Community Programs can make and guarantee loans to develop essential community facilities in rural areas and towns of up to 20,000 in population.  Loans and guarantees are available to public entities such as municipalities, counties, and special-purpose districts, as well as to non-profit corporations and tribal governments.  

Applicants must have the legal authority to borrow and repay loans, to pledge security for loans, and to construct, operate, and maintain the facilities.  They must also be financially sound and able to organize and manage the facility effectively.

Repayment of the loan must be based on tax assessments, revenues, fees, or other sources of money sufficient for operation and maintenance, reserves, and debt retirement.   Feasibility studies are normally required when loans are for start-up facilities or existing facilities when the project will significantly change the borrower’s financial operations. The feasibility study should be prepared by an independent consultant with recognized expertise in the type of facility being financed.

Community Programs can guarantee loans made and serviced by lenders such as banks, savings and loans, mortgage companies which are part of bank holding companies, banks of the Farm Credit System, or insurance companies regulated by the National Association of Insurance Commissioners.  Community Programs may guarantee up to 90% of any loss of interest or principal on the loan.  Community Programs can also make direct loans to applicants who are unable to obtain commercial credit.

Fund Uses
Loan funds may be used to construct, enlarge, or improve community facilities for health care, public safety, and public services.  This can include costs to acquire land needed for a facility, pay necessary professional fees, and purchase equipment required for its operation.  For examples of essential community facilities click here.
Refinancing existing debts may be considered an eligible direct or guaranteed loan purpose if the debt being refinanced is a secondary part of the loan, is associated with the project facility, and if the applicant’s creditors are unwilling to extend or modify terms in order for the new loan to be feasible.

Rates & Terms
For the direct loan program there are three levels of interest rates available (poverty, intermediate, and market) each on a fixed basis.  The poverty rate is set at 4.5%.  The market rate is indexed to the eleventh bond buyers rate as determined by the U. S. Treasury Department. The intermediate rate is set halfway between the market and the poverty rates.  Eligibility for these different interest rates is determined by the median household income (MHI) of the area being served and the type of project.  The intermediate and market interest rates are adjusted quarterly.  Contact your Rural Development State Office to determine the eligible interest rate for your area.

For the guaranteed loan program, the interest rate is the lender’s customary interest rate for similar projects.  The interest rates for guaranteed loans may be fixed or variable and are determined by the lender and borrower, subject to HCFP review and approval.

Loan repayment terms may not exceed the applicant’s authority (under State law or organizational structure), the useful life of the facility, or a maximum 40 years.

Security Requirements
Bonds or notes pledging taxes, assessments, or revenues will be accepted as security if they meet statutory requirements.  Where State laws permit, a mortgage may be taken on real and personal property.  Tax-exempt notes or bonds may be issued to secure direct loans, but cannot be used for guaranteed loans.

Application Processing
Applications are handled by USDA Rural Development field offices.  Rural Development staff will be glad to discuss a community's needs and the services available from HCFP and other agencies within USDA.  Field staff can provide application materials and current program information, and assist in the preparation of an application.

The CF application process is a two-stage procedure (preapplication and application). Approximately 45 days is required to determine applicant eligibility, project priority status, and funding availability. After an application is submitted, time to process the application depends upon the scope of the project, environmental review, and legal issues.

Section 502 loans are primarily used to help low-income individuals or households purchase homes in rural areas. Funds can be used to build, repair, renovate or relocate a home, or to purchase and prepare sites, including providing water and sewage facilities.

Eligibility: Applicants for loans may have an income of up to 115% of the median income for the area. Area income limits for this program are here.   Families must be without adequate housing, but be able to afford the mortgage payments, including taxes and insurance.  In addition, applicants must have reasonable credit histories.
Approved lenders under the Single Family Housing
Guaranteed Loan program include:

• Any State housing agency;
• Lenders approved by:
• HUD for submission of applications for Federal Housing Mortgage Insurance or as an issuer of Ginnie Mae mortgage backed securities;
• the U.S. Veterans Administration as a qualified mortgagee;
• Fannie Mae for participation in family mortgage loans;
• Freddie Mac for participation in family mortgage loans;
• Any FCS (Farm Credit System) institution with direct lending authority;
• Any lender participating in other USDA Rural Development and/or Farm Service Agency guaranteed loan programs.

Terms: Loans are for 30 years.  The promissory note interest rate is set by the lender.
There is no required down payment. The lender must also determine repayment feasibility, using ratios of repayment (gross) income to PITI and to total family debt.

Standards: Under the Section 502 program, housing must be modest in size, design, and cost.   Houses constructed, purchased, or rehabilitated must meet the voluntary national model building code adopted by the state and HCFP thermal and site standards. New Manufactured housing must be permanently installed and meet the HUD Manufactured Housing Construction and Safety Standards and HCFP thermal and site standards.  Existing manufactured housing will not be guaranteed unless it is already financed with an HCFP direct or guaranteed loan or it is Real Estate Owned (REO) formerly secured by an HCFP direct or guaranteed loan.

Approval: Rural Development officials have the authority to approve most Section 502 loan guarantee requests.

