12.3 RURAL AREA DESIGNATION [7 CFR 3555.201(a)] (06/04/18)

© RHS HB-1-3555 SFH Guaranteed Loan Program Technical Handbook

Only loans secured by properties located in areas designated by the Agency as rural are eligible to receive a loan guarantee. This section discusses rural areas designations, how lenders are notified of changes in rural area designations, and clarifies rare situations in which loans for properties in areas no longer designated as rural may receive a loan guarantee.

A. Rural Area Definition

An area’s rural designation is determined by the Agency and may be changed as a result of periodic review or after the decennial census of population. The Agency conducts reviews every five years to identify areas that no longer qualify as rural. In areas experiencing rapid growth, and in eligible communities within Metropolitan Statistical Areas (MSAs), reviews take place every three years. Public notification will be given at least 30 days before the date of the final determination in order to give interested parties an adequate chance to comment. Refer to section 3550.10 of 7 CFR 3550 and HB-1-3550 Chapter 5, for additional information regarding rural area designations.In general, rural areas are defined as:

Open country that is not part of, or associated with, an urban area;
Any town, village, city, or place, including the immediately adjacent densely settled area, which is not part of, or associated with, an urban area, and which:
- Is rural in character with a population of less than 10,000; or
- Is not contained within an MSA and has a population above 10,000 but below 20,000 and has a serious lack of mortgage credit for lower and moderate-income families. Any area classified as “rural” or a “rural area” prior to October 1, 1990, and determined not to be “rural” or a “rural area” as a result of data received from or after the 1990, 2000, or 2010 decennial census, and any area deemed to be a “rural area” any time during the period beginning January 1, 2000, and ending December 31, 2010, shall continue to be so classified until the receipt of data from the decennial census in the year 2020 if such area has a population in excess of 10,000 but not in excess of 35,000, is rural in character, and has a serious lack of mortgage credit for lower and moderate-income families.
Two or more towns, villages, cities, or places that are contiguous may be considered separately for a rural designation if they are not otherwise associated with each other, and their densely settled areas are not contiguous.

B. Notification of Rural Area Designation

The public website noted below provides an automated system to allow users to enter addresses and determine property eligibility. Users who utilize the public website will receive one of three property eligibility decisions when an actual address is entered – “Eligible,” “Ineligible,” or “Unable to Determine.” In areas not clearly delineated, users will receive an “Unable to Determine.” With this type of determination, the lender must confirm with Agency staff the property is located in a rural area and eligible for a guarantee prior to requesting an appraisal.USDA Rural Development
Property and Income Eligibility Website: https://eligibility.sc.egov.usda.gov Attachment 12-A of this Chapter provides guidance on utilizing the public website to determine eligible rural areas.

C. Making Loans in Areas Changed to Non-rural

If an area’s designation changes from rural to non-rural, loans that meet the following criteria may be approved in that area:

Purchase transactions are eligible if the following requirements are met:
- The application is dated and received by the lender prior to the area designation change;
- The Loan Estimate was issued within three days of the application date;
- The purchase contract is ratified prior to the date of the area designation change; and,
- The applicant and property meet all other loan eligibility requirements.
Existing conditional commitments that have been issued will be honored provided the commitment was issued prior to the area designation change;
Existing direct and guaranteed loans that meet all requirements, as outlined in Chapter 12, remain eligible for refinance transactions;
REO property sold from Agency inventory remain eligible for purchase transactions;
SFHGLP REO property sales and transfers with assumption may be processed in areas that have changed to non-rural;
A supplemental loan may be made in conjunction with a transfer and assumption of a guaranteed loan.