The USDA’s rural self-help housing program:
Unsung, under pressure—but highly effective
The USDA rural self-help housing program is one of affordable housing’s least-known success stories.
Since the early 1970s,
close to three thousand mutual self-help homes have been built
in Washington State with the financial support of the U.S.
Department of Agriculture (USDA) by families participating in
self-help housing programs. Today, this seasoned forerunner to
volunteer self-help programs like Habitat for Humanity quietly
continues to counsel homebuyers, subsidize loans, and
consistently produce homes in rural Washington.
Across the nation, the self-help program has enabled more than forty thousand low-income rural households to become homeowners. The program is so effective that several existing housing organizations in our state have recently launched new self-help programs to offer this opportunity to people who live in their communities.
The Framework of USDA’s Self-Help Housing Program
One key aspect of the USDA self-help program (sometimes called “sweat equity” or “mutual self-help”) is its focus on rural homeownership. Only communities of about 25,000 or less that are still rural in character are eligible to participate. The program provides interest rates as low as 1% and other subsidies to qualifying low-income households and requires a sweat equity contribution of about 1200 to 1500 hours per family. It’s a community building program, with 8 to 20 families working on each other’s homes for about a year. The program has been so successful that Congress is struggling to keep up with the demand for funding, despite ongoing boosts in appropriations.
The Section 502 Direct Loan Program provides mortgages to self-help participants. A key aspect is that the construction loan converts to a permanent loan when the home is completed. The 502 program requires no down payment. Loans are typically amortized for 33 years and some are extended to 38 years. The payments are subsidized based on a 1% interest rate for the lowest income borrowers. A portion of the subsidy must be repaid if the house is sold, based on the length of time the borrower lives there. Also, if a family’s income goes up, the interest rate will be adjusted upward.
The changing landscape in Washington State
Each year about 140 affordable new homes are constructed in Washington State by families working to build a better life for themselves through the self-help program. The results have shown that self-help homeowners hold onto homes more tenaciously. They work very hard building their dream. The delinquency rate is low. These families are well counseled by the program: they know what they need to do to achieve their goals.
And the program truly serves those most in need of a break to secure an affordable home: In any given project, a minimum of 40% of the families that 523 grantees serve must earn less than 50% of the median income of the community in which they live. The remaining 60% must earn less than 80% of the median income.
Finding ways to get homes built in Northwest Washington State
One new group of self-help homes, Leeward Cove, held its grand opening celebration in late September of 2006 on San Juan Island. Eight homes were completed there, the first affordable homes ever for Section 523 grantee Homes for Islanders.
In November 2006, a second group of eight families broke ground on the Rocky Bay project. San Juan County, which has the highest median home price of any county in the state, is clearly in need of heroic efforts to provide affordable housing for its lower-income residents. The Rocky Bay group finished their work and moved into the homes in December 2007.
Because lot costs are so high in the San Juans, the Homes for Islanders board had to be very creative in getting these 16 homes off the ground. The funding sources were wide ranging, and included the Self-Help Homeownership Opportunity Program (SHOP) Loan Fund, through HUD. The group was able to take advantage of an affordable housing density bonus ordinance in the county, which enabled them to build eight homes on a five-acre parcel.
Although Homes for Islanders (HFI) is working right now with low income people, there is also a real need on the islands for affordable housing for people of moderate income. HFI is studying alternatives, looking to potentially rework a similar model for these people, who are caught in the gap between slow income growth and rapidly rising home prices.
Currently, high-cost areas have been prioritized by USDA Rural Development—areas where self-help is one of the only ways to get into homes. Homes for Islanders is grappling with the eligibility limits --the upper loan limits for USDA funding.