True to its goal of enabling more Americans to own homes in rural communities, the United States Department of Agriculture has implemented a variety of programs that cater to different types of borrowers. One in particular that has generated much interest over the years is the Direct Loan Program.
What is the Direct Loan Program?
The Section 502 Direct Loan Program assists low-income individuals to afford safe and decent housing in rural areas.
How it works
The program provides payment assistance to the eligible applicant. This is a form of subsidy that aims to increase the borrower’s capacity to pay for the desired piece of rural property. It works by reducing the mortgage payment for a prescribed period of time. The assistance amount an applicant will get will be based on the adjusted family income.
Rates and terms
The loan has a fixed interest rate that’s determined by the current market at loan closing or when it’s approved, whichever is lower. When modified by payment assistance they can go as low as 1%. There’s a 33-year standard repayment period, however, very low-income applicants can opt for the 38-year loan term.
No down payment is needed. Should an applicant have assets that are greater than the prescribed limits, a portion of such should be used in paying for the home.
Who is it for?
An applicant should meet the following criteria to qualify for a Direct Home Loan.
- Should lack decent, safe and sanitary housing. The applicant should also establish inability to obtain a loan from other resources through reasonable means.
- Must be willing to use the property as a primary residence.
- Must meet citizenship requirements.
- Should not be debarred from participating in any federal program.
What type of property can be financed?
The property to be considered for financing should not be more than 2,000 square feet. Its market value should be within the applicable area loan limit. Finally, it should not be designed for income producing activities nor have an indoor swimming pool.
Note that a ‘qualified rural area’ pertains to a place with less than 35,000 residents. Visit the USDA Income and Property Eligibility website for more information.