Rural Land Loans in Tennessee – A Guide for Potential Borrowers

Moving to a rural area and buying land to build or renovate a home can be an exciting prospect. With lower population density, more affordable real estate, and a slower pace of life, living rurally appeals to many people looking to improve their quality of life. However, financing can present a major hurdle for those wishing to make the move to a rural property in Tennessee. Fortunately, USDA Rural Development offers special low-interest loans that can help make rural living a reality.

An Overview of USDA Rural Land Loans

The USDA Rural Development department offers two types of direct loans to help provide affordable financing for people looking to purchase and develop rural land in Tennessee

• Section 523 Rural Housing Site Loans – These loans are used specifically to buy and develop sites for Self-Help housing construction. Self-Help housing relies on the future homeowners’ own “sweat equity” labor to build the home. These government-subsidized loans have a fixed 3% interest rate.

• Section 524 Rural Housing Site Loans – These loans can be used to purchase and develop rural land for any type of new low- or moderate-income housing The interest rates are below market rate and fixed at closing

Both loan types can be made to private non-profit organizations or public entities. The sites are then developed and sold to eligible low- and moderate-income families. The housing site loans provide an affordable way for buyers to acquire suitable rural land for building.

Benefits of USDA Rural Land Loans in Tennessee

There are many advantages to financing land purchases with USDA rural housing loans in Tennessee:

• Low Fixed Interest Rates – Interest rates on Section 523 and 524 loans are significantly lower than conventional mortgage rates and remain fixed for the entire repayment term. This results in lower monthly payments.

• Long Repayment Terms – These loans have a repayment term of up to 5 years. This allows borrowers ample time to prepare the land and build/renovate housing before having to make full mortgage payments.

• Low Downpayments – Rural housing site loans only require a 1% downpayment from the nonprofitborrower. This greatly improves access to financing for organizations assisting low-income families.

• Nonprofit Eligibility – The loans are only made to private or public nonprofit organizations and government entities. Individuals cannot apply directly. This allows nonprofits to purchase land wholesale and develop/subdivide it for resale to income-qualified buyers.

• Aid for Self-Help Housing – The Section 523 loans provide specific aid earmarked for land to be developed for USDA’s Self-Help housing program. This program allows participants to save money and build equity by providing their own labor.

Rural Area and Income Eligibility in Tennessee

To qualify for USDA rural housing site loan funding, the land being purchased must be located in a designated rural area. The home sites developed must also be sold to low- or moderate-income families to build new homes.

In Tennessee, “rural area” is defined as places with populations below 20,000. The income limits to be considered low- or moderate-income are:

• Low-income: Household earning 50-80% of the County Median Income
• Moderate-income: Household earning up to 115% of the County Median Income

The USDA Income and Property Eligibility tool can be used to check eligibility of specific locations in Tennessee.

How Do Nonprofits Apply for Rural Land Loans?

Qualified nonprofits and public agencies can apply for Section 523 and 524 rural housing site loans through their local USDA Rural Development offices in Tennessee.

The application process includes:

• Submitting an application form along with supporting documents about the organization’s legal status, financial health, management experience, etc.

• Proposing eligible rural properties to purchase if a site has already been identified.

• Providing details on the planned land development and housing proposals.

• Agreeing to only sell the sites to families who qualify within income limits.

• Accepting the mortgage lien terms and other loan conditions.

The local USDA offices evaluate all applications and work with qualified applicants to gather necessary information to approve loans. Interested non-profits should engage the USDA early when considering applying for rural land loan financing.

Developing an Approved Site

Once a rural housing site loan application is approved, the borrower nonprofit can move forward with purchasing and developing the land. The site development standards must adhere to USDA regulations on grading, septic systems, water access and other requirements outlined in RD Instruction 1924-A.

Ongoing oversight ensures development proceeds as planned. The nonprofit must keep the local USDA Rural Development office updated on the progress.

Eventually, the finished sites are sold to eligible low- or moderate-income families for the appraised market value. The land cannot be sold for a profit. The proceeds are used to repay the nonprofit’s housing site loan.

Benefits for Rural Homebuyers

The USDA rural housing site loan program provides a pathway to homeownership for low- and moderate-income buyers in Tennessee.

By offering nonprofits affordable financing to develop land, costs can be kept low when passing sites on to individual homebuyers. Lower land costs help offset the expenditures involved with building or renovating housing.

Furthermore, purchasers may be able to stack USDA site loans with other USDA home purchase and renovation programs. These include:

• USDA Single Family Housing Direct Home Loans (Section 502)
• USDA Single Family Housing Loan Guarantees (Section 502)
• USDA Single Family Housing Repair Loans and Grants (Section 504)

This opens doors to homeownership that some buyers might have assumed were closed. The programs provide a hand up through affordable government-subsidized financing, helping people achieve the dream of owning rural land and a home in Tennessee.

Ready to Explore USDA Rural Land Loan Options?

For organizations focused on affordable housing and helping low-income individuals, USDA rural housing site loans can greatly assist efforts to develop rural land responsibly and cost-effectively.

Likewise, these loans allow low- and moderate-income homebuyers to purchase competitively priced sites for living the rural lifestyle they desire. It’s a win-win program facilitating affordable rural community growth in Tennessee.

To learn more about USDA rural housing site loans and determine eligibility, contact your local USDA Rural Development office in Tennessee:

Tennessee Rural Development State Office
441 Donelson Pike, Suite 310
Nashville, TN 37214
Phone: 615-783-1300

The knowledgeable staff can answer questions and provide guidance on applying for Section 523 or 524 loans. With creativity and smart financing, your nonprofit can open doors to rural living for more Tennessee families.