USDA Rural Housing Programs: An Overview
Bruce E. Foote
Analyst in Housing Policy
October 29, 2010
Congressional Research Service
7-5700
www.crs.gov
RL33421
CRS Report for Congress
P
repared for Members and Committees of Congress

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USDA Rural Housing Programs: An Overview

Summary
Title V of the Housing Act of 1949 authorized the Department of Agriculture (USDA) to make
loans to farmers to enable them to construct, improve, repair, or replace dwellings and other farm
buildings to provide decent, safe, and sanitary living conditions for themselves or their tenants,
lessees, sharecroppers, and laborers. USDA was also authorized to make grants or combinations
of loans and grants to those farmers who could not qualify to repay the full amount of a loan, but
who needed the funds to make the dwellings sanitary or to remove health hazards to the
occupants or the community.
While the act was initially targeted toward farmers, over time the act has been amended to enable
USDA to make housing loans and grants to rural residents in general. Currently, the USDA
housing programs are administered by the Rural Housing Service (RHS). The housing programs
are generally referred to by the section number under which they are authorized in the Housing
Act of 1949, as amended.
The rural housing programs include loans for the purchase, repair, or construction of single-
family housing; loans and grants to remove health and safety hazards in owner-occupied homes;
loans and grants for the construction and purchase of rental housing for farmworkers; loans for
the purchase and construction of rental and cooperative housing for the elderly and for rural
residents in general; rental assistance payments to make rental housing more affordable; interest
subsidies to make homeownership loans more affordable and to enable production of rental
housing that is affordable for the target population; and loans for developing building sites upon
which rural housing is to be constructed.
The collapse of the mortgage market in 2007 has resulted in an increased demand for home loans
that are insured or guaranteed by the federal government, including the USDA Section 502
guaranteed home loans. By May 2010, the FY2010 funding for the USDA guaranteed loan
program was exhausted.
As enacted on July 29, 2010, the 2010 Supplemental Appropriations Act, P.L. 111-212, authorized
additional appropriations for Section 502 guaranteed loans for the remainder of FY2010. The act
also permits USDA to charge lenders a guarantee fee of up to 3.5% of the mortgage amount. In
addition, lenders may be charged an annual fee of 0.5% of the mortgage balance for the life of the
loan. These changes in the guarantee fees are intended to enable the Section 502 guaranteed home
loan program to operate with little or no need for positive credit subsidies in FY2011 and beyond.
On September 30, 2010, a continuing resolution was enacted, P.L. 111-242, which funds all
USDA housing programs at the FY2010 level through December 3, 2010.

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USDA Rural Housing Programs: An Overview

Contents
Introduction ................................................................................................................................ 1
Single-Family Housing Loans (Section 502) ............................................................................... 1
Section 502 Direct Loan Program.......................................................................................... 2
Section 502 Guaranteed Loan Program.................................................................................. 2
Summary of Differences Between the Programs .................................................................... 3
Modernizing Rural Homes (Section 504)..................................................................................... 4
Construction Defects/Underserved Areas (Section 509) ............................................................... 5
Construction Defects............................................................................................................. 5
Underserved Areas ................................................................................................................ 5
Housing for Farm Laborers (Sections 514 and 516) ..................................................................... 5
Rural Rental Housing (Section 515) ............................................................................................ 7
Rental Assistance and Interest Subsidy (Section 521) .................................................................. 8
Self-Help Housing (Section 523)................................................................................................. 8
Developing Building Sites (Section 524) ..................................................................................... 9
Housing Preservation Grants (Section 533) ................................................................................. 9
Guaranteed Loans for Rental Housing (Section 538) ................................................................. 10
Rural Housing Voucher Program (Section 542) ......................................................................... 12
Recent Funding Issues............................................................................................................... 12
Multi-family Housing Preservation and Revitalization Program (MPR)............................... 12
Funding for Section 502 Guaranteed Home Loans ............................................................... 13

Tables
Table 1. Funding for Selected Rural Housing Programs, FY1980-FY2010................................. 15
Table 2. Funding for Selected Rural Housing Programs, FY1980-FY2010................................. 16

Contacts
Author Contact Information ...................................................................................................... 18

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USDA Rural Housing Programs: An Overview

Introduction
Title V of the Housing Act of 1949 authorized the Department of Agriculture (USDA) to make
loans to farmers to enable them to construct, improve, repair, or replace dwellings and other farm
buildings to provide decent, safe, and sanitary living conditions for themselves or their tenants,
lessees, sharecroppers, and laborers.1 USDA was also authorized to make grants or combinations
of loans and grants to those farmers who could not qualify to repay the full amount of a loan, but
who needed the funds to make the dwellings sanitary or to remove health hazards to the
occupants or the community.
While the act was initially targeted toward farmers, over time it has been amended to enable
USDA to make housing loans and grants to owners of real estate in rural areas in general.2
Currently, the USDA housing programs are administered by the Rural Housing Service (RHS).
The housing programs are generally referred to by the section number under which they are
authorized in the Housing Act of 1949, as amended.
Descriptions of the rural housing programs are presented below in the order of the sections under
which they are authorized in the Housing Act of 1949. Note that most of the programs involve
direct loans from USDA, while others involve USDA-insured loans from private lenders. USDA
is one of the few government agencies that makes direct loans to borrowers. The report concludes
with a discussion of funding problems for the guaranteed home loan program. At the end of the
report, tables are presented that show funding for various rural housing programs since FY1980.
Single-Family Housing Loans (Section 502)
Section 502 of the Housing Act of 1949 gave USDA authority to make housing loans to farm
owners to construct or repair farm dwellings and other buildings, for themselves or their tenants,
sharecroppers, and laborers.
The Housing Act of 1949 was amended in 1961 to make nonfarm properties eligible for the
Section 502 loans.3 Amendments by the Housing and Urban Development Act of 1965 authorized
the loans to be used for the purchase and repair of previously-occupied dwellings as well as the
purchase of building sites.4 Amendments in 1968 enabled borrowers to receive interest credits to
reduce the interest rate to as low as 1%.5 The Housing and Urban Development Act of 1970
enabled Section 502 loans to be made for homes on leased land as long as the remaining term of
the lease extends beyond the repayment period of the loan.6

