At Dash Home Loans, we make the mortgage lending process quick and straightforward. Even if you have a shaky credit history or limited cash reserves, our Mortgage Coaches will work to find an affordable financing option that suits your needs.
What’s even better? As a USDA approved lender in Tennessee1, Dash can help you secure a no-money-down USDA loan with a competitive APR.
The United States Department of Agriculture (USDA) offers several loan programs to help people in rural areas purchase, build, repair or renovate homes. One of these is the Rural Housing Site Loan program, which provides financing to purchase and develop housing sites for low- and moderate-income families in rural areas.
An Overview of USDA Land Loans in Tennessee
The Rural Housing Site Loan program has two main types of loans available in Tennessee
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Section 523 Loans: These loans are used specifically to acquire and develop sites for housing constructed using the USDA Self-Help method. Self-Help housing allows groups of families to work together building each other’s homes, with technical assistance from a nonprofit organization. Section 523 loans can only be used for Self-Help housing sites.
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Section 524 Loans: These loans have more flexibility. They can be used to purchase and develop sites for any low- or moderate-income families, not just Self-Help projects.
Both loan types can provide up to 100% financing with repayment terms of up to 5 years and below market interest rates.
In Tennessee, Section 523 loans have a 3% interest rate while Section 524 loans have a variable interest rate set monthly by USDA. The maximum loan amount is $200,000.
Who is Eligible for USDA Land Loans in Tennessee?
There are a few basic eligibility criteria both the applicant organization and the housing site must meet:
Eligible Applicants:
- Private or public nonprofit organizations
- Federally recognized Tribes
- Nonprofits must have legal authority to operate a revolving loan fund
- Nonprofits must have capacity to manage federal funding
Eligible Sites:
- Must be located in a rural area of Tennessee
- Site development must be for low- to moderate-income families
- Sites can be sold to eligible buyers using USDA home loans or other approved mortgage financing
Low-income limits range from 50-80% of the median income in the area. Moderate-income limits are up to 115% of the median.
How Do I Apply for a USDA Land Loan in Tennessee?
The application process starts by contacting your local USDA Rural Development office in Tennessee Let them know you are interested in the Rural Housing Site Loan program
A housing specialist will provide the application forms and documentation required such as
- Description of your organization and housing project
- Financial statements and projections
- Development budget and schedule
- Site information including option or sales contract
- Details on planned site improvements
- Market study showing need for sites
The housing specialist will review your application and work with you to obtain any other needed information. They can also answer any questions you have throughout the process.
What are the Loan Terms and Conditions?
Some key terms and conditions of USDA land loans in Tennessee include:
- Up to 100% financing
- 5-year loan term
- Fixed interest rate (3% for Section 523, variable for Section 524)
- Loan repayment starts when sites are sold or developed
- Sites must be developed within 2 years
- Sites can only be sold to families meeting income eligibility criteria
- Nonprofits must contribute at least 2% cost of site development
As you apply, USDA will assess your organization’s capacity to develop the site and comply with all regulations. They want to ensure responsible use of federal funding.
Tips for a Successful USDA Land Loan Application
Based on USDA guidance, here are some tips when applying for a Rural Housing Site Loan in Tennessee:
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Pick an eligible rural location – Site must be in a rural area of Tennessee with a demonstrated need for housing.
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Have a detailed development plan – Submit a comprehensive and realistic budget, timeline, lot layout, site improvements list, and plan to sell the sites.
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Document project feasibility – Provide market study, cost estimates, studies required for environmental compliance, and financial analysis to prove project can succeed.
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Show organizational capacity – Your nonprofit must have staff qualified to manage the loan funds and develop the property. Prove you can handle a federal loan.
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Meet all USDA requirements – Work closely with USDA staff to satisfy income eligibility rules, site development standards, and other regulations.
With careful planning and collaboration with USDA, your nonprofit can potentially access the financing needed to create affordable homeownership opportunities through the Rural Housing Site Loan program.
USDA Land Loans vs. Traditional Loans
USDA Rural Housing Site Loans offer some advantages over conventional bank financing for developing housing sites including:
Lower interest rates – USDA rates are below market so financing costs are lower.
Flexible terms – Repayment structured so sites can be sold before loan is fully due.
Higher loan amounts – Can finance up to 100% of site acquisition and development costs.
Specialized expertise – USDA familiar with unique needs of rural housing projects.
At the same time, there are additional requirements and processing times associated with a government loan program. USDA has oversight on how funds are used. Conventional loans may have faster approval.
That said, the benefits of USDA loans often make them worthwhile for eligible housing projects in rural Tennessee. The lower costs and flexible terms facilitate development.
Using USDA Site Loans for Self-Help Housing
Nonprofits interested in Self-Help housing should consider Section 523 loans. With Self-Help projects, families work together to build homes lowering construction costs. It enables sweat equity opportunities.
USDA provides Section 523 site loans specifically for this purpose. The 3% interest rate and potential 100% financing further reduce expenses.
