Back to Previous Section

Rural Housing Service's Section 538
Guaranteed Rural Housing Program:
A Guide For Developers

© Housing Assistance Council, 2000

Permission is granted ONLY to nonprofit community-based organizations to reproduce and/or adapt this document, and only for their own use. 

II. RHS RURAL HOUSING PROGRAMS

A. Using RHS Rural Housing Programs

RHS rural housing programs are relatively easy to use. While land and housing development are complicated processes with complex governmental involvement, use of the RHS programs as financing vehicles should not add roadblocks to a project's success. They are very close to "do it yourself" programs for which the informed person or organization can apply without extensive use of expensive consultants.

There are five "basics" to understanding and properly using RHS housing programs:

  1. Know what they do. Know the programs' purposes, as defined by law.

  2. Know how they do it. Know the programs' processing procedures, as established by agency instructions, which are used by Rural Development and RHS loan processing and approval officials.

  3. Know why they do it a particular way. Know how much authority Rural Development officials have. Variations from national instructions may occur because of state or local law or because of misinterpretation by individual officials.

  4. Follow agency instructions. Provide what is asked for in the manner requested. Consult with the RHS/Rural Development office prior to developing a preapplication.

  5. Obtain information on the current and future availability of funds.

Given a working knowledge in these basics, anyone can become reasonably proficient in using the RHS programs.

B. RHS Service Area

RHS rural housing programs are available to eligible applicants (see Sections III.B and III.C, below, regarding eligibility) in places considered to be "rural areas" under the agency's unique statutory definition of "rural." The definition is explained below, but the easiest way to know whether a particular place is "rural" is to consult the map on display in each Rural Development Field Office showing eligible rural areas within its jurisdiction. Political boundaries (boundaries of counties, incorporated towns, and the like) are not necessarily relevant.

"Rural" areas include open country that is not part of or associated with an urban area. Also included are any town, village, city or place, including places which are not part of or associated with an urban area but immediately adjacent to densely settled areas, with a population not in excess of 10,000 and rural in character. Areas with populations in excess of 10,000 but not in excess of 20,000 that are not contained within a Metropolitan Statistical Area (MSA), and have a serious lack of mortgage credit as determined by the Departments of Agriculture and Housing and Urban Development, are eligible.

Areas presently classified as rural or areas classified as rural prior to October 1, 1990, and areas determined not rural in character as a result of the 1990 decennial Census continue to be eligible if they have a population between 10,000 and 25,000, are rural in character, and have a serious lack of mortgage credit for low- and moderate-income families. (This provision may be changed – either to update it when data from the 2000 Census become available or, as proposed in Congress in 2000, to maintain eligibility based on the 1980 Census through 2010.)

A determination that open country or any town, village, city, or place is not part of or associated with an urban area must include a finding that any densely populated section of the area in question is separated from the densely populated section of any adjacent urban area by open spaces. These open spaces must be undeveloped, agricultural, or sparsely settled. These spaces may not be due to physical barriers, commercial or industrial developments, public parks, areas reserved for recreation, or similar open spaces. This determination should also consider such other factors as the existence of known plans for development within the near future (three to five years) of a substantial portion of the intervening land between the area in question and an urban area. The latest official Bureau of the Census data or more recent official population counts (U.S. Census of Population or other governmental official counts) are used in determining population.

Two or more towns, villages, cities, and places may have contiguous boundaries and still be considered separately provided they are not otherwise associated with each other and their densely populated areas are not contiguous. The Rural Development State Director is responsible for determining boundaries of rural areas and will issue an appropriate State Supplement to identify such areas by list and maps. Areas in excess of 10,000 population will be identified as "rural areas" in a State Supplement only after written authorization by the National Office.

When a change of designation from rural to nonrural is anticipated, the general public in the affected area is notified. If any area designation is changed from rural to nonrural, loans may be made there only in the following instances: loan requests received by Rural Development prior to the designation change may be processed; new conditional commitments may be issued and existing conditional commitments will be honored only in conjunction with the approval of loan requests received prior to the date the area was designated nonrural; credit sales and transfers with assumptions may be processed; and subsequent loans may be made on property in an area where the designation was changed from rural to nonrural after the initial loan was made where the subsequent loan will be used to make necessary repairs, or to pay equity in connection with an assumption and transfer of a Section 502 direct loan.

