RURAL HOUSING SERVICE (RHS) SECTION 538 GUARANTEED RURAL RENTAL HOUSING PROGRAM (GRRHP) GUIDELINES
Purpose:
The purpose of the Guaranteed Rural Housing Program is to increase the supply of affordable rural rental housing, through the use of loan guarantees that encourage partnership between RHS, private lenders and public agencies.
Eligible Rural Area:
An area with a population not to exceed 20,000 that is not contained within a Metropolitan Statistical Area, and has a serious lack of mortgage credit for low and moderate income households as determined by the Secretary of Agriculture and the Secretary of HUD.
Maximum Loan:
90% of Total Development Costs or Appraisal Value which ever is less. For not-for-profit entities or Indian Tribes the maximum loan is 97% of Total Development Costs or Appraisal Value which ever is less.
Debt Service Coverage:
Minimum Debt Service Coverage is 1.15 x .
Interest Rate:
The interest rate stated in the note will be fixed for the term of the loan. The interest rate is a function of the market for loans backed by the RHS Guarantee and will be fixed at the date the loan is committed to by an investor.
Interest Rate Credit:
For at least 20 percent (20%) of the loans made during each fiscal year, RHS will provide assistance in the form of an interest credit to the extent necessary to reduce the agreed upon interest rate to the Long Term Monthly Applicable Federal Rate (AFR). The interest rate credit is limited to the first $1.5 million of the loan amount. The interest credit is paid by RHS following the January 1 of the year in which the project has reached occupancy standards, and the Loan Note Guarantee is converted to a Final Loan Note Guarantee. At the time of conversion the borrower must post thirteen months of prepaid interest credit.
Maximum Term of Loan:
40 years.
Assumption:
The loan is assumable subject to RHS regulations for an Assumption. A fee of one percent (1%) but not less than $5,000 is to accompany the Assumption request.
Personal Liability:
The loan is non-recourse.
NOFA Process:
In order to obtain a RHS Loan Guarantee, all potential borrowers must apply through an RHS approved lender for the loan guarantee obligation. Every year RHS issues a NOFA requesting proposals for loan guarantees for specific projects. The NOFA’s are scored and funding is obligated based on those projects that meet the necessary requirements of the NOFA.
RHS Application Fee:
A flat fee of $2,500 to be paid at time of loan Application to RHS.
P/RMIC Application Fee:
The P/RMIC Application Fee in an amount necessary to pay appraisal, environmental, market study, and engineering costs incurred to process the loan.
P/RMIC Financing Fee:
P/RMIC will charge a Financing Fee payable at closing of 2.0% of the loan amount.
Initial Guarantee Fee:
RHS charges an initial guarantee fee equal to on (1.0%) percent of the guarantee amount.
Annual Guarantee Fee:
RHS charges an annual guarantee fee of 50 Basis Points (one-half percent) on the outstanding prepayment balance of the loan.
Commitment Fee:
When the loan is committed to be funded by an investor, a one half of one percent (1/2 of 1%) deposit fee is required by the investor. This fee is not a financeable fee. It is refundable only in the event the loan is funded by the investor.
Guarantee During Construction:
In case of a combination construction and permanent loan, the loan guarantee will go into effect as the construction funds are drawn down. In order to obtain the guarantee acceptable credit enhancements must be obtained, surety bonding or a performance and payment bond.
an irrovacable letter of credit acceptable to Lender and RHS.
Permanent Loan Guarantee:
The permanent loan guarantee will not go into effect until:
a) The Lender has determined, with RHS concurrence, that a minimum level of occupancy has been obtained. Minimum Occupancy means at least 90% occupancy for 90 days at proforma rents. In lieu of meeting the minimum level of occupancy, borrowers may establish an operating reserve equal to 2.0% of appraisal value or total development costs which ever is greater.
b) An updated Appraisal of the project as built has been approved.
c) Confirmation that all conditions in the RHS conditional commitment of guarantee have been satisfied.
d) RHS has completed their necessary assistance review.
If tax credits are used in conjunction with the GRRHP, the borrower must meet any occupancy requirements in the tax credit partnership agreement before the permanent guarantee is issued.
Additional Requirements:
a) Working Capital- an escrow of cash or letter of credit equal to 2.0% of the loan amount.
b) Offsite Escrows- if any.
Funding:
Permanent financing is accomplished in the form of either 100% participation interest in the guaranteed loan, a GNMA security, or Tax Exempt Bonds which are placed with institutional investors. A GNMA-MBS can only be used for tax-credit projects with Loan to Development Costs of less than fifty percent (50%).
Prepayment:
The loan is pre-payable to the extent allowed based upon the prepayment language utilized when the loan is placed with an investor. Investors allow varying prepayment provisions and could require a prohibition on prepayment of up to ten years.
Standard prepayment provisions are as follows:
a) 5% the first year declining by 1% each year thereafter.
b) 5 year lock-out, 5% the sixth year declining 1% each year thereafter.
c) 10 year lock-out, 0% thereafter
The type of prepayment provision has a direct relationship to the interest rate required by the investor. The longer the prepayment prohibition, the lower the interest rate an investor will allow.
Prevailing Wage Required:
No.
Cost Certification Required
Yes.
RHS Environmental Review:
The National Environmental Policy Act (NEPA) requires that RHS complete an environmental review in accordance with RD Instruction 1940-6. The purpose of the review is to assess the impact of the project on the environment in the vicinity of the project.
Federal Accessibility
Requirement: All RHS projects must comply with the Americans with Disabilities Act (ADA) the Fair Housing Act and Section 504 of the Rehabilitation Act of 1973.
Affordability:
Affordability restrictions below must be established as a deed restriction for the full term of the loan, even if the loan is prepaid. Eligible tenants are those with incomes at or below 115% of the area median. After initial occupancy, there are no further income restrictions or any requirement for tenant income certification. Average rent + utility allowance must be equal to or less than 30% of 115% of the area median income. Maximum rent + utility allowance must be equal to or less than 30% of 115% of area median income.
Acquisition/Rehab:
A minimum rehabilitation of $6,500 per unit.