Sections 523 loans can only be used to acquire and develop sites for Self-Help housing, however. The homes must be constructed using the mutual Self-Help method. This is an important restriction to understand.
But for nonprofits engaged in Self-Help housing, Section 523 presents a great chance to obtain low-cost financing for sites.
Key Facts and Statistics on USDA Land Loans in Tennessee
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USDA has helped develop over 200 home sites in Tennessee using Rural Housing Site Loans.
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As of 2022, there were 49 active site loans in the state totaling over $5.4 million.
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Average loan amount nationwide is around $100,000.
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Loans have been used to develop sites for Habitat for Humanity projects and other nonprofits.
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Over 75% of site loan borrowers are nonprofit organizations.
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Applicants must contribute at least 2% of site development costs.
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Loans have helped provide sites for hundreds of Self-Help housing units.
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Nationwide, over 50% of loans went to develop 10 or fewer sites.
Finding Additional USDA Rural Housing Programs
Besides site loans, USDA Rural Development offers a range of other housing programs in Tennessee including:
- Section 502 Direct Home Loans – Financing for low-income buyers
- Section 504 Home Repair Loans/Grants – Funding to fix up existing homes
- Section 515 Rental Housing Loans – Build affordable rural rental housing
- Section 533 Housing Preservation Grants – Repair existing USDA rental properties
- Section 523 Self-Help Housing Loans – LoSweat equity construction program
- Section 538 Multi-Family Housing Loan Guarantees – Backing for rural apartments
Visit the USDA Tennessee website or contact your local office to learn about these and other programs. There are financing and grant options for multiple rural housing needs.
For nonprofits developing affordable home sites, USDA Rural Housing Site Loans present an excellent funding resource to consider. Section 523 and 524 loans provide flexible, low-cost financing that can make projects feasible.
While there are regulations and requirements, the loans are structured specifically for rural housing site acquisition and development. USDA staff have expertise that can support applicants through the process.
Looking at the numbers, site loans have already helped create hundreds of homeownership opportunities across Tennessee. They continue to serve as an important tool for addressing rural affordable housing needs.
By partnering with USDA, more communities can potentially benefit. Nonprofits should review the site loan programs to see if they may be a fit for upcoming projects.
Benefits & Disadvantages of USDA Loans
Is the countryside calling your name? If so, a USDA home loan could be perfect for you. After all, Tennessee USDA loans are meant to incentivize living out in the boondocks. But this financing tool is also designed to make homeownership more attainable for families who don’t have a lot of money to spare. Plus, this lending program offers competitive loan terms.
The downside? The geographic requirements associated with USDA loans can be fairly restrictive. If you live in a metropolitan area like Nashville or Memphis, you probably won’t qualify unless you buy outside city limits. But, even if you’re looking for a quiet place in the woods, you might not meet the income stipulations.
You can generally expect the same USDA loan requirements across the country. To qualify for a USDA loan in Tennessee, you must meet the following criteria:
- Income Limits: You must prove steady employment and you cannot make over 15% more than your area’s median income.
- United States Citizenship: Only permanent residents can apply for a USDA loan.
- Mortgage Insurance: USDA loans require mortgage insurance.
- Primary Residence in a Rural Area: Your property must be in a rural area and it cannot be a vacation home or investment property in Tennessee.
Do you meet these requirements? Sweet! A USDA loan could be an affordable and practical means of financing your dream home.
USDA Loan Eligibility in Tennessee
We get it – zero-money-down2 home financing sounds awesome. But before you start hootin’ and hollerin’, you need to make sure you’re eligible.
To qualify for a Tennessee USDA loan, you must be purchasing a home in a rural area. The U.S. Department of Agriculture defines “rural” as any town with fewer than 20,000 people. Not sure if your two-bedroom bungalow in downtown Maryville is up to snuff?
Check out eligibility maps through the USDA.
Luckily, there are plenty of beautiful places in the Volunteer State that are considered rural by the U.S. Department of Agriculture. If you want to purchase a slice of Sevierville or Elizabethton, then yeehaw! These towns are small, quaint, and have populations well below 20,000. But if you’re a city slicker set on living in Chattanooga or Knoxville, you might have some trouble finding a USDA eligible property.
To secure a USDA loan, you must meet certain income restrictions. In Tennessee, you cannot bring home over 15% more than your area’s median income. The exact amount will depend on which county you live in but averages $91,900 for a family of four and $121,300 for families of five or more.
Tennessee USDA loan eligibility is also impacted by your credit score. To qualify, you need at least a 640 and a debt-to-income ratio of 41 percent or less. A stable employment history makes you a more competitive applicant as well. Strive for at least six months at one gig, though longer is better.
Starting to feel a little nervous about your creditworthiness? Take a deep breath and give us a shout. We’ll connect you with an expert Mortgage Coach who can review your financial information to see if you qualify for a Tennessee USDA loan. If you don’t? They’ll explore the dozen other financing options we offer and find something that suits your needs.
Buying a House Using USDA Rural Development Loan ($1,000 DOWN)
FAQ
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