Federal programs offer special homeownership opportunities for poor, rural households, including 1% mortgages for 38 years

by Broderick Perkins

(1/21/2013) - Lesser-known, relatively small U.S. Department of Agriculture housing programs - Section 502 and Section 523 - are big boons to low income rural households.

They are also among the federal government's most cost-effective housing programs.

Section 502 Direct Loan program

A new report issued by the National Rural Housing Coalition says during the past 60 years, an average 35,000 rural residents a year benefit from affordable mortgages under the Section 502 Direct Loan program.

Section 502 is credited with generating more than $40 billion in wealth for the nation's rural poor.

Targeting only very-low and low-income rural families, Section 502 offers subsidized fixed interest rates as low as one percent and longer loan terms of up to 38 years.

Low rates and longer terms drastically reduce monthly mortgage costs and give rural families the opportunity to access sustainable mortgages they might otherwise not be able to afford.

Two-thirds of participants have incomes below 60 percent of the area median income (AMI) and at least 40 percent must have incomes that do not exceed 50 percent of AMI.

In 2011, the average Section 502 participant earned just $27,000 in 2011 and the average loan had a total cost of only $7,200.

For this reason, two-thirds of all Section 502 Direct Loan families

Unfortunately, Congress has severely cut funding for Section 502 Between fiscal year 2003 and 2012, the program's budget has been cut by more than 80 percent, from $203 million to $42.5 million.

If approved by Congress, the new national budget would limit Section 502 funding to only $39 million, the lowest level in more than 40 years.

Section 523 Mutual Self-Help program

Section 523, the Mutual Self-Help Housing program is the only federal homeownership program that assists small groups of six to twelve rural families engage in sweat equity generated homeownership.

It also targets very low- and low-income families.

On nights and weekends, families gather to build each other's homes, much as homesteaders of an era gone by engaged in barn raising. The effort reduces construction costs, generate equity, and builds community.

Over the past 50 years, the program has helped 46,000 families realize the American Dream, brick by brick.

Under the program, small groups of six to 12 families work together, each family providing at least 1,000 hours — or 65 percent— of the construction labor on their own and each other's homes. The time amounts to about 25, 40-hour work weeks.

Self-help housing organizations are supported by two USDA funding opportunities.

Section 523 technical assistance grants allow experienced, nonprofit developers to train, supervise, and provide technical assistance for participating housing members.

Section 502 provides financing for loans through the Section 523 program.