Betty Lunce is in her 70s and walks with a cane. A homeowner in Hazard, Kentucky, she found it difficult to leave her house. As Scott McReynolds, the executive director of the nonprofit Housing Development Alliance (HDA) explains, the back door led to three uneven, precarious steps with no handrail, and her long gravel driveway was near impassable due to deep ruts that had formed. Even though she no longer drove, the damaged driveway prevented any cars from pulling up to the home unless they had four-wheel drive. She and her family were unsure if an ambulance would be able to reach her home in an emergency. Even more concerning was her roof, which leaked in several spots including the kitchen and could lead to structural issues such as drywall damage or wood rot, and health issues such as the spread of mold.
All of that changed in December 2021, however, when Lunce received a new roof, an entry ramp, and a rebuilt driveway, for a total cost of $12,300, as part of a relatively unknown federal resource known as Section 504, and described as the U.S. Department of Agriculture’s (USDA) home repair loan and grant program for very low-income rural homeowners.
Lunce is one of many Americans living in rural communities who may own a home but have difficulty affording maintenance and repairs. The HDA worked with Lunce to qualify her for aid and link her to financing using Section 504. In addition to the loan and grant provided by the USDA program, HDA used its own supplemental repair funds to finance the work on Lunce’s home.
According to McReynolds, “One impact of persistent poverty is a dilapidated housing stock, leading to a huge need for home repairs. Our home repair waiting list has over 100 households and we receive multiple new inquiries every week. Most requests are from households that are elderly, disabled and/or very low-income. These homes often need extensive repairs and upgrades. That’s why we offer affordable home repairs and home rehabilitations to qualifying low-income homeowners; if we can improve and preserve their existing home, it’s much better financially for them.”
USDA is the grantmaker and lender in the 72-year-old program that HDA has used in many of its repair projects. The Department of Housing and Urban Development (HUD) might do well to look at Section 504 as a model for meeting urban and suburban repair needs. HDA’s aid to Ms. Lunce is an example of a strong local nonprofit using a federal funding resource, but the 504 program is only available to applicants coming directly to a USDA Rural Development local office. HDA has used more than $3.6 million in Section 504 funding to repair more than 450 homes since 1996.
The USDA program has two components: (1) Loans to very-low-income homeowners to repair, improve, or modernize their homes; and (2) grants to elderly very-low-income homeowners to remove health and safety hazards. An applicant must be the homeowner and occupy the house, be unable to obtain affordable credit elsewhere, and have an income of less than 50 percent of the area median. Grant recipients must be age 62 or older and unable to repay a repair loan.
The maximum loan is $20,000 and the maximum grant is $7,500. Loans have a 1 percent interest rate and can be repaid over 20 years. Grants must be repaid if the property is sold in less than three years. Neither puts a lien on the house that prevents homeowners from taking out a home equity. An applicant with the resources to repay some but not all of a loan may be offered a combined loan and grant.
The 504 program benefits homeowners, especially very low-income seniors, by repairing conditions that are health and safety hazards and by making repairs that they would not otherwise be able to afford. Conditions such as a leaky roof, if unrepaired, will cause long-term damage and loss of value in a home—and can be hazardous to health.
From 1950 through 2021, the 504 program made 203,135 loans totaling $943.3 million and 224,837 grants totaling $1.095 billion. Despite its wide impact, past presidential administrations have tried to cut it. All of the Trump administration’s budgets and some of Barack Obama’s proposed to zero out this small program, but Congress rejected those cuts on a bipartisan basis. President Joe Biden’s first budget did not propose cuts in this or other USDA low-income rural housing programs. And the final federal budget agreement for fiscal 2022, which finished in March, provides a small funding increase for Section 504 grants.
On a positive note, President Biden’s proposed fiscal year 2023 budget, released on March 28, proposes a substantial increase in the 504 program. Total funding for both grants and loans would rise to $95 million for 2023, up from $60 million in FY 2022 and $58 million in FY 2021.
The Section 504 program has helped thousands of very-low-income rural households make critically needed repairs on their homes. The program is part of USDA’s tool kit for low-income homeownership, along with Section 502 direct and guaranteed mortgages.
In the 504 and 502 direct programs, USDA is the lender—a stark difference from mortgages insured by the HUD Federal Housing Administration or Veterans Affairs, where private lenders make the loans and the federal government backs them up with a guarantee. These USDA home repair and homeownership programs began in the 1950s as support for farmers’ homes and later expanded to all rural residents.
The program has its challenges. In recent years, the funds have not been fully dispersed. While the 504 grant program has been fully utilized most years, the loan program has not used all available funding since about 2008. This may be largely due to a lack of USDA staffing to process applications, but program limitations on the maximum amount of assistance available have also contributed to the problem. USDA has been looking at various modernizing improvements to the program. Recently a network of home repair nonprofits including the Coalition for Home Repair and the Housing Assistance Council has developed recommendations for reform, including streamlining of the application process, increasing the loan and grant amount, and raising the financial threshold where a home could be foreclosed upon if the home repair loan isn’t paid back.
Some of the recommendations were recently adopted in a USDA Final Rule that went into effect on March 9. The loan and grant limits will be increased to $40,000 and $10,000, respectively. In addition, the loan security requirements will change so that that larger home repair loans won’t have to be taken out as mortgages. These changes should make the program more effective, which will be especially needed if Congress provides increased funding.
The United States has more than 40.2 million occupied homes that were built before 1960—and more than 18 million built before 1940. We also have more than 1.5 million homes that lack complete plumbing or kitchens. Homeownership does not automatically confer affluence. Resources such as the Section 504 program are clearly needed and useful. Perhaps Congress and HUD should examine the creation of a similar program for urban and suburban communities. Given the current challenges in creating any new antipoverty program, Congress might consider adding funds to HUD and the CDFI Fund for such an initiative.
The best endorsement for the Section 504 program and those who work with it may come from the Housing Development Alliance, writing about Lunce’s house: “[Her] roof is now covered with 30-year shingles, keeping it weather-tight to stop existing and future leaks, which greatly improves the overall lifespan of the home. USDA 504 funding was used to build a ramp with a vinyl handrail for easier access into and out of the home. We also graded Ms. Lunce’s driveway, which is a rural unpaved road, with 40 tons of new gravel and made a new ditch to prevent water erosion. Previously, her driveway was unsafe and severely eroded. This further improves her ability to safely access her home.”
Lunce also expresses the huge difference the repairs have made in her life . “You all will never know how much this ramp means to me, because I have trouble walking. Even just walking from the car to the house, I could tell a world of difference! I appreciate it so much. I talk about it so much to everybody, and they’ve all bragged on it. If you all had done just that one thing, it would have been enough for me. But you all fixed my roof, too, and it’s been a blessing this winter,” she says.
“I’m so happy with the road. We had so much trouble trying to get it fixed. I never in my lifetime thought that I’d have help like this. I really needed it! When it’s nice out like today, I walk up and down this ramp to get a little exercise. I love you all for it!”