1 P.L. 81-171, October 25, 1949, 42 U.S.C. 1471, et. seq.
2 As amended, Section 520 of the Housing Act of 1949 (42 U.S.C. 1490) defines rural to include any open country,
place, town, village, or city (1) with a population of up to 10,000; (2) with a population of up to 20,000 that is not part
of a standard statistical area, and that has a serious lack of mortgage credit for lower- and moderate-income families as
determined by USDA; and (3) with a population of up to 25,000 that was classified as rural based on a previous
decennial census, and that has a serious lack of mortgage credit for lower- and moderate-income families.
3 Section 803 of P.L. 87-70 (June 30, 1961).
4 Section 1001 of P.L. 89-117 (August 10, 1965).
5 Section 1001 of P.L. 90-448 (August 1, 1968).
6 Section 802 of P.L. 91-609 (December 31, 1970).
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USDA Rural Housing Programs: An Overview

As amended, today’s Section 502 program enables borrowers to obtain loans for the purchase or
repair of new or existing single-family housing in rural areas. The loans can also be used to
purchase new manufactured homes. In effect, there are now two Section 502 home loan
programs—one in which borrowers receive direct home loans from USDA, and one in which
borrowers receive USDA-guaranteed home loans from private lenders.
Section 502 Direct Loan Program
Borrowers with income levels at or below 80% of the area median may be eligible for direct loans
from USDA. The loans can be used to build, repair, renovate, or relocate homes, or to purchase
and prepare building sites, including providing water and sewage facilities. Section 502 loans
may also be used to refinance debts when necessary to avoid losing a home through foreclosure
or when a loan of $5,000 or more is necessary for repairs to correct major deficiencies and make
the dwelling safe and sanitary.
In a given fiscal year, at least 40% of the funds for this program must be made available only to
families or individuals with incomes below 50% of the area median. Borrowers must have the
means to repay the loans but be unable to secure reasonable credit terms elsewhere. There is no
downpayment requirement. In general, the loans are repayable over a 33-year period. The loan
term may be extended to 38 years for borrowers with incomes below 60% of the area median, and
who cannot afford the property based on the 33-year payments. The loan term is limited to 30
years on manufactured homes.
Applicants must apply for and obtain Certificates of Eligibility from USDA, which indicate the
USDA underwriting process has determined that they qualify for and can afford to repay Section
502 mortgages. The borrower’s monthly contribution for principal, interest, property taxes, and
insurance (PITI) is set at the higher of (1) 24% of the borrower’s adjusted annual income; or (2)
principal and interest calculated at 1% on the Section 502 loan plus property taxes and insurance.
The borrower’s income is verified annually, and the borrower’s required payments may be
increased or reduced based on changes in income.
Housing financed under the Section 502 program must be modest in size, design, and cost. Each
USDA Rural Development State Office can choose between two ways of setting a cost limit to
define modest housing in its state: (1) a State Office can adopt the limit established by its state
housing agency; or (2) a State Office can adopt a limit calculated according to USDA’s
regulations that takes cost and market value into account.
Section 502 Guaranteed Loan Program
The Housing and Community Development Act of 1987 directed USDA to carry out a three-year
demonstration program under which moderate income borrowers could obtain loans from private
lenders for the purchase of single-family homes in rural areas and the loans would be guaranteed
by USDA under Section 502 (42 U.S.C. 1472).7 A permanent guaranteed loan program was
authorized in 1990 by the Cranston-Gonzalez National Affordable Housing Act.8

7 Section 304 of P.L. 100-242 (February 5, 1988).
8 Section 706 of P.L. 101-625 ( November 28, 1990).
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Borrowers with income of up to 115% of the area median may purchase homes in rural areas with
USDA-guaranteed loans from private lenders. Priority is given to first-time homebuyers, and
USDA may require that borrowers complete a homeownership counseling program. USDA uses
two formulas to determine a family’s ability to undertake the responsibility of a mortgage: (1) the
PITI must be 29% or less of gross monthly income; and (2) the total of all monthly debts
(including the mortgage payment) must be 41% or less of gross monthly income.
Section 502 guaranteed loans must be from lending institutions that have been approved by
USDA. Loans have 30-year terms and fixed market-level interest rates. Loans may be for up to
100% of the home’s appraised value or the sales price, whichever is less. The maximum loan
amount is what the homeowner can afford based on the above criteria. Loans may include closing
costs, legal fees, title services, the cost of establishing an escrow account, and other prepaid items
as long as the appraised value is higher than the sales price.
The American Homeownership and Economic Opportunity Act of 2000 authorized USDA to
guarantee loans made to refinance existing Section 502 home loans.9 The interest rate on the new
loan must be fixed and the rate may not exceed the interest rate on the loan being refinanced. The
property being refinanced must be owned and occupied by the borrower as the principal
residence, and the new loan may not exceed the remaining balance of the refinanced loan plus
any authorized closing costs.
The USDA charges the lender a one-time guarantee fee of 2% of the loan amount, and the lender
may choose to pass this charge along to the borrower by adding it to the mortgage.10 The
guarantee fee for refinance transactions is 0.5% of the loan amount. USDA guarantees the loan at
100% of the loss for the first 35% of the original loan, and the remaining 65% of the loan is
guaranteed at 85% of loss. The maximum loss payable by USDA cannot exceed 90% of the
original loan amount. No private mortgage insurance is required of the borrower.
There are no restrictions on the size or design of homes financed with Section 502 guaranteed
loans. Typical amenities, such as garages, central air conditioning, basements, and extra
bathrooms, are allowed. In-ground swimming pools are permitted as long as loan funds are not
used to finance the contributory value of the pool. In other words, the loan amount may not
include the value that the pool adds to the appraised value of the property.11 Manufactured homes
must be new and permanently installed.
Summary of Differences Between the Programs
The major differences between the Section 502 direct loan and guaranteed loan programs are as
follows:
• The lender and servicer for the direct program is USDA. The lender for Section
502 guaranteed loans is a private lender that also handles all the loan servicing.

