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Interest Rate
Subsidies
Interest Rate Subsidies
Interest rate subsidies typically use public dollars to reduce the cost of
borrowing for business or housing development.
Criteria
- Projects that receive interest rate subsidies must demonstrate that jobs are being
created or retained or affordable housing for low- and moderate-income households is being
improved or produced.
Uses
- Interest rate subsidies improve project cash flow by decreasing loan payments.
- The final user or borrower pays a below-market interest rate on either one loan or on a
"blended rate" from multiple market-rate and subsidized loans.
Structure
- Interest rate subsidies may take three forms: a direct cash grant to a lending
institution to write down the bank's interest rate on a business or housing loan; a
government-sponsored low interest loan subordinated to a participating commercial lender;
or a lower than market rate loan to a qualified borrower as a result of an advance or
pass-through provision from a public entity, i.e., Federal Home Loan Bank or tax-exempt
bond authorities.
- Typical sources for interest subsidies are government programs such as Com-munity
Development Block Grant funds for cities and states, state maturity-linked funding
programs, and economic development set-asides from state treasuries. Proceeds from the
sale of tax-exempt bonds issued through designated authorities and funds advanced to banks
from a Federal Home Loan Bank are also sources of funds with below-market rates.
FARM LABOR HOUSING
Rural Development (RD)
U. S. Department of Agriculture
This program authorizes loans to support the development of housing and facilities for
domestic farm labor.
Eligibility
- Farm owners or associations of farm owners, nonprofit organizations, Indian tribes, and
state or local agencies are eligible for loans.
- Applicants must generally be unable to provide housing from their own resources, but
must have sufficient operating capital to cover the costs of property and liability
insurance, fidelity premiums, equipment, and other initial expenses.
- Domestic farm workers must be citizens or have legal alien status and must receive a
substantial portion of their income in the handling of agricultural commodities.
- Retired or disabled persons who meet the definition of domestic farm workers at the time
of retirement or disability are also eligible.
- Interest on loans must not exceed 1 percent per year.
Program
- Loans to state and local government agencies and nonprofits can include up to 2 percent
of the project development cost for initial operating expenses.
- The term of loans cannot exceed 33 years.
Contact
Rural Development
RURAL HOME IMPROVEMENT LOANS, REPAIR LOANS AND GRANTS
Rural Development (RD)
U. S. Department of Agriculture
Loans and grants are available to rural homeowners for home repairs and improvements.
Eligibility
- Recipients must own and live in property on a farm, in the open country, on an Indian
reservation, or in towns with population of up to 10,000 or in eligible towns of up to
20,000.
- Recipients may not qualify for loans from commercial lenders.
- Loans and grants may be used to bring houses up to minimum health and safety standards.
- Loans may also be used to make changes for the convenience of the residents, such as
adding a room or modernizing the house.
- To receive a combination of grant and loan funds, an applicant must be 62 years or older
and able to pay for only a part of the repairs; to receive grants, applicants must be 62
years or older and unable to pay for any repairs.
Program
- Very low-income families can receive up to $5,000 in a loan, a combination loan and
grant, or a full grant to remove health hazards.
- Loans up to $1,500 must be repaid within 10 years; between $1,500 and $2,500 within 15
years; and loans over $2,500 within 20 years.
- The interest rate on loans to very low-income borrowers is 1 percent.
- Families with higher incomes can borrow up to $7,000, with interest rates that are
usually 1, 2 or 3 percent, based on the household's income.
- Other home improvement loans are repayable in 33 years, with market interest rates or
"interest credits" depending on family size and income.
Contact
Rural Development
U. S. Department of Agriculture
RURAL HOUSING LOANS
Rural Development (RD)
U. S. Department of Agriculture
Guaranteed loans, direct loans and credit toward interest on loans are available for
housing in rural areas.
Eligibility
- Loans are to be made for homes located either on a farm or in a designated rural area.
- Direct loans are made primarily to low- and very-low-income borrowers.
- Repair and rehabilitation loans may be made to finance improvements to existing
dwellings.
- Loans may be used for the purchase of a new manufactured home and lot, and to finance
acquisition of an existing home and lot.
Program
- Homes must be modest in size, design and cost and not exceed the housing needs of the
applicant.
- Loans terms may range from 10 to 38 years.
- Interest credit provides a subsidy to very-low-income and low income borrowers to reduce
the effective rate on a home purchase.
Contact
Rural Development
U. S. Department of Agriculture
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