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.

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 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. .

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.

Approval:  Rural Development officials should make a decision within 30 days of the Rural Development office's receipt of the application.

Under the Guaranteed Loan program, the Housing and Community Facilities Programs guarantees loans made by private sector lenders. (A loan guarantee through HCFP means that, should the individual borrower default on the loan, HCFP will pay the private financier for the loan.) The individual works with the private lender and makes his or her payments to that lender.

Under the terms of the program, an individual or family may borrow up to 100% of the appraised value of the home, which eliminates the need for a down payment. Since a common barrier to owning a home for many low-income people is the lack of funds to make a down payment, the availability of the loan guarantees from HCFP makes the reality of owning a home available to a much larger percentage of Americans.