9 Section 701 of P.L. 106-569.
10 The fee was raised to 2% by Section 739 of P.L. 106-387 but that change is not codified at 42 U.S.C. 1472(h)(7).
11 James C. Alsop, In-Ground Swimming Pools, Single Family Housing Guaranteed Loan Program, U.S. Department
of Agriculture, Rural Development Administrative Notice No. 4442 (1980-D), Washington, DC, May 28, 2009.
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USDA Rural Housing Programs: An Overview

• Income levels for participants in the direct program must not exceed 80% of the
median income for the area. Income levels for participants in the Section 502
guaranteed program may not exceed 115% of the area median income.
• Borrowers in the direct loan program may receive subsidies to bring the interest
rate as low as 1%. No interest rate subsidy is available to borrowers in the
guaranteed loan program, so loans are at market interest rates.
• The size of homes may be restricted under the direct loan program, while there is
no size restriction under the guaranteed loan program.
• Borrowers under the direct loan program must be unable to secure reasonable
credit terms elsewhere, while there is no “credit elsewhere” test for borrowers
under the guaranteed loan program.
Modernizing Rural Homes (Section 504)
For farmers without sufficient income to qualify for a Section 502 loan, Section 504 of the
Housing Act of 1949 (42 U.S.C. 1474) authorized loans, grants, or combinations of loans and
grants to make farm dwellings safe and sanitary or to remove health hazards.12 Low-income
nonfarm homeowners became eligible for the program in 1961.13 Eligibility was extended to
leasehold property in 1970.14 The 1983 Housing Act made the program available to very low-
income homeowners only.15 The act also eliminated congressionally mandated loan and grant
limits for individual homeowners and gave USDA the authority to set those limits.
Under current regulations, rural homeowners with incomes of 50% or less of the area median may
qualify for USDA direct loans to repair their homes. Loans are limited to $20,000, and have a 20-
year term at a 1% interest rate. Owners who are aged 62 or more may qualify for grants of up to
$7,500 to pay for needed home repairs. To qualify for the grants, the elderly homeowners must
lack the ability to repay the full cost of the repairs. Depending on the cost of the repairs and the
income of the elderly homeowner, the owner may be eligible for a grant for the full cost of the
repairs, or for some combination of a loan and a grant that covers the repair costs. The
combination loan and grant may total no more than $20,000.

12 42 U.S.C. 1474.
13 P.L. 87-70, Section 801, June 30, 1961, 42 U.S.C. 1474.
14 P.L. 91-609, Section 802, December 31, 1970, 42 U.S.C. 1474.
15 P.L. 98-181, Section 504, November 30, 1983, 42 U.S.C. 1474.
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Construction Defects/Underserved Areas
(Section 509)
Construction Defects
Section 504 of the Housing and Community Development Act of 1977 added Section 509(c) to
the Housing Act of 1949 (42 U.S.C. 1479).16 Under Section 509(c), USDA is authorized to
receive and resolve complaints concerning construction of Section 502 housing by contractors. If
a contractor refuses or is unable to honor a warranty, the borrower may be eligible for a grant for
the cost of correcting the defects. The borrower must begin the process within 18 months of the
completion of the home. Related costs, such as temporary living expenses, may be included in the
grant.
Underserved Areas
The Cranston-Gonzalez National Affordable Housing Act amended Section 509 by adding
subsection (f) which mandates set asides of some USDA lending authority.17 In each fiscal year,
USDA is required to designate 100 counties and communities as “targeted underserved areas”
that have severe unmet housing needs. The USDA must set aside 5% of each fiscal year’s lending
authority under Sections 502, 504, 515, and 524, and reserve it for assistance in targeted
underserved areas. Colonias, however, are given priority for assistance with the reserved funds.18
The USDA must also set aside sufficient Section 521 rental assistance that may be used with the
Section 514 and Section 515 programs. (See “Rental Assistance and Interest Subsidy (Section
521),” below.)
Subsection (f) also created the Housing Application Packaging Grant (HAPG) program under
which nonprofit organizations, community development organizations, state or local
governments, or their agencies may receive grants from USDA to help low-income families and
individuals prepare applications for USDA housing loans in targeted underserved areas and
colonias.
Housing for Farm Laborers (Sections 514 and 516)
The Housing Act of 1961 added Section 514 to the Housing Act of 1949 (42 U.S.C. 1484).19
Under Section 514, loans are made to farm owners, associations of farm owners, or nonprofit

