USDA Loans

Low and very low-income families who live in rural housing areas and wish to own their own homes may obtain financing through the government under the USDA loan program. These Rural Housing Direct Loans are offered to those wishing to purchase a home or purchase land to build a home on. Payments are based on the family’s adjusted income. Sometimes these loans are called Section 502 Direct Loans.

The Purpose

The purpose of the Section 502 Direct Loan program is to help struggling families in rural areas buy a home. The money can be used to relocate, purchase, build or renovate a home. It can also be used to setup water and sewage for the home if it does not already exist.

Eligibility

Eligibility is determined based on location, income and current housing status. Families must have very low income, which is defined as below 50 percent of the area median income (AMI), or low income, which is defined as between 50 and 80 percent of the AMI.

Also, families must not have adequate housing as it stands. However, they must have sufficient income to afford the mortgage payments, taxes and insurance. Families who cannot afford the payments might be able to get a payment subsidy. The payment amount is typically 22 to 26 percent of the applicant’s income. Credit rating is also a factor in eligibility. While the families cannot qualify for other mortgage credit options, they also must have somewhat positive credit histories to get this loan.

The Loan and Property

The USDA Mortgage is offered for up to 38 years. Interest rate is set by the government and may be modified by payment assistance subsidy. The house must be considered modest for the area. If used to purchase a manufactured house, the home must be permanently installed and meet all HUD safety and HCFP thermal and site standards.