Everything You Need to Know About USDA Land Loans in Colorado

The United States Department of Agriculture (USDA) offers several loan programs to help people in rural areas purchase build, repair or improve their homes. One of these is the USDA Rural Housing Site Loan program which provides financing to purchase and develop housing sites for low- and moderate-income families in rural areas.

In this comprehensive guide we’ll cover everything you need to know about USDA land loans in Colorado including

• Overview of USDA Rural Housing Site Loan Program
• Benefits of USDA Land Loans
• Eligibility Requirements
• How to Apply
• Loan Terms and Interest Rates
• Development Standards
• Success Stories from Colorado

Overview of USDA Rural Housing Site Loan Program

The Rural Housing Site Loan program offers two types of loans to purchase and develop sites for affordable housing in rural areas:

• Section 523 loans – These loans are used specifically to purchase and develop sites for Self-Help housing, where participants work together to build each other’s homes.

• Section 524 loans – These loans can be used to buy and develop sites for low- or moderate-income families. There are no restrictions on the construction method.

The loans are administered by USDA Rural Development offices in each state. In Colorado, the state office is located in Denver.

These loans help provide affordable land for housing to rural families who otherwise may not be able to buy a suitable site for their home. Having an affordable site is key first step to affordable homeownership.

Benefits of USDA Land Loans

USDA Rural Housing Site Loans offer several benefits for developing affordable housing sites in rural areas:

• Below market interest rates – The loans are offered at fixed interest rates below conventional market rates, making it more affordable to buy and develop rural sites.

• Long repayment terms – Borrowers get 5 years to repay the loan, with up to 3 annual renewals possible after that. This matches repayment ability with incoming funds from lot sales.

• Non-profit friendly – The program is open to non-profit organizations like Habitat for Humanity to aid their work providing affordable housing.

• Flexible site development – The loans can be used to install streets, water, sewer and utility lines needed to convert raw land into ready-to-build housing sites.

• Self-Help housing – Section 523 loans specifically support Self-Help housing projects where sweat equity reduces construction costs.

Overall, the program provides patient financing not available elsewhere to help create affordable rural housing sites.

Eligibility Requirements

To qualify for a USDA Rural Housing Site Loan in Colorado, applicants must meet certain eligibility standards:

Location

• The housing sites must be in an eligible rural area of Colorado. Eligible locations can be checked by address on the USDA website.

• Areas deemed rural based on population thresholds and distance from urban centers qualify.

Type of Applicant

• Section 523 Self-Help loans can only be made to non-profit organizations facilitating Self-Help housing.

• Section 524 loans can be made to private non-profits, public non-profits, federally recognized Tribes, or non-profits operating a revolving loan fund.

Legal Authority & Capacity

• Applicants must have legal authority to operate a revolving loan fund and to acquire & develop land.

• They must have the financial, technical and managerial capabilities to comply with relevant laws and regulations.

Meeting these requirements qualifies applicants to further apply and be considered for the program.

How to Apply for USDA Land Loans in Colorado

Interested applicants should follow these steps to apply for a USDA Rural Housing Site Loan in Colorado:

• Contact USDA Rural Development office – The first step is to contact the Colorado USDA Rural Development office to express interest and get guidance on the program.

• Submit loan application – Work with USDA staff to complete their loan application documents and gather required supporting materials.

• Site selection – Identify and gain site control of the parcel proposed to be acquired and developed with detailed plans.

• Underwriting review – USDA will evaluate the application for feasibility, need, costs, applicant capacity, site suitability, environmental compliance and other factors.

• Loan approval – If the project is determined sound, USDA provides loan approval and processes closing and disbursement of funds to purchase and start developing the site.

USDA encourages interested applicants to contact their Colorado office early when considering a site project. They can provide guidance on the process, requirements, and timeline to apply.

Loan Terms and Interest Rates

USDA Rural Housing Site Loans come with favorable terms and below market interest rates:

• Loan term – The loans have a 5 year term, with up to 3 annual renewals possible after that to match the pace of lot sales and development.

• Interest rates:

  • Section 523 Self-Help Site Loans – 3% fixed
  • Section 524 Site Loans – Published monthly, fixed rate below conventional rates at time of loan closing

• Maximum loan amount – There is no maximum, but loans are limited to the minimum amount required to fund eligible costs required for site acquisition and development.

The low fixed interest rates and extended 8 year repayment term create affordable repayment costs for borrowers developing rural sites.

Site Development Standards

While USDA Rural Housing Site Loans provide financing, projects must meet Agency standards for site development covered in RD Instruction 1924 including:

• Parcel size – The site must be large enough to support adequate septic fields if no sewer systems exist. Minimum lot sizes apply.

• Terrain – The topography must be suitable for housing and not pose any hazards or complications for construction.

• Access – All weather access roads and drives must be provided into the site and for each lot.

• Water & sewer – Each lot must be provided access to clean drinking water and sanitary sewage disposal.

• Drainage – The site must have adequate drainage to avoid flooding, erosion, or standing water issues.

• Utilities – Electric, gas, communications and other utilities must be available.

• Covenants – Any covenants or restrictions must allow for residential use and construction of modest homes by low-income households.

Complying with these standards ensures the sites support development of quality affordable rural housing once sold to families.

Success Stories From Colorado

USDA Rural Housing Site Loans have helped several deserving organizations create affordable housing sites tailored to local needs of rural Colorado towns and counties:

• Southern Ute Indian Tribe – Acquired 10 acres and installed infrastructure to create 12 affordable lots for low-income tribal members. Streets, utilities, drainage all funded.

• La Puente Homes – Used loan to buy downtown parcel in Alamosa and installed utilities, drainage and divided into 8 lots for Self-Help houses reducing reliance on cars.

• Centennial Mental Health Center – Purchased central site in rural Conejos County and developed 6 modular lots with utilities to serve mentally ill residents with new affordable housing options in their community.

• Town of Walden – Acquired and subdivided a 5 acre parcel on the edge of town into 14 modular home lots. Installed streets, utilities, drainage. Sites sold to low-income families for affordable new housing.

These are just a few examples of the creative ways USDA Rural Housing Site Loans have been used to address local rural housing needs in Colorado.