16 P.L. 95-128, October 12, 1977, 42 U.S.C. 1479.
17 P.L. 101-625, Section 709(b), November 28, 1990, 42 U.S.C. 1479.
18 Colonias are defined as any identifiable community that (1) is in the state of Arizona, California, New Mexico, or
Texas; (2) is within 150 miles of the border between the United States and Mexico (except for metropolitan areas with
populations exceeding 1 million); (3) is designated as a colonia by the state or county in which it is located; (4) is
determined to be a colonia on the basis of objective criteria such as a lack of a potable water supply, inadequate sewage
systems, and a shortage of decent, safe and sanitary housing; and (5) was in existence and recognized as a colonia prior
to November 28, 1990.
19 P.L. 87-70, Section 804, June 30, 1961, 42 U.S.C. 1484.
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organizations to provide “modest” living quarters, basic household furnishings, and related
facilities for domestic farm laborers. The loans are repayable in 33 years and bear an interest rate
of 1%. To be eligible for Section 514 loans, applicants must be unable to obtain financing from
other sources that would enable the housing to be affordable by the target population.
Individual farm owners, associations of farmers, nonprofit organizations, federally recognized
Indian tribes, and agencies or political subdivisions of local or state governments may be eligible
for loans from USDA to provide housing and related facilities for domestic farm labor. Applicants
who own farms or who represent farm owners must show that the farming operations have a
demonstrated need for farm labor housing, and the applicants must agree to own and operate the
property on a nonprofit basis. Except for state and local public agencies or political subdivisions,
the applicants must be unable to provide the housing from their own resources and unable to
obtain the credit from other sources on terms and conditions that they could reasonably be
expected to fulfill. The applicants must be unable to obtain credit on terms that would enable
them to provide housing to farm workers at rental rates that would be affordable to the workers.
The USDA state director may make exceptions to the “credit elsewhere” test when (1) there is a
need in the area for housing for migrant farm workers and the applicant will provide such
housing, and (2) there is no state or local body or nonprofit organization that, within a reasonable
period of time, is willing and able to provide the housing.
Applicants must have sufficient capital to pay the initial operating expenses. It must be
demonstrated that, after the loan is made, income will be sufficient to pay operating expenses,
make capital improvements, make payments on the loan, and accumulate reserves.
In 1964, the 1949 Housing Act was amended to add Section 516 (42 U.S.C. 1486).20 The Section
516 program permitted qualified nonprofit organizations, Indian tribes, and public bodies to
obtain grants for up to two-thirds of the development cost of farm labor housing. Applicants must
demonstrate that there is a need for such housing, and that there is reasonable doubt that the
housing would be built without USDA assistance. Grants may be used simultaneously with
Section 514 loans if the necessary housing cannot be provided by financial assistance from other
sources. The section was amended in 1970 to permit grants of up to 90% of the development cost
of the housing.21 The 1983 Housing Act provides that in decisions on approving applications
under these two sections, USDA shall consider only the needs of farm laborers and make the
determination without regard to the extent or nature of other housing needs in the area.22 The act
also requires that, in a given fiscal year, up to 10% of the funds available under Section 516 shall
be made available to assist eligible nonprofit agencies in providing housing for domestic and
migrant farm workers.23
Nonprofit organizations, Indian tribes, and local or state agencies or subdivisions may qualify for
Section 516 grants to provide low-rent housing for farm labor. The organizations must be unable
to provide the housing from their own resources, and be unable to secure credit (including Section
514 loans) on terms and conditions that the applicant could reasonably be expected to fulfill.
Applicants must contribute at least 10% of the total development costs from their own resources
or from other sources, including Section 514 loans. The housing and related facilities must fulfill

20 P.L. 88-560, Section 503, September 2, 1964, 42 U.S.C. 1486.
21 P.L. 91-609, Section 801(d)(4), December 31, 1970.
22 P.L. 98-181, Section 510, November 30, 1983.
23 P.L. 98-181, Section 513, November 30, 1983.
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a “pressing need” in the area, and there must be reasonable doubt that the housing can be
provided without the grant.
The Housing and Community Development Act of 1987 redefined “domestic farm labor” to
include persons (and the family of such persons) who receive a substantial portion of their income
from the production or handling of agricultural or aquacultural products.24 They must be United
States citizens or legally admitted for permanent residence in the United States. The term includes
retired or disabled persons who were domestic farm labor at the time of retiring or becoming
disabled. In selecting occupants for vacant farm labor housing, USDA is directed to use the
following order of priority: (1) active farm laborers, (2) retired or disabled farm laborers who
were active at the time of retiring or becoming disabled, and (3) other retired or disabled farm
laborers.
Farm labor housing loans and grants to qualified applicants may be used to buy, build, or improve
housing and related facilities for farm workers, and to purchase and improve the land upon which
the housing will be located. The funds may be used to install streets, water supply and waste
disposal systems, parking areas, and driveways, as well as for the purchase and installation of
appliances such as ranges, refrigerators, and clothes washers and dryers. Related facilities may
include a maintenance workshop, recreation center, small infirmary, laundry room, day care
center, and office and living quarters for a resident manager.
Section 514 loans are available at 1% interest for up to 33 years. Section 516 grants may not
exceed the lesser of (1) 90% of the total development cost of the project, or (2) the difference
between the development costs and the sum of (a) the amount the applicant can provide from its
own resources, and (b) the maximum loan the applicant can repay given the maximum rent that is
affordable to the target tenants.
Rural Rental Housing (Section 515)
The Senior Citizens Housing Act of 1962 amended the Housing Act of 1949 by adding Section
515 (42 U.S.C. 1485).25 The law authorized USDA to make loans to provide rental housing for
low- and moderate-income elderly families in rural areas. Amendments in 1966 removed the age
restrictions and made low- and moderate-income families, in general, eligible for tenancy in
Section 515 rental housing.26 Amendments in 1977 authorized Section 515 loans to be used for
congregate housing for the elderly and handicapped.27
Loans under Section 515 are made to individuals, corporations, associations, trusts, partnerships,
and public agencies. The loans are made at a 1% interest rate and are repayable in 50 years.
Except for public agencies, all borrowers must demonstrate that financial assistance from other
sources will not enable the borrower to provide the housing at terms that are affordable to low-
and moderate-income borrowers. There are restrictions on the amount of rent borrowers may
charge to occupants. Subject to USDA approval, borrowers set project rents based on the debt
service for the loans and reasonable operating and maintenance expenses.

