Program 101

What does this program do? 
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.

Who may apply for this program?
A number of factors are considered when determining an applicant’s eligibility for the Section 502 Direct program. 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:

  • Be modest in size for the area
  • 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.

The USDA Income and Property Eligibility website can help determine income eligibility for a direct loan. Applicants may also contact your local RD office to ask for additional details about eligibility requirements, or select their state from the dropdown menu above.

What is an eligible area?
Visit the USDA Income and Property Eligibility website.

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?
The maximum loan amount an applicant may qualify for will depend on the applicant’s repayment ability. The applicant’s ability to repay a loan considers various factors such as income, debts, assets and the amount of payment assistance applicants may be eligible to receive. Regardless of repayment ability, applicants may never borrow more than the area’s loan limit (plus certain costs allowed to be financed) for the county in which the property is located.

What is the interest rate and payback period?

  • 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.

Is there a deadline to apply?
Applications for this program are accepted through your local RD office year round.

How long does an application take?
Processing times vary depending on funding availability and program demand in the area in which an applicant is interested in buying and completeness of the application package.

What governs this program?

Why does USDA Rural Development do this?
USDA Rural Development’s Section 502 Direct Loan Program provides a path to homeownership for low- and very-low-income families living in rural areas, and families who truly have no other way to make affordable homeownership a reality. Providing these affordable homeownership opportunities promotes prosperity, which in turn creates thriving communities and improves the quality of life in rural areas.

NOTE: Because citations and other information may be subject to change please always consult the program instructions listed in the section above titled "What Law Governs this Program?" You may also contact your local office for assistance.

Forms & Resources

NOTE: Please contact the local Rural Development Office where you would like to purchase a home to speak to a Housing Program Specialist before attempting to fill out any forms or applications. This will save you valuable time in your application. All applicants must provide financial information as well as:

RD Form 410-4 Application Form
RD 3550-1 Release Form

Maximum loan limits are determined by the location of the home and the number of family members in the home.

Interest Rates

Effective January 1, 2015, the current interest rate for Single Family Housing Direct Home Loans is 3.375% for low and very low income borrowers.