HB-1-3550

(01-23-03) SPECIAL PN

Added (02-06-23) PN 574

APPENDIX 13 

SELF-HELP HOUSING

I. OVERVIEW OF SELF-HELP HOUSING. The Self-Help Program is authorized under SEC.

523. [42 U.S.C. 1490c] of the Housing Act of 1949, as amended and is further defined at 7 CFR 1944, 

Subpart I as well as RD Instruction 1944-I. The purpose of this program is to facilitate the efforts of both 

public and private nonprofit organizations providing oversight to low and very low-income families who, 

with the benefit of technical assistance, participate in Self-Help housing programs. Section 523 grant 

recipients (hereafter referred to as Grantee) use funds primarily for administrative costs to seek out the 

land for construction, package loan applications for participants, acquire quotes for building materials, 

aid in the solicitation and selection of subcontracted labor, and direct program participants in tasks to 

complete 65% of the labor contributed to constructing the dwelling or for rehabilitation projects, plan 

labor tasks that will contribute to the owner realizing cost savings.

The Section 502 Direct Home Loan Program is typically utilized by participants choosing to build their 

homes in the Self-Help Program. In some areas, the Section 502 Program is used to acquire and 

rehabilitate existing homes. For owner occupied rehabilitation, the Section 504 Program is encouraged. 

Processing steps for a 502 or 504 Self-Help loan follow the requirements of Handbook-1-3550 and RD 

Instruction 1924-A unless otherwise addressed in this Appendix.

II. APPLICATION PROCESSING PRIORITY. Chapter 3 of this Handbook discusses application 

processing priorities. Self-Help applications receive a priority four. They are priority four given the 

benefit of this partnership to all involved and given that delays in loan processing adversely affect a 

Grantee’s production goals for their grant. When Grantees are unable to meet their production goals 

for a grant, the cost of that program rises. Field Staff should consider these factors when processing 

category four applications.

III. SELF-HELP LOAN APPLICATION PACKAGING. Part of the requirementsfor Grantees

Is packaging 502 Direct loan applications to Rural Development for Self-Help Program participants. SelfHelp packaging is separate from the certified packaging process, but Grantee’s must follow the process 

found in Attachment 3-A of this handbook, including the use of the required applicant disclosure letter, 

Application/Property Submittal Cover Letters, eForms for application submittal, etc. As described in 

Attachment 3-A of this handbook, all packagers act as a “liaison” between the applicant and the Agency, 

and it is important that the Field Staff keeps the Grantee informed throughout loan application 

processing.

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IV. ENVIRONMENTAL REVIEWS. Self-Help new construction typically affects parcels of land with 4 or 

more proposed lots which constitutes a ‘significant impact’ and will require a higher level of 

Environmental Review (ER) than the purchase of an existing home. Determining the level of ER required 

will likely need to occur even before loan application packages are submitted. The ER process should 

begin when a Grantee is purchasing land for the Self-Help Program. If the Grantee has another source of 

Federal funding such as the Self-Help Opportunity Program (SHOP) funded by the U.S. Department of 

Housing and Urban Development (HUD), Rural Development should coordinate with the other Federal

Agencies to jointly process the ER. Guidance for ERs is found in RD Instruction 1970 series 

“Environmental” and Chapter 1, Paragraph 1.14 A. of this handbook.

V. APPRAISALS. Appraisal ordered by Grantees will be accepted provided that:

a. Rural Development is notified of the intent to order and the cost of the appraisal prior 

to any contractual commitment. Once notified Rural Development will:

i. Within three business days of receiving this notification, issue the applicant a 

third-party appraisal Loan Estimate (LE) and accompanying tailored Handbook 

Letter 5.

ii. RD will list the cost of the appraisal as provided by the third party, which may 

exceed the Agency’s prevailing appraisal fee in Paragraph 5.20 of this handbook.

b. Ordersthe appraisal only after:

i. Receiving notification from Rural Development to proceed with the order.

ii. Explaining to the applicant that they are ordering the appraisal on the 

applicant’s behalf and that the applicant will have to cover the fee, out-ofpocket, if the loan does not close.