24 P.L. 100-242, Section 305, February 5, 1988.
25 P.L. 87-723, Section 4(b), September 28, 1962, 42 U.S.C. 1485.
26 P.L. 89-754, Section 804, November 3, 1966.
27 P.L. 95-128, Section 508, October 12, 1977.
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The Housing and Community Development Act of 1987 amended the Housing Act of 1949 to
state that occupancy of Section 515 housing, which has been allocated low-income housing tax
credits (LIHTC),28 may be restricted to those families whose incomes are within the limits
established for the tax credits.29 If, however, USDA finds that some of the units have been vacant
for at least six months and that their continued vacancy will threaten the financial viability of the
project, then higher-income tenants will be authorized to occupy the units.
Rental Assistance and Interest Subsidy (Section 521)
In 1968, Section 521 was added to the Housing Act of 1949 (42 U.S.C. 1490a).30 Section 521
established an interest subsidy program under which eligible low- and moderate-income
purchasers of single-family homes (under Section 502) and nonprofit developers of rental housing
(under Section 515) may obtain loans with interest rates subsidized to as low as 1%.31
Section 521 was amended in 1974 to authorize USDA to make rental assistance payments to
owners of USDA-financed rental housing (Sections 515 or 514) on behalf of tenants unable to
pay the USDA-approved rent with 25% of their income.32 Amendments in the 1983 Housing Act
provide that rent payments by eligible families would equal the greater of (1) 30% of monthly
adjusted family income, (2) 10% of monthly income, or (3) for welfare recipients, the portion of
the family’s welfare payment that is designated for housing costs.
The rental assistance payments, which are made directly to the borrowers, make up the difference
between the tenants’ payments and the USDA-approved rent for the units. Borrowers must agree
to operate the property on a limited profit or nonprofit basis. The term of the rental assistance
agreement is 20 years for new construction projects and five years for existing projects.
Agreements may be renewed for up to five years. An eligible borrower who does not participate
in the program may be petitioned to participate by 20% or more of the tenants eligible for rental
assistance.
Self-Help Housing (Section 523)
The Housing and Urban Development Act of 1968 added Section 523 to the Housing Act of 1949
(41 U.S.C. 1490c).33 Under Section 523, nonprofit organizations may obtain two-year loans to
purchase and develop land that is to be subdivided into building sites for housing to be built by
the mutual self-help method (groups of low-income families who are building their own homes).

28 For background on the LIHTC, see CRS Report RS22389, An Introduction to the Design of the Low-Income Housing
Tax Credit, by Mark P. Keightley.
29 P.L. 100-242, Section 306, February 5, 1988. LIHTC provides a 10-year reduction in tax liability for owners of low-
income rental housing based on the development costs of low-income apartments. In general, apartments financed
using LIHTC cannot be rented to anyone whose income exceeds 60% of area median gross income.
30 P.L. 90-448, Section 1001, August 1, 1968.
31 Eligible borrowers under the single-family program are those who are unable to afford the mortgage payment at the
current interest rate with 24% of their adjusted income. Eligible borrowers under the multi-family program are those
who are unable to pay the indebtedness on the housing at the current interest rate.
32 P.L. 93-383, Section 514, August 22, 1974.
33 P.L. 90-448, Section 1005, August 1, 1968.
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The interest rate is 3% for these loans. Applicants must demonstrate a need for the proposed
building sites in the locality.
Nonprofit sponsors may also obtain technical assistance (TA) grants to pay for all or part of the
cost of developing, administering, and coordinating programs of technical and supervisory
assistance to the families who are building their own homes. Each family is expected to
contribute at least 700 hours of labor in building homes for each other. Participating families
generally have low income and are unable to pay for homes built by the contract method.
Applicants must demonstrate that (1) there is a need for self-help housing in the area, (2) the
applicant has or can hire qualified people to carry out its responsibilities under the program, and
(3) funds for the proposed TA project are not available from other sources.
The program is generally limited to very low- and low-income families. Moderate-income
families may be eligible to participate, provided they are unable to pay for homes built by
contractors.
TA funds may not be used to hire construction workers or to buy real estate or building materials.
Private or public nonprofit corporations, however, may be eligible for two-year site loans under
Section 523. The loans may be used to purchase and develop land in rural areas. The land is
subdivided into building sites and sold on a nonprofit basis to low- and moderate-income
families. Generally, a loan will not be made if it will not result in at least 10 sites. The sites need
not be contiguous.
Sites financed through Section 523 may only be sold to families who are building homes by the
mutual self-help method. The homes are usually financed through the Section 502 program.
Developing Building Sites (Section 524)
In 1979, Section 524 was added to the Housing Act of 1949 (42 U.S.C. 1490d).34 Under Section
524, nonprofit organizations and Indian tribes may obtain direct loans from USDA to purchase
and develop land that is to be subdivided into building sites for housing low- and moderate-
income families. The loans are made for a two-year period.
Sites financed through Section 524 have no restrictions on the methods by which the homes are
financed or constructed. The interest rate on Section 524 site loans is the Treasury cost of funds.
Housing Preservation Grants (Section 533)
The Rural Housing Amendments of 1983 amended the Housing Act of 1949 by adding Section
533 (12 U.S.C. 1490m).35 This section authorizes USDA to make grants to organizations for (1)
rehabilitating single-family housing in rural areas that is owned by low- and very low-income
families, (2) rehabilitating rural rental properties, and (3) rehabilitating rural cooperative housing

