ABOUT THE SECTION 502 GUARANTEED LOAN PROGRAM
This program assists approved lenders in providing low- and moderate-income households to own homes in eligible rural areas with up to 100% financing. This program provides lenders a 90% loan note guarantee to reduce the risk of extending 100% financing. This program also encompasses USDA’s Single-Close Construction-to-permanent loan. USDA does not underwrite the loans. A lender must have a proven ability to originate, underwrite, service, and hold single family mortgage loans. Lenders maintain the service rights and responsibilities and hold these loans on their portfolio until paid.
30-year fixed interest rates are set by the lender, not USDA. Loan amount based on appraised value of the home, meaning closing costs, repairs, site prep, etc. may be financed into the loan.
Eligible Uses of Section 502 Guaranteed
- To purchase an existing property
- To build a new property
- To repair/renovate an existing property
- To relocate a home
- Refinancing of eligible loans- Existing USDA borrowers only
- Essential household equipment such as carpet, ovens, ranges, refrigerators, washers, dryers, heating and cooling systems if the equipment is conveyed with the dwelling
- To purchase and prepare a site including grading, foundation plantings, seeding or sod installation, trees, walks, fences and driveways
- Must be in an eligible rural area, not be used for income producing activities, and not have a market value in excess of the applicable area loan limit.
Who Can Apply?
Ultimate recipients must:
- Not be above 115% of the area median income: SFH Section 502 GLP Eligibility Check Worksheet
- Occupy the home as their primary residence
- Have the legal capacity to incur a loan
- Be a US citizen, US non-citizen national, or qualified alien
- Demonstrate a willingness and ability to handle and manage debt (no credit score requirements)
How Do I Become an Approved Lender?
The 502 Direct program allows eligible entities to become certified loan packagers for the program. Packagers are responsible for assisting borrowers in assembling their loan applications, doing the underwriting to confirm eligibility, and helping the borrower through the closing process. As a packager, the organization does not need to finance any part of the loan.
To become a certified packager for the USDA 502 direct lending program, eligible entities must have at least one certified packager on staff, sign an MOU with USDA, and contract with an intermediary. Packaging fact sheet: Certified Loan Application Packaging
Under this program the intermediary provides supplemental training, technical assistance, and support to the packager. The permissible packaging fee is up to $2,000, split between the packager and intermediary. Applications submitted through an intermediary are given priority when there is limited funding.
Application Resources: Tools for a Successful Submission
USDA Single Family Housing 502 Guaranteed Website
Combination Construction-to-Permanent (Single Close) Loan Program Fact Sheet
Certified Loan Application Packaging Fact Sheet
Becoming a Certified Loan Application Packager Presentation
Upcoming Packager Certification Trainings
Connect with an intermediary in your state/region
Check your service area against the list of eligible rural areas
