Home buyers often ask us “What’s the difference between the USDA 502 Guaranteed or Direct loan? ” Most buyers are unaware that USDA Rural Housing offers two different home loan programs for home buyers. What program is right for you all depends on your household income. In short, the USDA Direct loan is set aside for home buyers that have low to very low income. These loans are processed directly by the USDA only, as the name “direct” implies. The USDA 502 Guaranteed loan is geared towards moderate income borrowers, this program makes up the large majority of USDA loans in the U.S. today. This program is only offered through USDA approved lenders and mortgage companies, not directly through the USDA.
USDA Direct Loan Basics:
Also known as the Section 502 Direct Loan Program, USDA Direct Housing Loan is less common than USDA Guarantee loan program. The Direct loan is only available for low and very low income households to obtain home ownership, as defined by the USDA. Very low income is defined as below 50 percent of the area median income (AMI); low income is between 50 and 80 percent of AMI; moderate income is 80 to 100 percent of AMI. To apply for a USDA direct loan, applicants must contact their local USDA office below.
Who may apply for the USDA Direct loan?
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.
- 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 non-citizen requirements
- Not be suspended or debarred from participation in federal programs
Properties financed with direct loan funds must:
- Generally be 1,800 square feet or less
- Not have market value in excess of the applicable area loan limit
- Not have in-ground swimming pools ( pools are permitted under the Guaranteed program)
- Not be designed for income producing activities
If you have questions about applying for a USDA direct loan, please contact the USDA here.
USDA 502 Guaranteed Program Basics ( offered exclusively by approved lenders and banks)
This program assists approved lenders in providing moderate-income households the opportunity to own adequate, modest, decent, safe and sanitary dwellings as their primary residence in eligible rural areas. USDA Guaranteed loans are the most popular type of USDA loan and allow for higher income limits and 100% financing for home purchases. USDA Guaranteed Loan applicants may have an income of up to 115% of the median household income for the area. All USDA Guaranteed loans carry 30 year terms and are set fixed interest rates.
Who may apply for the USDA 502 Guaranteed program?
- Meet income-eligibility, please see the 2016 USDA loan income limits.
- Agree to personally occupy the dwelling as their primary residence
- Be a U.S. Citizen, U.S. non-citizen national or Qualified Alien
- Have the legal capacity to incur the loan obligation
- Have not been suspended or debarred from participation in federal programs
- Demonstrate the willingness to meet credit obligations in a timely manner (620 credit score required)
- Purchase a property that meets all program criteria – approved USDA location.
What are some of benefits of a USDA loan?
- USDA Guaranteed Loans require no down payment – 100% financing.
- There are no prepayment penalties for USDA Rural Home Loans.
- The home seller can pay the buyers USDA closing costs.
- A USDA Rural Development Home Loan has lower monthly mortgage insurance when compared to other loan options.
- USDA RD Loans are offered at terms of 30 years with a fixed interest rate
- No special class or schooling requirements to apply. Home buyers can get approved in minutes.
- A USDA Rural Development mortgage is available all rural areas of the country, provided a market exists for the property and the home meets HUD’s minimum property standards.
- A USDA Rural Housing loan can be used to purchase a new or existing one family home in rural areas – regardless of who the home seller is.
Have questions about applying for a USDA Guaranteed loan? Please submit the Quick Contact Form on the right side. You can also call ph: 800-691-8826 or visit www.UsdaMortgageHub.com. Mobile phone users can find the Quick Contact form at the top of their page.