• The Grantee may choose to collect the appraisal fee from the applicant 

prior to ordering. The appraisal fee, even though paid to the Grantee, is 

an allowable excess cost and is eligible to be reimbursed to the 

borrower from their loan proceeds at loan closing. A paid receipt must 

be forwarded to the Field Office to ensure proper credit and disclosure 

on the settlement statement.

c. The Grantee will provide a copy of the paid invoice for the appraisal along with a copy of 

the appraisal that:

i. Meets the Uniform Standards of Professional Appraisal Practice and Agency 

appraisal standards, as described in Chapter 5, Paragraph 5.14 of this Handbook, 

and 7 CFR 3550, § 3550.62 Appraisals.

ii. Lists Rural Development as an “intended user.”

d. The appraisal isreviewed for acceptability by Rural Development.

i. Rural Development must complete Form RD 1922-15, “Administrative Appraisal 

Review for Single Family Housing.”

ii. At a minimum, the first five appraisals obtained by a Grantee will receive a preclosing technical review.

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HB-1-3550

(01-23-03) SPECIAL PN

Added (07-21-23) PN 588

iii. All appraisals submitted by Grantees, which are subject to a technical preclosing 

review, must be entered into the Appraisal Hub on SharePoint to assist with the 

monitoring of performance and compliance.

iv. RD staff appraisers should complete their review within three business days. At 

the discretion of the appraisal staff, additional revisions or reviews may be 

required.

v. When additional revisions are needed, they will be addressed by RD staff 

appraisers, in coordination with the Field Staff, and the third party.

e. Once the Administrative Appraisal Review (and any applicable technical pre-closing 

review) determines the appraisal is acceptable, the RD processing Field Office must 

ensure the applicant is promptly provided a copy.

Loan funds may be used to reimburse the payor of the appraisal fee at loan closing. The amount 

of reimbursement for the appraisal may exceed the Agency’s standard appraisal fee (Chapter 5, 

Paragraph 5.20). The paid invoice for the appraisal and instructions for “paid outside of closing” 

reimbursement will be sent to the closing agent for proper disclosure and settlement.

VI. SELECTING A CONTRACTOR. RD Instruction 1924-A describes authorized construction 

methods which are the contract, borrower, Mutual Self-Help, and owner-builder. The Mutual Self-Help 

method is defined as the performance of work by mutual labor under the direction of a construction 

supervisor. The ways of doing the work, buying materials, and contracting for special services are like 

those used in the borrower method whereby the owner acts as their own general contractor. In the 

Mutual Self-Help method, a group agreement acts as the governing document between the builder and 

the Grantee. The group agreement is a vital document that outlines roles and responsibilities, labor 

contribution requirements, subcontracting arrangements, grievance procedures, and other items

related to the group build. The Loan Approval Official must be familiar with this agreement which is part 

of the approved Self-Help application docket. All changes must be reviewed by the Agency prior to use.

Under the Mutual Self-Help method, the Grantee is NOT a contractor and should NOT be asked to sign a 

construction contract or builder warranty. RD Instruction 1944-I, § 1944.406 of this section, specifically 

prohibits the Grantee from hiring personnel for the purpose of performing the participants’ construction 

work on the homes. Construction supervisors assisting families in building homes can perform work 

alongside the families so long as they do not perform an entire task solely and their work is not the 

determining factor of completing the task.

Grantees are vetted through the Section 523 approval process and are not checked as a 

contractor through Do Not Pay (DNP).

VII. CONSTRUCTION DOCUMENTS. The items listed below are submitted as part of the Section 

523 application process but must be updated as needed and submitted by the Grantees as part of each 

Section 502 construction package as follows:

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HB-1-3550

• Plans and Specifications. The building plans and specifications should be signed by the Grantee 

and the applicant on each page.

• Form RD 1924-2, Description of Materials. Required to be submitted for each application file.

• Form RD 1924-25, Plan Certification. The plans, specifications, calculations, and any 

modifications must be certified by the design professional on Form RD 1924-25, to ensure that 

the appropriate codes and standards are met.

• Development Budget. The development budget may include an amount for construction 

contingencies resulting from unusual and unforeseen circumstances beyond the contractor’s or 

borrower’s control (refer to Chapter 5, Paragraph 5.23 A of this Handbook, for the allowable 

amount and conditions). Form RD 1924-1 “Development Plan” is not required, provided the 

development budget contains the same information that would be recorded on the form.

The Grantee is responsible for subcontractor communication, and the Rural Development file does not 

need to contain pre-construction meeting documents as it would with new construction other than SelfHelp. Construction may not begin until the loan has closed. 

