RHS Loan

What Is an RHS Loan?

An RHS loan is a type of financing provided or guaranteed by the Rural Housing Service (RHS) of the U.S. Department of Agriculture (USDA). The RHS lends directly to low-income borrowers in rural areas and guarantees loans issued by approved lenders that meet RHS requirements.

The RHS originates and guarantees more than home mortgages. It operates loan programs for community services such as healthcare clinics, police and fire stations, schools, and childcare centers—and things like first-responder vehicles and equipment.

Key Takeaways

  • The Rural Housing Service (RHS) provides loans directly to low-income borrowers in rural areas and guarantees loans provided by approved lenders.
  • An RHS loan can help a borrower who otherwise might not qualify for a traditional mortgage because of low income or bad credit to buy a home in an approved rural area.
  • The RHS also provides loans to communities in rural areas for services ranging from schools to police and fire stations.

Understanding RHS Loans

Different types of loan programs are available through the USDA’s RHS, each with its requirements for applicants and lenders. Single-family direct housing loans are for borrowers in low- to very-low-income brackets and are designed to help them secure safe, sanitary, and decent housing that they could not get on their own. A borrower who wants to buy a home and who might not qualify for a traditional mortgage because of low income or problematic credit history may have an improved chance of applying for an RHS single-family direct home loan.

The single-family housing guaranteed loan program helps approved lenders provide the opportunity for families to own decent housing. Borrowers can have low to moderate income. Approved borrowers can build, rehabilitate, improve, or relocate a residence in an eligible rural area.

The RHS also offers loan programs for multifamily rental housing in rural areas. These programs finance projects designed for low-income, elderly, and disabled individuals and families and domestic farmworkers.

The RHS multifamily loan programs include:

  • Farm Labor Direct Loans and Grants
  • Housing Preservation and Revitalization Demonstration Loans and Grants
  • Multifamily Housing Direct Loans
  • Multifamily Housing Loan Guarantees
  • Multifamily Housing Rental Assistance

In addition to home loans, the RHS also manages loan programs for community services in rural locations such as police and fire stations, schools, and childcare centers.

The single-family home for which the RHS mortgage is being used must be the intended primary residence of the borrower.

RHS Loan Requirements

To be eligible for an RHS single-family loan:

  • The borrower must be a U.S. citizen, U.S. noncitizen national, or qualified alien
  • The borrower must not be able to obtain a loan from another source
  • The family’s income cannot exceed the limits set for their respective area
  • The residence must measure 2,000 square feet or less
  • The residence must not have a market value that exceeds the loan limit for the area
  • The residence cannot have an in-ground swimming pool
  • The residence must not be designed for commercial activities
  • The residence must be located in an approved area, which includes those with populations of 35,000 or less

Interest rates vary for RHS loans and are determined by individual lenders.

For either the direct or guaranteed home loan programs, borrowers cannot be delinquent on any federal debt and must be U.S. citizens or legal nonresident aliens.

With an RHS loan, a down payment might not be required on the house, but the borrower must still be able to pay the mortgage payments, taxes, and insurance. The cost of required repairs could be included in the mortgage amount.

RHS mortgage loans may be part of a pool of mortgages securitized by the Government National Mortgage Association (GNMA, more commonly referred to as Ginnie Mae), which is a government corporation within the U.S. Department of Housing and Urban Development (HUD).

Funds for RHS single-family homes can be used for:

  • New or existing residential property to be used as a permanent residence
  • A site with a new or existing dwelling (no acreage limits)
  • Repairs and rehabilitation
  • Essential household equipment such as wall-to-wall carpeting, ovens, ranges, refrigerators, washers, dryers, heating, and cooling equipment
  • Site preparation costs, including grading, foundation plantings, seeding or sod installation, trees, fences, and driveways

FAQs

What is the Rural Housing Service (RHS)?

The Rural Housing Service (RHS) is a division of the U.S. Department of Agriculture (USDA). It manages loan programs focusing on rural housing and community service facilities. These programs aim to improve the quality of life in rural communities.

What type of loans does the RHS offer?

The RHS administers direct loans and loan guarantees to people with low to moderate incomes who want to purchase, construct, or rehabilitate a single-family home in a rural area. It also offers loans for multifamily rental housing in rural areas to finance projects for low-income, elderly, and disabled people and domestic farmworkers. In addition, the RHS manages loan programs for community services in rural locations.

How can I qualify for an RHS loan?

Loans are available to those with low to moderate incomes. Income limits vary based on the area where the borrower lives. For a single-family home loan, the home must be a primary residence and be located in an area with a population of 35,000 or less. Borrowers must be U.S. citizens or legal nonresident aliens and cannot be delinquent on any federal debt.

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  1. U.S. Department of Agriculture, Rural Development. “Community Facilities Direct Loan & Grant Program.” Accessed Oct. 11, 2021.

  2. U.S. Department of Agriculture. “2020 USDA Explanatory Notes — Rural Housing Service,” Pages 29-8–29-11 (Pages 8–11 of PDF). Accessed Oct. 11, 2021.

  3. U.S. Department of Agriculture, Rural Development. “Rural Housing Service.” Accessed Oct. 11, 2021.

  4. U.S. Department of Agriculture, Rural Development. “Single Family Housing Direct Home Loans.” Accessed Oct. 11, 2021.

  5. U.S. Department of Agriculture, Rural Development. “Single Family Housing Guaranteed Loan Program.” Accessed Oct. 11, 2021.

  6. U.S. Department of Agriculture, Rural Development. “Multifamily Housing Programs.” Accessed Oct. 11, 2021.

  7. Cornell Law School, Legal Information Institute. “7 CFR § 3550.53 — Eligibility Requirements.” Accessed Oct. 11, 2021.

  8. Ginnie Mae. “Ginnie Mae’s Role in Facilitating Rural Homeownership.” Accessed Oct. 11, 2021.