Direct Housing Loans
Purpose: Section 502 loans are primarily 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.
Eligibility: Applicants for direct loans from HCFP 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; moderate income is 80 to 100
percent of AMI. Click here to review area income limits for this program. Families must
be without adequate housing, but be able to afford the mortgage payments, including taxes
and insurance, which are typically 24 percent of an applicant's income. However,
payment subsidy is available to applicants to enhance repayment ability. Applicants must be
unable to obtain credit elsewhere, yet have reasonable credit histories.
Terms: Loans are for up to 33 years (38 for those with incomes below 60 percent of AMI
and who cannot afford 33-year terms). The term is 30 years for manufactured homes. The promissory
note interest rate is set by HCFP based on the Government’s cost of money. However, that interest
rate is modified by payment assistance subsidy.
Standards: Under the Section 502 program, housing must be modest in size, design, and cost.
Modest housing is property that is considered modest for the area, does not have market value in
excess of the applicable area loan limit, and does not have certain prohibited features. Houses
constructed, purchased, or rehabilitated must meet the voluntary national model building code
adopted by the state and HCFP thermal and site standards. Manufactured housing must be
permanently installed and meet the HUD Manufactured Housing Construction and Safety Standards and
HCFP thermal and site standards.
Basic Instruction: 7 CFR Part 3550 and HB-1-3550
Printable Application Forms:
Application Form (RD
Release Form (RD 3550-1)
For more information about this program, or to file an application, contact the local
Rural Development office in your area.