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Interested in Living Rural? Check Out a USDA 502 Direct Home Loan

Picture of house key against money

If you're considering homeownership in a rural area and think your options are limited due to income or savings, the USDA's Section 502 Direct Loan Program could be a game-changer for you. This program, available throughout the United States, is designed to help low and very low-income individuals or families buy, build, improve, or relocate a home in eligible rural areas. Below are some reasons why this program is worth looking into:

First, the program requires zero Down Payment. If you are dreaming of owning a home but don't have a down payment saved up, this makes it easier to take the first step towards homeownership. 

Second, the program offers subsidized interest rates, which can go as low as 1% after subsidies are applied. This can drastically reduce your monthly mortgage payments. As of February 1st, 2024, the USDA Single Family Housing Direct Home Loan interest rates is 4.625% for low-income and very low-income borrowers. The average interest rate for traditional borrowers is 7.875% for 30-year fixed rate loans.

The program also offers extended loan terms. Conventional mortgage loans are typically a 30-year fixed rate or a 15-year fixed rate. With the USDA program, you can get loan terms up to 33 or even 38 years if your income is very low. Longer loan terms mean lower monthly payments, making it more manageable on a tight budget. If you can afford to make larger or additional payments, you can still pay the loan off before the end of the term. There is no early payoff penalty.

Another important benefit is flexible credit requirements. If your credit history isn't perfect, you might still qualify. The program is designed with more forgiving credit guidelines compared to conventional loans.

And finally, the monthly payments on these loans are stable. With fixed interest rates, you won't have to worry about fluctuating mortgage payments. This stability makes financial planning much simpler.

Some other considerations 

Many programs have support for First-Time Homebuyers. If you are a first-time homebuyer or haven't owned a home in the past three years, you might be eligible for additional financial assistance, like grants for closing costs and essential repairs.

Also, this is targeted assistance. The program focuses on helping rural residents in areas where traditional financing options might be scarce. The goal is to make homeownership accessible to those who need it most.

The Section 502 Direct Loan Program is all about making the dream of homeownership a reality for those in rural areas, providing a pathway to buy a home that is affordable, sustainable, and within reach. If you're interested, it's worth exploring whether you meet the income and area eligibility requirements. Homeownership might be closer than you think, thanks to the support and opportunities offered by this USDA program. AFS provides USDA Loan packaging in Washington State. Outside of Washington, please visit the USDA's website to learn more about the program. 

Published Feb 12, 2024.