34 P.L. 91-152, Section 413(f)(1), December 24, 1969.
35 P.L. 98-181, Section 522, November 30, 1983.
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USDA Rural Housing Programs: An Overview

that is structured to enable the cooperatives to remain affordable to low- and very low-income
occupants.
Applicants must have a staff or governing body with either (1) the proven ability to perform
responsibly in the field of low-income rural housing development, repair, and rehabilitation; or
(2) the management or administrative experience that indicates the ability to operate a program
providing financial assistance for housing repair and rehabilitation.
The homes must be located in rural areas and be in need of housing preservation assistance.
Assisted families must meet the income restrictions (income of 80% or less of the median income
for the area), and must have occupied the property for at least one year prior to receiving
assistance. Occupants of leased homes may be eligible for assistance if (1) the unexpired portion
of the lease extends for five years or more, and (2) the lease permits the occupant to make
modifications to the structure and precludes the owner from increasing the rent because of the
modifications.
USDA is authorized to provide grants to eligible public and private organizations. The grantees
may in turn assist homeowners in repairing or rehabilitating their homes by providing the
homeowners with direct loans, grants, or interest rate reductions on loans from private lenders. A
broad range of housing preservation activities are authorized: (1) the installation and/or repair of
sanitary water and waste disposal systems to meet local health department requirements; (2) the
installation of energy conservation materials such as insulation and storm windows and doors; (3)
the repair or replacement of heating systems; (4) the repair of electrical wiring systems; (5) the
repair of structural supports and foundations; (6) the repair or replacement of the roof; (7) the
repair of deteriorated siding, porches, or stoops; (8) the alteration of a home’s interior to provide
greater accessibility for any handicapped member of the family; and (9) the additions to the
property that are necessary to alleviate overcrowding or to remove health hazards to the
occupants. Repairs to manufactured homes or mobile homes are authorized if (1) the recipient
owns the home and site, and has occupied the home on that site for at least one year, and (2) the
home is on a permanent foundation or will be put on a permanent foundation with the funds to be
received through the program. Up to 25% of the funding to any particular dwelling may be used
for improvements that do not contribute to the health, safety, or well-being of the occupants; or
materially contribute to the long-term preservation of the unit. These improvements may include
painting, paneling, carpeting, air conditioning, landscaping, and improving closets and kitchen
cabinets.
USDA is also authorized to make Section 533 grants to organizations that will rehabilitate rental
and cooperative housing.
Guaranteed Loans for Rental Housing (Section 538)
The Section 538 program was added in 1996 (42 U.S.C. 1490p-2).36 Under this program,
borrowers may obtain loans from private lenders to finance multi-family housing, and USDA
guarantees to pay for losses in case of borrower default. Section 538 guaranteed that loans may be
used for the development costs of housing and related facilities that (1) consist of five or more
adequate dwelling units, (2) are available for occupancy only by renters whose income at time of

36 P.L. 104-120, March 28, 1996.
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USDA Rural Housing Programs: An Overview

occupancy does not exceed 115% of the median income of the area, (3) would remain available to
such persons for the period of the loan, and (4) are located in a rural area.
Eligible lenders include the following: (1) any lender approved by the Federal National Mortgage
Association (Fannie Mae), the Federal Home Loan Mortgage Corporation (Freddie Mac), or the
Federal Housing Administration (FHA), and currently active in their multi-family housing
guaranteed lending programs; (2) state or local housing finance agencies; (3) members of the
Federal Home Loan Bank System; and (4) other lenders that demonstrate to USDA that they have
knowledge and experience with multi-family lending. In any case, the lenders must apply to
USDA for permission to participate in the program. Eligibility must be verified every year.
Eligible borrowers include public agencies, Indian tribes, individuals, general partnerships (if
formed for a term at least equal to the loan term), limited partnerships, for-profit corporations,
nonprofit corporations, limited liability companies, and trusts. In addition, borrowers must meet
the following requirements: (1) be a creditworthy single-asset entity37 or have received prior
written approval from USDA; (2) not be in default under any other agency housing program, or
have performed well for six months in an approved workout plan; (3) be able to and intend to
operate and maintain the project in accordance with program requirements; (4) be in legal and
regulatory compliance with respect to any federal debt; (5) be a U.S. citizen or legal resident, a
U.S.-owned corporation, or a limited liability corporation (LLC) or a partnership where the
principals are U.S. citizens or permanent legal residents. Borrowers must contribute initial
operating capital equal to at least 2% of the loan amount.
The eligible uses of loan proceeds include new construction; moderate or substantial
rehabilitation and acquisition when related to the rehabilitation; acquisition of existing buildings
for special needs; acquisition and improvement of land; development of essential on- and off-site
improvements; development of related facilities; on-site management and maintenance offices;
appliances; parking development and landscaping; limited commercial space costs; professional
and application fees; technical assistance and packaging fees to and by nonprofit entities; board of
director education fees for cooperatives; interest on construction loans; relocation assistance
when applicable; developers fees; and refinancing applicant debt when authorized in advance to
pay for eligible purposes prior to loan closing and approved by RHS. The program may not be
used for transient or migrant housing, health care facilities, or student housing. Unless granted an
exception by USDA, refinancing is not an authorized use of funds.
The interest rates on Section 538 loans must be fixed. The maximum allowable interest rate is as
specified in each year’s Notification of Funding Availability (NOFA). In order to help the Section
538 program serve low- and moderate-income tenants, however, at least 20% of Section 538
loans made each year must receive interest credit subsidy sufficient to reduce the effective
interest rate to the Applicable Federal Rate (AFR) defined in Section 42(I)(2)(D) of the Internal
Revenue Code.38

37 A single-asset entity is one that owns no assets other than the proposed project.
38 The AFR is available at http://ftp.fedworld.gov/pub/irs-utl%20/afrs.pdf, or in the Wall Street Journal on the third
Wednesday of each month, labeled the “Long Term Monthly Rate.”
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USDA Rural Housing Programs: An Overview

