What Is the Rural Housing Service (RHS)?

The Rural Housing Service (RHS) is an administrative division within the U.S. Department of Agriculture that manages programs focusing on rural housing and community service facilities. The programs are designed to improve the quality of life in U.S. rural communities.

Key Takeaways

  • The Rural Housing Service (RHS) is a part of the Dept. of Agriculture that provides mortgage assistance to rural households.
  • The RHS lends directly to low-income borrowers in rural areas and also guarantees loans that meet RHS requirements made by approved lenders
  • The RHS operates loan programs for community services such as police and fire stations, schools, and childcare centers—and for things like first-responder vehicles and equipment.

Understanding the Rural Housing Service (RHS)

The Rural Housing Service primarily administers direct loans and loan guarantees to people with low-to-moderate incomes who want to purchase, construct or rehabilitate a single-family rural home. Eligibility is based on many factors including income, family size, and location. For example, a four-person household in DeKalb County, Ill. with income at or below $37,500 would qualify for a direct home loan with annual interest as low as 1%. The same size family in the same county with an income up to $86,250 could qualify for a conventional private mortgage that is guaranteed by the government.

Locations must also meet the government’s definition of a rural area, which can be based on many factors including population, distance from urban centers, and even less tangible qualities such as “rural character.”

Direct RHS Loans, and Guaranteed Private Loans

Applicants for direct RHS loans must be unable to secure a conventional mortgage and must be currently living without decent, safe, and sanitary housing, among other requirements. The home to be purchased must generally be no larger than 2,000 square feet and cannot include businesses or have amenities like an in-ground swimming pool. Requirements for guaranteed loans are less stringent.

The RHS also administers subsidized loans to improve or modernize older rural homes. Loans of up to $20,000 at 1% annual interest can be used for just about any type of improvement or repair; the same income eligibility requirements apply as for direct mortgages. In addition, the RHS offers home-repair grants up to $7,500 for low-income residents age 62 and older. Grant money must be used to correct safety hazards.

Critics of the RHS’s programs have called for an end to its loan service, saying that it distorts home prices in rural areas. They recommend instead that a free market would serve lower-income families looking for a way to buy a home of their own.

Loans and Grants for Cooperative Housing, Clinics and Libraries

Besides the programs for individual homeowners, communities can apply for long-term subsidized loans for the construction of affordable rental or cooperative housing for underserved rural populations, such as those with low incomes, families, the elderly, and the disabled.

Another RHS program helps plan and fund community facilities such as hospitals, clinics, nursing homes, food pantries, and libraries. Direct and subsidized loans for planning and building such facilities are prioritized to communities with a population of 5,500 or less, and median income 80% below the state’s median non-metropolitan income. Competitive grants are also available, with somewhat different eligibility requirements. Communities that have raised matching funds are given priority in the grant awards.