C. RHS/Rural Development Organization

RHS is a federal agency and is part of the Rural Development mission area within the U.S. Department of Agriculture. Most of its loan programs are processed directly by Rural Development or RHS employees. Its organization is as follows:

  1. The RHS National Office sets policy and develops regulations.

  2. Rural Development Local Offices administer direct single-family programs in a state or multistate area. The Local Office director is titled "Community Development Manager."

  3. Rural Development Area Offices and/or State Offices receive, process and service applications for the Section 514/516 and 515 multifamily housing programs. Rural Development State Directors have been given discretion in their use of Area Offices, so Area Office use varies among states. The directors of Area Offices, where they exist, are titled "Rural Development Managers."

D. Locating Rural Development Area Offices

Rural Development maintains approximately 260 Area Offices serving all rural areas of the United States, Puerto Rico, the Virgin Islands, and the Western Pacific Territories. To locate the Area Office serving your area:

  1. Look for the local Rural Development office in the telephone book under U.S. Government, Department of Agriculture, Rural Development. If not under Rural Development, it may still be listed under the Farmers Home Administration or Rural Economic and Community Development. Local office staff can provide you with the address and telephone number of the Area Office serving your area.

  2. Write or call the Rural Development State Office (see Appendix L or find your state at http://www.rurdev.usda.gov/recd_map.html).

  3. Contact the National RHS Office for the current address of any Rural Development office in the nation. Write to Rural Housing Service, U.S. Department of Agriculture, 1400 Independence Ave., S.W., Stop 0781, Washington, DC 20250, or call 202-692-0067.

E. Applicable Regulations

The regulations for the Section 538 program are set out in Title 7, Part 3565 of the Code of Federal Regulations (7 CFR Part 3565). Additional essential guidelines are provided in a Rural Housing Service handbook, HB-1-3565, in which the regulations are included as Appendix 1. Other applicable regulations include instructions published in an annual Notice of Fund Availability and:

  • 7 CFR Part 11, Appeals
  • 1924-A, Development standards, architectural requirements, contracts
  • 1924-C, Subdivision and site criteria
  • 1930-C, Management, tenant occupancy, rental assistance
  • 1940-G, Environmental
  • 1944-L, Tenant grievance and appeal

These regulations can be found in Title 7 of the Code of Federal Regulations (CFR). For example, Instruction 1924-A is located in 7 CFR Part 1924, Subpart A. While the published CFR volumes may be convenient, they are updated annually only, and may not reflect key changes or revisions made during the interim. It is advisable to obtain copies of instructions from RHS/Rural Development offices, or recently updated CFR provisions from the World Wide Web at http://www.access.gpo.gov/nara/cfr/index.html.

Rural Development State Offices may issue relevant state instructions as well. State instructions are not discussed in this guide.

The RHS Administrator, or an official he/she designates, may make an exception to the regulations when the exception does not conflict with the law and failure to take action would adversely affect the government's interest or program objectives. Authorization for exceptions is found in Section 3565.13 of the regulations and paragraph 1.10 in HB-1-3565.

F. Ordering Instructions

Public entities and nonprofit organizations can obtain single copies of a limited number of instructions free. Others can obtain a copy or copies for a copying charge. Instructions may be ordered from Rural Development Local, Area, or State Offices by requesting the instruction by name and number. If the needed instruction is unavailable from those offices, write to:

    Rural Development
    Assistant Administrator
    Finance Office
    FC-313
    1520 Market Street
    St. Louis, MO 63103

  1. Note you are a nonprofit or public organization.

  2. Note the instruction number, such as 1944-D.

  3. To subscribe for instruction changes, on a calendar year basis, send a check for $40.00 payable to the "Treasury of The United States."

Most RHS/Rural Development regulations and handbooks, including HB-1-3565, can also be downloaded from the USDA web site at http://rdinit.usda.gov/regs/.

On to Next Section

Back to Table of Contents