Rural Housing Voucher Program (Section 542)
The Housing and Community Development Act of 1992 added Section 542 (42 U.S.C. 1490r) to
the Housing Act of 1949.39 Owners of complexes financed through the USDA Section 515
program receive subsidized loans, and agree to rent only to low-income residents. The rental rates
are controlled. When the mortgage is paid off, the owner has the right to raise rents to what the
local economy can bear. Rural Housing Vouchers are made available to residents to cover the
difference between the tenant’s rent contribution and the new rental rate.40 Tenants may use the
voucher at their current property or any other rental unit that passes Housing and Urban
Development (HUD) housing quality standards, and where USDA vouchers are accepted. Use of
the vouchers is prohibited at HUD Section 8 or other federally assisted public housing projects.
Recent Funding Issues
Multi-family Housing Preservation and Revitalization Program
(MPR)
In November 2004, USDA released a report on the Section 515 program.41 The purpose of the
report was to assess the status of the Section 515 portfolio in terms of prepayment options and
long-term rehabilitation needs. While few health and safety issues were found, the report found
that no properties had adequate reserves or sufficient cash flow to do needed repairs and for
adequate maintenance over time. The report concluded that the USDA portfolio of Section 515
projects represented a federal investment of nearly $12 billion; that the projects serve some of the
poorest and most underserved families in rural communities; and that the location, physical
condition, and tenant profile of the properties suggest that the public interest is best served by
revitalizing most of the housing for long-term use by low- and moderate-income tenants. The
report recommended a revitalization program for USDA multi-family housing.
In response to the report, the Agriculture, Rural Development, Food and Drug Administration,
and Related Agencies Appropriations Act of 2006, P.L. 109-97, included a provision that created a
demonstration program for the preservation and revitalization of multi-family rental housing
properties. The program is referred to as the Multi-Family Housing Preservation and
Revitalization (MPR) program. The purpose of the MPR program is to preserve Section 515 and
Section 514/516 projects in order to provide safe and affordable housing for low-income
residents. Expectations are that properties selected to participate will be able to be revitalized and
extend affordable use without displacing or impacting tenants because of increased rents.

39 P.L. 102-550.
40 The tenant’s rent contribution equals the greater of (1) 30% of monthly adjusted family income, (2) 10% of monthly
income, or (3) for welfare recipients, the portion of the family’s welfare payment that is designated for housing costs.
41 Kevin S. Blake, Thomas W. White, and Richard F. Simpson, et al., Rural Rental Housing—Comprehensive Property
Assessment and Portfolio Analysis, Final Study Report, ICF Consulting Team, prepared for U.S. Department of
Agriculture, Rural Development, November 2004.
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USDA Rural Housing Programs: An Overview

Under MPR, the USDA has authority to use funds to restructure existing loans using such tools as
reducing or eliminating interest; deferring loan payments; subordinating, reducing, or re-
amortizing loan debt; and making loan advances.
In its FY2011 Budget for USDA, the Administration proposed no funding for the MPR program.
The Administration argues that the program has been operating since 2006, that the most cost-
effective and justified repairs have been achieved, and that continued funding could be seen as
over-subsidizing multi-family property owners. Instead, the Administration proposed an increase
in funding for the Section 515 program to $95 million instead of the $70 million approved for
FY2010.42
Title VIII of the Housing Preservation and Tenant Protection Act of 2010, H.R. 4868, would
authorize continuing finding for the MPR program. The bill was passed by the House Financial
Services Committee but has not been considered in the full House. No companion bill was
introduced in the Senate.
On September 30, 2010, a continuing resolution was enacted, P.L. 111-242, which funds the
program at the FY2010 level through December 3, 2010.
Funding for Section 502 Guaranteed Home Loans
Since the collapse of the mortgage market in 2007, prospective homebuyers have found that
lenders typically require either a 20% downpayment or a 10% downpayment and the purchase of
private mortgage insurance. This has resulted in an increased demand for loans insured or
guaranteed by the Federal Housing Administration (FHA), the Department of Veterans Affairs
(VA), and the USDA, since these programs require smaller downpayments, and in the case of VA
and USDA, no downpayments.
The use of the Section 502 guaranteed loan program increased from 32,481 loans in FY2007 to
56,745 loans in FY2008, an increase of nearly 75%. In FY2009, there were 119,826 Section 502
guaranteed loans issued, an increase of more than 111%.43 The high demand for the program has
continued, and on March 9, 2010, USDA sent a notice to USDA State Directors noting that the
FY2010 funding for the Section 502 guaranteed loan program was expected to be exhausted by
the end of April. 44 This is not the first time that the USDA would have exhausted its loan
authority prior to the end of the fiscal year. However, this year was the first time that the agency
would be exhausting its funds with so much of the fiscal year remaining.
On May 11, 2010, USDA provided guidance to lenders on how to proceed with loans when
FY2010 funds for the Section 502 loan guarantee program were exhausted.45 In the guidance,
USDA estimated that funds would be exhausted on May 12, 2010, or soon thereafter. Lenders

42 U.S. Department of Agriculture, 2011 Budget, Explanatory Notes for Committee on Appropriations, Volume 2, 2010,
pp. 27-59.
43 U.S. Department of Agriculture, 2011 Budget, Explanatory Notes for Committee on Appropriations, Volume 2,
Washington, DC, 2010, pp. 27-105.
44 Tammye Trevino, USDA Rural Development, Single Family Housing Guaranteed Loan Program, Program Funds,
U.S. Department of Agriculture, To: All State Directors, Washington, DC, April 9, 2010.
45 Tammye Trevino, Section 502 Single Family Housing Guaranteed Loan Program, Delivery of Guaranteed Purchase
and Refinance Loans, U.S. Department of Agriculture, To: All Approved Lenders, Washington, DC, May 11, 2010.
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USDA Rural Housing Programs: An Overview

