Low Income Home Ownership Opportunities USDA Section 502 Direct Loan Packaging

Also known as the Section 502 Direct Loan Program, this program assists low- and very-low-income applicants obtain decent, safe and sanitary housing in eligible rural areas by providing payment assistance to increase an applicant’s repayment ability. Payment assistance is a type of subsidy that reduces the mortgage payment for a short time. The amount of assistance is determined by the adjusted family income.

AFS can assist potential homeowners in these states, in completing the application and understanding the program requirements.*

Who may apply for this program?
A number of factors are considered when determining an applicant’s eligibility for Single Family Direct Home Loans. At a minimum, applicants interested in obtaining a direct loan must have an adjusted income that is at or below the applicable low-income limit for the area where they wish to buy a house and they must demonstrate a willingness and ability to repay debt.

Applicants 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 obligation
• Meet citizenship or eligible noncitizen requirements
• Not be suspended or debarred from participation in federal programs

Properties financed with direct loan funds must:

• Generally be 2,000 square feet or less
• Not have market value in excess of the applicable area loan limit
• Not have in-ground swimming pools
• Not be designed for income producing activities

Borrowers are required to repay all or a portion of the payment subsidy received over the life of the loan when the title to the property transfers or the borrower is no longer living in the dwelling.

Applicants must meet income eligibility for a direct loan.  

What is an eligible area?
Generally, rural areas with a population less than 35,000 are eligible.  Visit the USDA Income and Property Eligibility website for complete details.

How may funds be used?
Loan funds may be used to help low-income individuals or households purchase homes in rural areas. Funds can be used to build, repair, renovate or relocate a home, or to purchase and prepare sites, including providing water and sewage facilities.

How much may I borrow?
The amount that can be borrowed depends on many factors. These include the number of people in the household, monthly income, monthly debts, property location, estimated property taxes, and property insurance. 

What is the interest rate and payback period?

• Fixed interest rate based on current market rates at loan approval or loan closing, whichever is lower.
• Interest rate when modified by payment assistance, can be as low as 1%.
• Up to 33 year payback period - 38 year payback period for very low income applicants who can’t afford the 33 year loan term.

How much down payment is required?
No down payment is typically required. Applicants with assets higher than the asset limits may be required to use a portion of those assets.

View the USDA's Program Fact Sheet. 

* You are not required to work with a loan application packager to receive assistance from the Agency.  You may work directly with the Agency and avoid the loan application packaging fee.  Working with our organization provides you with the following benefits: 

• We will act as a go-between for you and the Agency.
• We will make sure that your paperwork is in order, which should shorten the time it takes for the Agency to make an eligibility decision. All information collected will be maintained with the highest degree of confidentiality.
• Your application will be considered a fourth funding priority when funds are insufficient to serve all program eligible applicants.