Rural Housing Direct Loans
are loans that are directly funded by the Government. These loans are
available for low- and very low-income households to obtain homeownership.
Applicants may obtain 100% financing to purchase an existing dwelling,
purchase a site and construct a dwelling, or purchase newly constructed
dwellings located in rural areas. Mortgage payments are based on the
household's adjusted income. These loans are commonly referred to as
Section 502 Direct Loans.
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.
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
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 within 22 to 26 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. .
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.
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.
Rural Development officials should make a
decision within 30 days of the Rural Development office's receipt of the
7 CFR Part 3550 and HB-1-3550