What does this program do?
Also known as the Section 502 Direct Loan Program, this program assists low- and very-low-income applicants obtain decent, safe and sanitary housing in eligible rural areas by providing payment assistance to increase an applicant’s repayment ability. Payment assistance is a type of subsidy that reduces the mortgage payment for a short time. The amount of assistance is determined by the adjusted family income.

For existing Section 502 direct and 504 borrowers who have received a payment moratorium related to COVID-19. The American Rescue Plan (ARP) Act of 2021 appropriated additional funds for Section 502 direct and 504 loans, to remain available until September 30, 2023. The focus will be to refinance existing Section 502 direct and Section 504 borrowers who have received a payment moratorium related to COVID-19. Beginning May 17, 2021, the Agency will accept applications from existing Section 502 direct and Section 504 loan borrowers, to refinance outstanding loans which have been in an approved COVID-19 moratorium. Details are available in the ARP Program Fact Sheet. Additional information for these borrowers, including a standardized application package, is available at https://pubmai.sc.egov.usda.gov/.

Who may apply for this program?
A number of factors are considered when determining an applicant’s eligibility for Single Family Direct Home Loans. At a minimum, applicants interested in obtaining a direct loan must have an adjusted income that is at or below the applicable low-income limit for the area where they wish to buy a house and they must demonstrate a willingness and ability to repay debt.

Applicants must:

• Be without decent, safe and sanitary housing
• Be unable to obtain a loan from other resources on terms and conditions that can reasonably be expected to meet
• Agree to occupy the property as your primary residence
• Have the legal capacity to incur a loan obligation
• Meet citizenship or eligible noncitizen requirements
• Not be suspended or debarred from participation in federal programs

Properties financed with direct loan funds must:

• Generally be 2,000 square feet or less
• Not have market value in excess of the applicable area loan limit
• Not have in-ground swimming pools
• Not be designed for income producing activities
• Borrowers are required to repay all or a portion of the payment subsidy received over the life of the loan when the title to the property transfers or the borrower is no longer living in the dwelling.

Applicants must meet income eligibility for a direct loan.

What is an eligible area?
Generally, rural areas with a population less than 35,000 are eligible. Visit the USDA Income and Property Eligibility website for complete details.

How may funds be used?
Loan funds may be used to help low-income individuals or households purchase homes in rural areas. Funds can be used to build, repair, renovate or relocate a home, or to purchase and prepare sites, including providing water and sewage facilities.

How much may I borrow?
Using the Single Family Housing Direct Self- Assessment tool, potential applicants may enter information online to determine if the Section 502 Direct Loan Program is a good fit for them prior to applying. The tool will provide a preliminary review after a potential applicant enters information on their general household composition, monthly income, monthly debts, property location, estimated property taxes, and estimated hazard insurance. Potential applicants are welcome to submit a complete application for an official determination by USDA Rural Development (RD) regardless of the self-assessment results. Upon receipt of a complete application, RD will determine the applicant’s eligibility using verified information and the applicant’s maximum loan amount based on their repayment ability and the area loan limit for the county in which the property is located.

What is the interest rate and payback period?

• Effective November 1, 2021, the current interest rate for Single Family Housing Direct home loans is 2.50% for low-income and very low-income borrowers.
• Fixed interest rate based on current market rates at loan approval or loan closing, whichever is lower.
• Interest rate when modified by payment assistance, can be as low as 1%.
• Up to 33 year payback period – 38 year payback period for very low income applicants who can’t afford the 33 year loan term.

How much down payment is required?
No down payment is typically required. Applicants with assets higher than the asset limits may be required to use a portion of those assets.