-D 

HOUSING ALLOWANCES FOR UTILITIES AND OTHER PUBLIC SERVICES

NAME OF BORROWER:____________________________________________________

EFFECTIVE DATE: ____________________________________________________

LOCATION OF PROJECT: ____________________________________________________

PART I: PROJECT-BASED PAID UTILITIES AND SERVICES

 MONTHLY DOLLAR ALLOWANCES 

______________________________________________________________________________

UTILITY OR SERVICE 0-bdrm 1-bdrm 2-bdrm 3-bdrm 4-bdrm 5-bdrm

HEATING

Natural gas

Bottle gas

Electric

Oil

AIR CONDITIONING

COOKING

Natural gas

Bottle gas

Electric

OTHER ELECTRIC (LIGHTING,

REFRIGERATION, ETC.) 

WATER HEATING

Natural gas

Bottle gas

Electric

Oil

WATER 

SEWER 

TRASH COLLECTION

OTHER (Specify)

___________________________

TOTAL ALLOWANCE

Prepared by: __________________________________________________________________ 

 Borrower or Agent Title Signature Date

(02-23-12) PN 455
HB-1-3565

Attachment 4-D

Page 2 of 2

PART II: ALLOWANCES FOR UTILITIES AND SERVICES BILLED AND PAID DIRECTLY BY 

TENANT

TO: _____________________________________________________

Address of Tenant

Number of Bedrooms:____

You will be billed directly for utilities and service charges. Below are the allowances credited in your rent for the 

payment of utilities. You may be billed for more or less than shown below depending on your use of utilities. 

UTILITY OR SERVICE PER MONTH EXPENSE

Heating $_________

Air Conditioning $_________

Cooking $_________

Other Electric $_________

Water Heating $_________

Water $_________

Sewer $_________

Trash Collection $_________

Other (Specify)__________________ $_________

______________________________ $_________

______________________________ $_________

TOTAL $_________

________________________________________ ______________________

Signature of Borrower or Agent Date

____________________________________________________________________________________
HB-1-3565 

Attachment 4-E 

Page 1 of 3 

ATTACHMENT 4-E 

PLANNING MEETING AGENDA

The purpose of this meeting is to present and discuss USDA Rural Development (Agency) requirements for 

developing a Guaranteed Rural Rental Housing project. Topics marked with an asterisk (*) include procedures that 

apply only when an Agency construction loan guarantee is combined with a permanent loan guarantee. Additional 

information on the topics may be provided in Agency administrative notices, guides, and other documents. The 

Agency will document the meeting with a list of attendees and note whether it took place in person or via conference 

call. 

TOPICS REFERENCES

COMMENTS

Regulation HB-1-3565 / Other

1. Sites

A. Location 3565.251(a) and 

1924.106(c)

3.12 and 3.13

B. Services/facilities No citation 3.13

C. Professional services 1924.105(a)(2) 3.14

D. Site standards 1924.107(a)(2) and

1924.108

3.14

E. Site density No citation 3.15

F. Non-contiguous sites 3565.251(c) 3.16

G. Site control 3565.152 3.17

2. Environmental

A. NEPA process and 

responsibilities

3565.255 and 

1940-G

3.18 and 5.8 and 

Chapters 4 and 11

B. Lender’s Phase I ESA 

included in NEPA review

3565.254(b)(2)

and 1940-G

3.18 and 5.8 and 

11.5

C. FEMA Form 086-0-32 3565.254(b)(3) 11.5

D. Timing issues/scheduling 1940.331 Chapters 4 and 11

E. Parties involved from local 

and state agencies 

3565.254(b) Chapter 11

F. Lender documentation 3565.254(b) Chapter 11

3. Design 

A. Property standards 3565.254(a) and 

1924.5(d)(1)

3.20 and 5.3

B. Drawings and specifications 1924.5(d)(2) and 

1924.13(c),(d)

4.4 A.1., 5.6, and 5.7

C. Professional services 3565.256 and 

1924.13(a)

5.6

D. Agency Reviews 1924.5(h) 5.7

___________________________________________________________________________________________

(02-23-12) PN 455

Revised (12-21-18) PN 520
HB-1-3565

Attachment 4-E 

Page 2 of 3 

PLANNING MEETING AGENDA

TOPICS REFERENCES

COMMENTS

Regulation HB-1-3565 / Other

E. Plan certification 3565.256 and 

1924.5(f)(1)

5.7 and 5.12

4. Accessibility

A. Americans with 

Disabilities Act (ADA) 

compliance

3565.251(d) 3.20 C. and ADA

Accessibility 

Guidelines 

(ADAAG)

B. Van accessible parking 

space for on-site office 

and public spaces

No citation

ADAAG 4.1.2(5)(b)

C. Fair Housing Act (FHA) 

of 1988 compliance

3565.251(d) 3.20 C. and 

FHA / AG

D. All common areas 

accessible No citation

FHA / AG Sec. 5, 

Req. 2; and UFAS 

4.1.3

E. All ground floor units 

adaptable No citation

FHA / AG Sec. 5, 

Req. 4

F. Section 504 of the 

Rehabilitation Act of 

1973

7 CFR 15b and 

3565.251(d)

3.20 C. and Uniform

Federal Accessibility 

Standards (UFAS)

G. 5% fully accessible units

No citation

UFAS 4.1.4(11)(b) 

and 4.34

H. Front loading washers No citation UFAS 4.34.7.2

5. Construction

A. Contract documents 1924.6(a) and 

1924.13(e)(1)(ii)

5.9 and Attachment 

5-A

B. Pre-Construction 

Conference

1924.6(a)(11) 5.2

C. Debarment/Suspension 1940-M 5.5

D. Procurement 3565.257

E. Insurance * 5.14

F. Inspections 3565.303(c)(3) 

and 

3565.303(d)(7)

3.20 and 4.20 and 

5.10 and 5.20

G. Substantial Completion 3565.303(d)(5)

H. Warranty 1924.12 5.11and 5.21

I. Sureties * 3565.303(c)(2) 5.15 and 5.16

J. Payments * 1924-A, and

3565.303 (c)(3)

5.17 and 5.20 and 

5.21

K. Change orders * 1924.10(c) 5.18

L. Cost Certification 3565.303(d)(8) 5.21

M. Annual inspections 3565.351(e) 7.13 A.2.

___________________________________________________________________________________________
HB-1-3565 

Attachment 4-E 

Page 3 of 3

PLANNING MEETING AGENDA

TOPICS REFERENCES

COMMENTS

Regulation HB-1-3565 / Other

6. Professional Mgmt. & 

Servicing

A. Affirmative Fair Housing

Marketing Plan No citation

7.14 C.1.

 B. Assurance Agreement No citation 7.14 C.3.

C. Title VI of Civil Rights Act 

of 1964 No citation

Exhibit 7-5

D. Occupancy Requirements No citation 8.12 A, B, D, E

E. Tenant Grievances No citation 8.14, 8.15

F. Pre-Rent Up Instructions No citation 8.2 I.

Date ______________________ Location ______________________

(indicate if teleconference)

Attendees:

 Name Contact Information

1. ______________________ ______________________

2. ______________________ ______________________

3. ______________________ ______________________

4. ______________________ ______________________

5. ______________________ ______________________

6. ______________________ ______________________

7. ______________________ ______________________

8. ______________________ ______________________

 

(02-23-12) PN 455