could resume making Section 502 guaranteed loans but the USDA guarantee on the loans would
be “subject to the availability of funds and Congressional authority to charge a 3.5% guarantee
fee for purchase loans and a 2.25% guarantee fee for refinance loans.” Lenders would assume all
loss default risk for the loans until funds are available for USDA to obligate and USDA issues the
Loan Note Guarantees to lenders.
As enacted on July 29, 2010, the 2010 Supplemental Appropriations Act, P.L. 111-212, provided
additional appropriations for Section 502 guaranteed loans for the remainder of FY2010. The act
also permits USDA to charge lenders a guarantee fee of up to 3.5% of the mortgage amount. In
addition, lenders may be charged an annual fee of 0.5% of the mortgage balance for the life of the
loan. These changes in the guarantee fees are intended to enable the Section 502 guaranteed home
loan program to operate with little or no need for positive credit subsidies in FY2011 and beyond.
On September 30, 2010, a continuing resolution was enacted, P.L. 111-242, which funds the
program at the FY2010 level through December 3, 2010.
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Table 1. Funding for Selected Rural Housing Programs, FY1980-FY2010
($ millions of loan or grant obligations)
Fiscal Year
Section 502 Direct
Section 502 Guaranteed
Section 504 Loans
Section 504 Grants
Section 514
Section 516
1980 2,806
18.9
21.9
24.0 24.6
22.3
1981 2,578
5.8
17.9
22.7 18.5
10.5
1982 2,476
na
10.0
13.6
1.9
14.9
1983 2,137
na
7.1
12.5
4.0
7.5
1984 1,845
na
7.2
12.5
5.5
9.8
1985 1,790
na
7.9
12.5 17.6
11.2
1986 1,157
na
7.0
13.9 10.4
10.8
1987 1,144
na
5.9
12.5 10.7
7.1
1988 1,271
na
7.6
12.5 11.4
11.2
1989 1,267
na
11.3
12.5 11.4
9.4
1990 1,311
na
11.6
12.6 11.3
10.8
1991 1,269
38
11.2
12.8 13.8
10.4
1992 1,254
214
11.3
12.8 15.9
13.5
1993 1,291
540
11.8
14.3 16.3
15.9
1994 1,657
726
25.2
27.5 15.7
40.6
1995 931
1,049
29.5
27.8 15.1
11.0
1996 1,016
1,700
35.1
25.7 15.0
10.0
1997 706
2,000
30.9
17.6 15.0
8.4
1998 1,008
2,823
30.3
25.7 14.6
10.0
1999 923
2,977
25.5
21.3 20.0
13.1
2000 1,141
2,151
27.4
30.4 28.8
19.3
2001 1,074
2,342
30.8
33.7 33.2
9.9
2002 1,081
2,419
32.0
31.2 47.3
14.5
2003 1,038
3,087
32.1
33.7 55.9
7.0
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Fiscal Year
Section 502 Direct
Section 502 Guaranteed
Section 504 Loans
Section 504 Grants
Section 514
Section 516
2004 1,352
3,233
33.6
32.4 24.1
6.8
2005 1,141
3,050
34.7
31.6 32.9
33.4
2006 1,129
3,075
32.9
30.7 31.9
14.0
2007 1,208
3,664
31.2
27.7 30.4
12.7
2008 1,139
6,756
29.9
37.1 30.6
11.4
2009a 1,489
14,713
26.8
32.1 34.5
15.0
2010a 2,417
13,618
34.4
32.0 29.3
9.8
Source: U.S. Department of Agriculture.
Note: na = program was not authorized in the years shown.
a. USDA estimate based on amount appropriated.


Table 2. Funding for Selected Rural Housing Programs, FY1980-FY2010
($ millions of loan or grant obligations)
Fiscal Year
Section 515
Section 521
Section 523 Self-Help Housing Grants
Section 524 Site Loans
Section 533
Section 538
1980 881.3 393.0
6.2
0.8
na
na
1981 864.8 423.0
13.1
0.5
na
na
1982 953.7 403.0
4.7
0
na
na
1983 802.0 398.0
10.2
0.3
na
na
1984 919.0 123.7
5.0
0.2
na
na
1985 903.0 111.0
9.4
0
na
na
1986 652.3 168.3
5.1
0
19.1
na
1987 554.9 275.3
7.6
0.2
19.1
na
1988 554.9 275.3
5.7
0
19.1
na
1989 554.9 275.4
8.3
0.4
19.1
na
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Fiscal Year
Section 515
Section 521
Section 523 Self-Help Housing Grants
Section 524 Site Loans
Section 533
Section 538
1990 571.0 296.4
5.3
0.1
19.1
na
1991 576.3 311.1
12.0
0.6
23.0
na
1992 573.9 319.8
7.8
0.4
23.0
na
1993 573.9 404.0
16.9
0.6
23.0
na
1994 512.4 446.7
11.9
0.1
23.0
na
1995 183.3 523.0
12.9
0
22.0
na
1996 151.0 540.5
12.9
0.6
11.0
23.7
1997 152.5 520.2
26.2
0.1
7.6
51.8
1998 149.4 541.4
26.7
0.4
11.1
78.7
1999 114.4 583.4
26.2
3.1
7.2
74.8
2000 113.8 639.6
28.0
0.6
5.5
99.7
2001 114.1 685.7
17.6
3.7
7.4 101.8
2002 118.4 701.0
26.5
0.5
8.6
99.4
2003 115.0 723.7
40.0
1.2
10.3 102.0
2004 115.9 580.6
35.3
3.2
9.3
99.4
2005 99.2
592.0
42.1
0.4
8.8 97.2
2006 99.2
638.5
34.0
3.0
10.8 98.4
2007 98.9
615.8
35.5
1.9
9.5 97.2
2008 131.7 478.7
37.9
1.7
9.7
90.4
2009a 67.7 902.2
31.0
0.6
10.4 120.9
2010a 69.5 980.3
56.4
5.0
10.1 141.5
Source: U.S. Department of Agriculture.
Notes: na = program was not authorized in the years shown.
a. USDA estimate based on amount appropriated.

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USDA Rural Housing Programs: An Overview



Author Contact Information

Bruce E. Foote

Analyst in Housing Policy
bfoote@crs.loc.gov, 7-7805


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