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  • The Center for Rural Homelessness

What is the USDA Section 502 Program?

By: Katie Baughman, Policy Intern


OVERVIEW

Section 502 of the Housing Act of 1949 is an United States Department of Agriculture-funded federal program that assists low-income rural residents looking to buy single-family homes. Section 502 includes both the Direct Loan Program, which provides loans directly from the USDA, and the Guaranteed Loan Program, which federally guarantees private loans made by commercial lenders, reducing risk for lenders and encouraging lending to low-income rural families. Loans from both can be used to purchase, build, rehabilitate, or improve homes for low-income residents of rural areas. In order to qualify for Guaranteed Loans, families must fall under the income cap of 115% median household income of the area; to qualify for Direct Loans, they must fall under 80% of the area’s median. All loan recipients must also live in eligible rural areas as defined by the USDA. 


The Section 502 Loan Program allows rural, low-income families to buy homes with loans that are 100% financed, with no down payment and low payback rates. Loans have up to 30 year terms and fixed interest rates based on the market rate. Loans are aimed at expanding the accessibility of homeownership to low-income rural individuals and families who would otherwise not be able to afford them or receive loans.


Section 502 also offers a program called Section 502 Mutual Self-Help Housing Loan program, aimed at helping low-income and very low-income families build their own homes. Under the Mutual Self-Help program, families receive low-interest loans with no down payments. They then work in groups to build their houses, contributing about 65% of the construction labor alongside trained supervisors and hired staff.



HOW DOES THIS AFFECT RURAL AREAS?.


Affordable rental housing is scarce in many rural communities, especially low-income and remote areas in the midwest and the south. Then, homeownership opportunities are often the primary form of safe and accessible housing for many low-income rural families, who would be otherwise unable to locate or afford rental housing. Homeownership is more prevalent in rural areas than urban ones, at a 72% rate compared to the 65% national average. Rural renters are additionally four times more likely to be cost-burdened than homeowners, and rural renters are disproportionately faced with housing cost burdens. Homeownership opportunities for low-income rural families are important in lessening the wealth gap and ensuring access to safe housing. 


The path to homeownership provided by Section 502 is also beneficial in the long-term accumulation of wealth for rural families and communities, and provides more long-term security for families than rental housing. Low-income families who own homes are more able to accumulate wealth over time. Section 502 loans are a key federal program that provides a path to homeownership and wealth accumulation for low-income rural families.

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