ABOUT THE 502 DIRECT LOAN PROGRAM
The USDA Section 502 Direct loans offer up to 100% financing to low- and very-low income applicants to assist in obtaining decent, safe, and sanitary housing in eligible rural areas. This program provides payment assistance to increase an applicant’s repayment ability. This payment assistance comes in the form of a subsidy that reduces the mortgage payment as determined by the adjusted family income. USDA allows family income to be adjusted for circumstances like children in the home, disabled household members, elderly household members, childcare expenses, and eligible medical expenses. This program does not require borrowers to have a down payment unless their asset size is over a certain amount. Applicants can submit applications through their local RD office, or through working with a packager and intermediary.
Eligible Uses of 502 Direct
- To purchase an existing property
- To build a new property
- To repair/renovate an existing property
- To relocate a home
- 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:
- 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
- Meet citizenship or eligible noncitizen requirements
- Not be suspended or debarred from participation in federal programs
How does this differ from the 502 Guaranteed Loan Program?
The 502 Direct program does not require the approved lender to provide any financing for the loan. Instead the lender (called a packager) markets the program, educates potential borrowers, assists borrowers in completing the application, and does the initial eligibility and underwriting for the loan. With the 502 Direct program, ultimately USDA approves or denies the loan and provides the financing to the homebuyer. The packager is paid a fee within the homebuyer’s closing costs as compensation for assisting. With this program USDA approves, finances, closes, and services the loan.
The 502 Guaranteed Loan Program is a home loan backed by USDA up to 90% in the event the loan fails, helping to reduce the risk to the lender. Within this program, the lender is allowed to set their own interest rates and fees. This program also allows for a broader group of borrowers, allowing moderate income borrowers and the refinance of existing USDA mortgages. With this program, the lender underwrites, approves, finances, closes, and services the loan.
BECOME A LOAN PACKAGER
What is Packaging?
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.
Certified Loan Application Packaging Fact Sheet
Becoming a Certified Loan Application Packager Presentation
Direct Loan Application Packagers (Trainings & Resources) | Rural Development
Upcoming Packager Certification Trainings
Application Resources: Tools for a Successful Submission
USDA Single Family Housing 502 Direct Website
Connect with an intermediary in your state/region
Check your service area against the list of eligible rural areas
