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 does this differ from the 502 Direct Loan Program?
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.
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.
Application Resources: Tools for a Successful Submission
USDA Single Family Housing 502 Guaranteed Website
Combination Construction-to-Permanent (Single Close) Loan Program Fact Sheet
Check your service area against the list of eligible rural areas
