USDA proposes dropping its building rules for rural housing loans

Who decides how a USDA-financed house gets built: Washington or the county building office? USDA Rural Development proposed on Aug. 19 to answer “the county,” by repealing its own construction and repair regulation for housing programs ^[1].

Why it matters: The rule at 7 CFR part 1924 lays out how construction, site development and defect claims work across Rural Development programs, and it sets energy-efficiency and thermal-performance standards ^[1]. USDA says those standards “often exceed State and local requirements,” raise costs and delay building and repair in rural areas, and that the added cost is “passed directly on to borrowers by increasing home prices” ^[1]. Comments are open until Oct. 19 ^[1].

By the numbers

• Oct. 19, 2026: The comment deadline, under docket RHS-26-ADMIN-0331 ^[1].
• 3: CFR parts the proposal touches. It removes part 1924 and rewrites cross-references in parts 4280 and 4290, the rural business programs ^[1].
• 13,100: Section 502 direct-loan homes the agencies counted in 2024 among new construction in the 45 states and territories that had not adopted the 2021 energy code, plus about 1,800 guaranteed-loan homes ^[4].
• 6.65%: Freddie Mac’s 30-year fixed average on Aug. 20, down from 6.67% a week earlier; the 15-year averaged 5.95% ^[5].

What USDA says the rule does: Part 1924 makes owners of Rural Housing Service properties go through “duplicative processes, additional paperwork, and extra processing steps,” the proposal says ^[1]. Rural Development argues its housing statute, Title V of the Housing Act of 1949, only requires that financed homes be “decent, safe, and sanitary” and “does not mandate the sorts of prescriptive design standards found in Part 1924” ^[1]. Fewer rules, the agency argues, would bring more builders into its programs and let it make more loans ^[1].

Business programs are treated differently. USDA says those projects lack “robust state and local standards,” so their construction requirements will point to the Community Facilities rules in 7 CFR part 1942 ^[1].

How we got here: Executive Order 14394, signed March 13, directed USDA, HUD, the Energy Department and FHFA to reform or eliminate “unduly burdensome or costly energy-efficiency, water-use, or alternative-energy requirements” for housing ^[2]. USDA cites that order, plus two 2025 deregulation orders, as the basis for the repeal ^[1].

The energy piece has a longer history. In April 2024, HUD and USDA adopted the 2021 International Energy Conservation Code for new homes they finance and said USDA would update part 1924 to match ^[4]. Fifteen states and the National Association of Home Builders sued in January 2025, and on March 5, 2026, a federal court in Texas vacated that determination ^[3]. On May 1 the two departments rescinded it and told their programs to follow the standards in effect before 2024 ^[3]. That earlier baseline was the 2009 code, according to the 2024 notice ^[4].

What it means for buyers and owners

• Nothing changes yet. Part 1924 stays on the books until USDA finalizes a rule, and the proposal sets no effective date ^[1].
• Local codes would govern. Homes financed through Rural Housing Service programs would be built to state and local codes and checked through local permitting, which USDA says already ensure “structural integrity, safety, and compliance” ^[1].
• No cost estimate. USDA classified the proposal as not significant, so it went without review by the Office of Management and Budget, and it offers no dollar estimate of savings ^[1].
• Rates are still high for everyone. The Fed held its target range at 3.50% to 3.75% in July, and the 30-year average was 6.58% a year ago, below today’s level ^{[5, 6]}.

What’s next: Comments close Oct. 19, after which USDA can publish a final rule, revise it or let it sit ^[1].

The other side: The case for federal energy standards comes from the same agencies two years earlier. In 2024, HUD and USDA estimated that building to the 2021 code instead of the 2009 code added an average of $7,229 per unit, but that the average single-family buyer would save $963 a year on energy against $439 in added mortgage payments, with net life-cycle savings averaging $15,071 per unit ^[4]. USDA argued then that Section 502’s no-down-payment loans were “an optimal financing vehicle” for those added costs, while rural commenters warned that materials and trained crews are harder to find outside cities ^[4]. In its rescission, the administration said the 2024 math rested on a 5.3% mortgage-rate assumption, nearly a point below rates at the time ^[3].