USDA Rural Construction Loans and Grants

Single Family Housing Direct Home Loans

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 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.

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 July 1, 2022, the current interest rate for Single Family Housing Direct home loans is 3.25% for low-income and very low-income borrowers. New 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?

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.

Single Family Housing Guaranteed Loan Program

What does this program do?

The Section 502 Guaranteed Loan Program assists approved lenders in providing low- and moderate-income households the opportunity to own adequate, modest, decent, safe and sanitary dwellings as their primary residence in eligible rural areas. Eligible applicants may purchase, build, rehabilitate, improve or relocate a dwelling in an eligible rural area with 100% financing. The program provides a 90% loan note guarantee to approved lenders in order to reduce the risk of extending 100% loans to eligible rural homebuyers - so no money down for those who qualify!

Applicants must:

• Meet income-eligibility (cannot exceed 115% of median household income)
• Agree to personally occupy the dwelling as their primary residence
• Be a U.S. Citizen, U.S. non-citizen national or Qualified Alien

Why does Rural Development do this?

This program helps lenders work with low- and moderate-income households living in rural areas to make homeownership a reality. Providing affordable homeownership opportunities promotes prosperity, which in turn creates thriving communities and improves the quality of life in rural areas.

Single Family Housing Repair Loans & Grants

What does this program do?

Also known as the Section 504 Home Repair program, this provides loans to very-low-income homeowners to repair, improve or modernize their homes or grants to elderly very-low-income homeowners to remove health and safety hazards.

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. 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?

To qualify, you must:

• Be the homeowner and occupy the house
• Be unable to obtain affordable credit elsewhere
• Have a household income that does not exceed the very low limit by county.
• For grants, be age 62 or older and not be able to repay a repair loan

How may funds be used?

• Loans may be used to repair, improve or modernize homes or remove health and safety hazards
• Grants must be used to remove health and safety hazards

How much money can I get?

• Maximum loan is $40,000
• Maximum grant is $10,000
• Loans and grants can be combined for up to $50,000 in assistance

What are the terms of the loan or grant?

• Loans are termed for 20 years
• Loan interest rate is fixed at 1%
• Full title service is required if the total outstanding balance on Section 504 loans is greater than $25,000
• Grants have a lifetime limit of $10,000
• Grants must be repaid if the property is sold in less than 3 years
• If applicants can repay part, but not all of the costs, applicants may be offered a loan and grant combination

Why does USDA Rural Development do this?

Helping people stay in their own home and keep it in good repair helps families and their communities. Homeownership helps families and individuals build savings over time. It strengthens communities and helps many kinds of businesses that support the local economy.