Rural Housing Direct Loans are loans that are directly funded by the Government.   These loans are available for low- and very low-income households to obtain homeownership.  Applicants may obtain 100% financing to purchase an existing dwelling, purchase a site and construct a dwelling, or purchase newly constructed dwellings located in rural areas.  Mortgage payments are based on the household's adjusted income.  These loans are commonly referred to as Section 502 Direct Loans.

Purpose:  Section 502 loans are primarily used to help low-income individuals or households purchase homes in rural areas. Funds can be used to build, repair, renovate or relocate a home, or to purchase and prepare sites, including providing water and sewage facilities.

Eligibility:  Applicants for direct loans from HCFP must have very low or low incomes.   Very low income is defined as below 50 percent of the area median income (AMI); low income is between 50 and 80 percent of AMI; moderate income is 80 to 100 percent of AMI.  Click here to review area income limits for this program.  Families must be without adequate housing, but be able to afford the mortgage payments, including taxes and insurance, which are typically within 22 to 26 percent of an applicant's income.  However, payment subsidy is available to applicants to enhance repayment ability.  Applicants must be unable to obtain credit elsewhere, yet have reasonable credit histories.

Terms:  Loans are for up to 33 years (38 for those with incomes below 60 percent of AMI and who cannot afford 33-year terms). The term is 30 years for manufactured homes. The promissory note interest rate is set by HCFP based on the Government’s cost of money.  However, that interest rate is modified by payment assistance subsidy.

Standards:  Under the Section 502 program, housing must be modest in size, design, and cost. Modest housing is property that is considered modest for the area, does not have market value in excess of the applicable area loan limit, and does not have certain prohibited features. Houses constructed, purchased, or rehabilitated must meet the voluntary national model building code adopted by the state and HCFP thermal and site standards. Manufactured housing must be permanently installed and meet the HUD Manufactured Housing Construction and Safety Standards and HCFP thermal and site standards.

Approval:  Rural Development officials should make a decision within 30 days of the Rural Development office's receipt of the application.

Basic Instruction:  7 CFR Part 3550 and HB-1-3550

Rural Housing Repair and Rehabilitation Loans are loans funded directly by the Government.  These loans are available to very low-income rural residents who own and occupy a dwelling in need of repairs.  Funds are available for repairs to improve or modernize a home, or to remove health and safety hazards.  This loan is a 1% loan that may be repaid over a 20-year period.

Purpose: The Very Low-Income Housing Repair program provides loans and grants to very low-income homeowners to repair, improve, or modernize their dwellings or to remove health and safety hazards.

Eligibility: To obtain a loan, homeowner-occupants must be unable to obtain affordable credit elsewhere and must have very low incomes, defined as below 50 percent of the area median income. They must need to make repairs and improvements to make the dwelling more safe and sanitary or to remove health and safety hazards. Grants are only available to homeowners who are 62 years old or older and cannot repay a Section 504 loan.

Terms: Loans of up to $20,000 and grants of up to $7,500 are available. Loans are for up to 20 years at 1 percent interest. A real estate mortgage and full title services are required for loans of $7,500 or more. Grants may be recaptured if the property is sold in less than 3 years. Grant funds may be used only to pay for repairs and improvements resulting in the removal of health and safety hazards. A grant/loan combination is made if the applicant can repay part of the cost. Loans and grants can be combined for up to $27,500 in assistance.

Standards: Repaired properties do not need to meet other HCFP code requirements, but the installation of water and waste systems and related fixtures must meet local health department requirements. Water supply and sewage disposal systems should normally meet HCFP requirements. Not all the health and safety hazards in a home must be removed with Section 504 funds, provided that major health and safety hazards are removed. All work must meet local codes and standards.

Approval: Rural Development should make a decision on a complete application within 30 to 60 days.

This program provides Government funding for a public or private non-profit organization to buy and develop building sites, including the construction of access roads, streets, and utilities.  Sites developed under this program may be sold to individual households, non-profit organizations, public agencies, and cooperatives who provide financial assistance for housing to low- and moderate-income families.

Purpose: Rural Housing Site Loans are made to provide financing for the purchase and development of housing sites for low- and moderate-income families. Section 523 loans are made to acquire and develop sites only for housing to be constructed by the self-help method. Section 524 loans are made to acquire and develop sites for any low- or moderate-income family. Low income is defined as between 50 and 80 percent of the area median income (AMI); the upper limit for moderate income is $5,500 above the low-income limit.

Eligibility: Section 523 loans are limited to private or public nonprofit organizations that will provide sites solely for self-help housing. Section 524 loans are made to private or public nonprofit organizations. Section 524 sites may be sold to low- or moderate-income families utilizing HCFP or any other mortgage financing program which serves the same eligible families.

Terms: Loans are for two years. Section 523 loans bear 3 percent interest. At the discretion of the customer, Section 524 loans bear the market rate of interest either at the time of approval or at the time of the loan closing.

Standards: The site development standards and policies in FmHA Instructions 1924-A and 1924-C apply.

Approval: State Directors may approve site loans for up to $200,000. Larger loans require prior approval of the National Office.

Basic Instruction: FmHA Instruction 444.8 (CFR Part 1822 Subpart G). FmHA Instruction 1924-C.