VIII. SUBCONTRACTS. Grantees work with subcontractors and suppliers to procure the needed 

supplies and skilled labor required to complete the homes. The Grantee obtains bids and selects the 

best available contractors/suppliers. The borrowers’ 502 loan funds are then used to make the 

purchases and pay invoices. To this end, contracts with subcontractors/vendors must be signed by the 

owner/builders but may be made individually with each owner/builder or as a group. Group contracts 

must clearly identify the charge to each participant, allow warranties to be issued directly to the owner, 

and must allow homeowners to work directly with the subcontractor for warranty work. In either case, 

the group agreement, signed by participants, should specify which process(es) the Grantee will be 

permitted to use. Subcontracts in Self-Help are unlike those in construction with a general contractor 

because funds are paid directly to the subcontractors. For this reason, it is reinforced that the following 

are required for subcontracted work under the Self-Help Program:

• Department of Labor Notification. Individual contracts that exceed $10,000 do require 

notification to the U.S. Department of Labor as described in Chapter 5, Paragraph 5.23 D 

of this Handbook. Group contracts exceeding $10,000 only require notification if the 

individual charge to any one home exceeds the threshold.

• Do Not Pay. Subcontracts $25,000 or more require clearance through the DNP system. See 

Paragraph 4.11 A for guidance on the DNP portal.

• Contractor’s Final Release and Waiver of Lien. Each subcontractor used during 

construction must sign Form RD 1924-9, “Contractor’s Final Release and Waiver of Lien.”

• Release of Claimant. Each subcontractor used during construction must signs Form RD 

1924-10, “Release by Claimants. Grantees” will maintain a list of subcontractors for each 

build to ensure this form can be easily obtained prior to final payments being made.

• Builder’s Warranty. Individual warranties offered on materials and subcontracted labor 

should be given by the Grantee to the owner with a copy to the Rural Development file. 

Grantees should not be asked to sign any warranty forms.

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IX. ADMINISTERING CONSTRUCTION FUNDS. In the Self-Help Program, Grantees are prohibited

from using Section 523 grant funds to pay for the construction of the homes. Again, the Grantee is not a 

contractor so Field Offices should advance draws to avoid any need to reimburse a Grantee’s

unrestricted funds that may have been used to pay for home construction while awaiting draws from 

the 502 accounts. To this end, draws against the 502 builders’ accounts will be guided by work in place 

and work to be completed in the next 30 days. Self-Help draws are not subject to the release of funds 

based on 60 or 90 percent of the work in place which is required under the contract method for new 

construction with a contractor. Grantees may request up to 100 percent of work in place as well as an 

advance for large, planned purchases in the next 30 days. At closing, an initial draw to cover the land,

plans/specs, permits, and other costs which will be incurred within the first 30 days of closing (such as 

opening the supervised or custodial account) maybe be issued. Provided the borrower has signed off on 

the draw request (see RD Instruction 1944-I, 1944.425 (b)), treasury checks may be made payable in the 

Grantee’s name alone when they have been approved to use a custodial bank account in accordance 

with RD Instruction 1944-I, 1944.425.

Field Staff should be aware that group split items are permissible for required building costs 

shared by the group (e.g., shared outhouse, power bill, tool rental, nail buckets, etc.). Draw requests 

should be made no more than once a month and must include documentation of the expenditures due 

on a detailed coversheet. Copies of corresponding invoices, code inspection reports, and pictures of 

progress should be attached to the detailed coversheet, as applicable (note that invoices coming due in 

the next 30 days may be unavailable at the time of the request and can be submitted with the next 

monthly draw). The coversheet will be signed by both the Grantee and the participating family before it 

is submitted for processing. A Rural Development inspection is not required for each draw, but Rural 

Development staff should monitor construction progress as compared to funds drawn down to ensure 

their general alignment (e.g., if the house is 20% complete, draws should be approximately 20% of the 

construction costs). RD Instruction 1944-I,§ 1944.425 of this section, provides requirements that must 

be met before a Grantee is authorized to manage 502 account funds in a custodial or supervised 

account.

X. SELF-HELP INSPECTIONS. Inspection requirements are the same for the Self-Help Program. An 

inspection report and pictures from a Grantee can be accepted as a third-party inspection; however, to 

avoid any conflict of interest, Grantee inspections should not be the only ones completed. Grantee 

inspection should be coupled with local county/city inspectors, RD inspections, or other approved thirdparty inspectors. Inspections that cause a charge to the 502 borrower account should be used as a last 

resort. Grantees should never be asked to pay for an inspection.

