In the United States, an RHS loan is a loan that is either made by or guaranteed by the U.S. Department of Agriculture’s Rural Housing Service (RHS). The aim of the Rural Housing Service (RHS) is to improve qualify of life in rural communities throughout the country.
Not all RHS loans are home mortgage loans. The RHS have loan programs for a wide range of rural community services, including schools, childcare centers, police stations, fire stations, and health care clinics. The RHS also offers long-term subsidized loans for the construction of affordable rentals or cooperative housing for under served rural populations, especially if it concerns low-income, elderly and/or disabled residents.
The most well-known aspect of RHS is arguably their subsidized home loan program for rural people with low or moderate incomes. These loans can be used to purchase a rural home, construct a rural home or rehabilitate a rural home. At the time of writing, the interest rate for these loans are 1% (effective annual interest).
Low-income rural residents that are 62 years or older can apply for home-repair grants. The cap for such as grant is $7,500.
Is my area rural enough for me to get an RHS mortgage loan?
Sometimes it can be tricky to know if you live in an area that is “rural enough” to qualify for an RHS mortgage loan. It is important to know that a house doesn’t have to be located on a lonely hill 2+ hours from the next neighbor to qualify for a RHS mortgage loan.
This is RHS’s definition of rural area:
An open country or any town, village, city, or place, including the immediate adjacent densely settled area, which is not part of or associated with an urban area and which:
(1)Has a population not in excess of 2,500 inhabitants; or
(2)Has a population in excess of 2,500 but not in excess of 10,000 if it is rural in character; or
(3)Has a population in excess of 10,000 but not in excess of 20,000, and-
(i)Is not contained within a Metropolitan Statistical Area; and
(ii)Has a serious lack of mortgage credit for lower and moderate-income families as determined by the Secretary of Agriculture and the Secretary of Housing and Urban Development.
Please note that the 2014 Farm Bill allows some areas with populations up to 35,000 to remain eligible for RHS loans until receipt of the 2020 decennial census.
Key RHS Programs & Services for individuals
- Biorefinery, Renewable Chemical, and Biobased Product Manufacturing Assistance Program
- Farm Labor Housing Direct Loans & Grants
- Household Water Well System Grants
- Individual Water & Wastewater Grants
- Multi-Family Housing Direct Loans
- Rural Energy for America Program Renewable Energy Systems & Energy Efficiency Improvement Loans & Grants
- SEARCH – Special Evaluation Assistance for Rural Communities and Households
- Single Family Housing Direct Home Loans
- Single Family Housing Guaranteed Loan Program
- Single Family Housing Repair Loans & Grants
- Socially-Disadvantaged Groups Grant
- Value Added Producer Grants
Section 502 loans
Section 502 loans are a certain type of rural loans made directly by the Rural Housing Service (RHS) or by private lenders with a USDA guarantee. The loans comprise a rural housing loan program authorized under Section 502 of the Housing Act of 1949, hence the name.
Section 502 loans are available for purchasing or repairing new or existing single-family housing. Borrowers should fall into a category of people that are unable to secure reasonable credit elsewhere, but that are still deemed capable of repaying a Section 502 loan. Priority is given to first-time home buyers.
Your income in relation to the area’s median income will determine your eligibility for a Section 502 loan.
- Loans with terms up to 38 years are available for individuals and families with an income that is below 60% of the area median income.
- A borrower with income of 80% or less of the area median income may be eligible for 33-year direct loans, and may receive interest credit to bring the interest rate down to 1%.
- A borrower with income of up to 115% of the area median income may be eligible for 30-year loan that is provided by a private lender but guaranteed by the RHS.
In order to be approved for a Section 502 loan, you may be required to complete a home ownership counseling program.