Mutual Self-Help Loans
Purpose: The Section 502 Mutual Self-Help Housing Loan program is used
primarily to help very low- and low-income households construct their own homes.
The program is targeted to families who are unable to buy clean, safe housing
through conventional methods. Families participating in a mutual self-help project
perform approximately 65 percent of the construction labor on each other's homes under
qualified supervision. The savings from the reduction in labor costs allows otherwise
ineligible families to own their homes. If families cannot meet their mortgage payments
during the construction phase, the funds for these payments can be included in the loan.
Eligibility: Applicants must have very low or low incomes. Very low income is
defined as below 50 percent of the area median income (AMI); low income is between 50 and
80 percent of AMI. Families must be without adequate housing; however, they must be able
to afford the mortgage payments including principal, interest, taxes and insurance (PITI).
These payments are 22 to 26 percent of an applicant's income. In addition, applicants must
be unable to obtain credit elsewhere, yet have reasonable credit histories. Families with
very low incomes living in substandard housing are given first priority.
Terms: Loans are for up to 33 years (38 for those with incomes below 60 percent of the
area median and who cannot afford 33-year terms). The promissory note interest rate is set by
HCFP (in July 1997 it was 7.25 percent). However, the interest rate is not usually meaningful
since payment assistance can reduce the interest rate to as low as 1 percent. The amount of
subsidy is determined by family income as a percentage of AMI, so that the family pays from 22
to 26 percent of their income for principal, interest, taxes, and insurance (PITI) up to an
amount not exceeding the promissory note rate. There is no required down payment. HCFP must also
determine repayment feasibility using ratios of repayment (gross) income to PITI and to total family
Standards: Under the Section 502 Mutual Self-Help Housing program, housing must be
modest in size, design, and cost. Modest housing is defined as housing costing less than the
HUD dollar cap, which as of 1997 was $81,548 with adjustments for high cost areas. Houses
constructed must meet the voluntary national model building code adopted by the state and HCFP
thermal and site standards.
Basic Instruction: 7 CFR Part 3550 and HB-2-3550.
For more information about this program, or to file an application, contact the local
Rural Development office in your area.