XI. POST CLOSING LEVERAGED LOANS/GRANTS. Self-Help is a partnership between Rural 

Development and the Grantee and consistent communication is key to success. If unforeseen 

circumstances arise and additional funding is needed during construction, the Grantee should contact 

the borrower and Rural Development immediately. In some cases, the Grantee may have access to 

affordable home loan/grant products which could be used to cover cost overruns; however, an 

additional loan/grant adversely impacts a Self-Help builder’s sweat equity. Grantees who regularly place 

second liens on Self-Help participant’s property is an indication that there is an issue with the Grantee’s 

management/oversight of the project. State Offices should discuss these occurrences with the National 

Office for further guidance. Post-closing loans or grants should NOT be provided to the borrower 

without notification to Rural Development.

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(01-23-03) SPECIAL PN

Revised (12-22-23) PN 601
HB-1-3550

XII. PARTICIPANT WITHDRAWL. In rare cases, a Self-Help owner/builder may be unable to 

complete the program. Grantees should communicate these issues to Rural Development. The group 

agreement should provide instructions for expelling a member from the group, or a borrower may quit; 

however, once a loan is closed, the program participant is in ownership of the property and must make 

decisions as such. In the event an owner/builder will not complete the home through the program, final 

decisions regarding how to move forward and complete the house must be made as follows:

1. Transfer to Another Self-Help Borrower- The borrower may wish to facilitate the sale of the 

partially built home to another very-low or low-income applicant on the Grantee’s waiting list. 

Rural Development can extend new loan funds to an eligible borrower for such a transfer (when 

funds are limited a new rates and terms assumption can be processed). A purchase and sale 

agreement will need to be executed between the owner and the incoming Self-Help Program 

participant. Parties should consider the closing costs required for the new loan when 

establishing the sales price (e.g., the closing cost will be seller paid, the applicant will take out a 

supplemental loan, or some other arrangement).

2. Contract Method- Some borrowers may wish to find a contractor to complete their home. This 

will likely cause the need for the borrower to qualify for a subsequent loan to cover the higher 

cost of building with a contractor.

The owner should be notified of their option in writing, given a reasonable timeframe to respond and be 

advised that the loan must be converted to permeant and payments started if they do not respond.

XIII. CONSTRUCTION CLOSEOUT. Once construction or rehabilitation work is satisfactorily 

completed, Rural Development will coordinate with the Grantee to close out construction, including 

converting the loan to permanent with payments starting 30 days after. At least 60 days prior to 

conversion, Rural Development should work with the Grantee to obtain the necessary paperwork for 

conversion including updated income documents, taxes, insurance information, etc. As with 

construction under the contract method, loan conversion MUST happen on the first of the month after 

the final inspection, issuance of the certificate of occupancy, or the new/repaired dwelling becomes 

occupied.

A. Funds Remaining After Completion. Any remaining loan funds which were deposited into the 

custodial/SBA account to pay final invoices for the home should be reconciled and closed quickly 

after conversion. It is anticipated that any final invoice would be paid within 60 days and

unused loan funds will be returned to Rural Development as a curtailment of the loan balance.

B. Compensation for construction defects. RD Guide Letter 1924-1, “Notification to Eligible 

Borrowers of Benefits Under RD Instruction 1924-F” should be provided to the borrower by the 

Field Office at conversion and will cover any materials/supplies as well as work completed by 

subcontractors.

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XIV. SELF-HELP TAKE-OUT LOANS. Using the Section 502 Direct Home Loan Program as take-outfinancing for self-help homes is highly discouraged. A Grantee’s organizational risk is elevated when 

holding ownership of the property during construction. If a Grantee chooses to process take-out loans, 

Rural Development assumes no liability for lack of available funding, unqualified applicants, ineligible 

properties, etc. Rural Development will not predetermine eligibility or obligate loan funds outside the 

instruction of this handbook.

XV. OTHER LOAN FINANCING. There is no requirement for Self-Help Program participants to 

use Rural Development financing. Self-Help Program participants must be at or below Rural

Developments low-income limit for the Grantee to charge the grant for the work completed and 

claim an equivalent unit under the grant. If an owner/builder is not receiving a Rural 

Development loan, they would not submit an application so Field Offices should refer to RD

Instruction 1944-I for information on what documents the Grantee should submit which will be 

kept in the Section 523 file to ensure they meet program requirements.

XVI. RURAL ELIGIBLITY REVIEWS. If Section 523 grantee owns or is currently in processes of 

buying land approved for site development prior to the newly designated non-rural area, Section 

502 Loan and 504 Loan and Grant assistance may continue to be provided for new and existing 

homes, within the boundaries of that site until either:

1) the terms of the grant agreement that concern the site development have been 

completed, or

2) two years has passed from the effective date of the revised designation.

Appendix 13, Page 7 of 7

(01-23-03) SPECIAL PN

Revised (12-22-23) PN 601