The USDA Rural Development stimulates housing and related industries in more ways than you think. Aside from offering direct and guaranteed home loans, it also provides loans for lands in rural areas to be developed into housing sites for families with low and moderate incomes. These are called rural housing site loans and let’s get to know them here.
Rural Housing Site Loans
This program offers loans to nonprofit organizations, both public and private, and federally recognized tribes so they can purchase tract of lands and develop them into housing sites for eligible families.
There are two types of loans under the program:
A. Section 523 for Self-Help Housing
These loans are used to purchase and develop housing sites using the self-help method only. As defined by RD Instruction 1944-1, self-help refers to a construction method where a family utilizes their labor to reduce the construction cost of their home. Under the self-help method, the family can’t exchange labor with another participating families.
Nonprofit organizations such as those with capacity – financial, technical and managerial – and legal authority for the operation of a revolving loan fund, as well as federally recognized tribes are welcome to apply for Section 523 loans.
B. Section 524 for Income-Eligible Families
These loans are used to purchase and develop sites for low- and moderate-income families where there is no restriction in housing construction. For a family to be classified as low-income, its income ranges 50 percent to 80 percent of the applicable area’s median income. A moderate-income is one with an upper limit of $5,500 above the low-income limit.
As with Section 523, public or private nonprofits and federally-recognized tribes can apply for Section 524 loans. And these organizations or tribes can sell these houses on a nonprofit basis through the USDA’s Housing and Community Facilities Program’s loans or other mortgage financing that caters to low and moderate-income borrowers.
Terms of Rural Housing Site Loans
Each rural housing site loan has a two-year repayment term. But the interest rate varies between the two types. The interest rate on a Section 523 is 3% while on a Section 524 is based on the market rate.
Interested parties may coordinate with their respective state’s USDA Rural Development Office. For eligible areas, check here.