USDA Rural Development:  Direct Mortgage

USDA Rural Development Direct Mortgage Guidelines

This website covers the mortgage guidelines for the Rural Development Direct Mortgage.  This home loan is sometimes referred to as the 502 Direct Loan.  Yes, it is a 100% LTV mortgage.  This direct home loan is focused toward low and very-low income families.  No down payment is required and all of your closing costs may be paid by the seller.  

As of 02/08/2011 there is no funding for this program.  Funding comes from Congress.  We all understand the U.S. budget issues at hand.  USDA has no idea if or when funds will be allocated.  Rural Development must process loan requests in the order they come in so don't let lack of funding stop you from applying for this loan.

It is important that you know what the qualifying guidelines are before you decide if the USDA Housing Loan is what you want to apply for.  We will review all areas regarding buyer eligibility, property eligibility, underwriting guidelines, and the application process.

You must understand the terms because the other 100% mortgage USDA offers is called the Guaranteed loan and can also be called a USDA rural development 502 loan.  The guidelines are totally different and if you call a USDA office to ask a question you must be specific to be connected to the correct department.  The key words to remember are direct or guaranteed.

After you review the guidelines on this site for a USDA loan, it might be helpful for you to review the guidelines for a conventional mortgage. The mortgage underwriting guidelines are totally different.

502 Direct Mortgage

Buyer eligibility is concerned with:

• Household income
• Repayment income
• Debts
• Credit history
• Government Subsidy

Property eligibility focuses on:

• Location
• Moderation
• Price or loan limits
• Inspections
• What is not eligible

Application Process:

The application process is quite different than if you were to apply at your bank or a mortgage lender in your area.  Remember, these funds are coming straight from the Government so this mortgage is heavily regulated and monitored.  This adds many steps that outside lenders do not have to perform.

You do not want to shop for your home until you have been determined eligible by the agency underwriters.  This usually takes about a month or more.  When you have been determined eligible you will be given a Certificate of Eligibility that specifies how much you may qualify for.  After you receive the COE you begin shopping for a home.  You can review the complete process in detail from the menu on the left.

A USDA direct loan will take at least twice as long from start to finish.  The reason it takes so long is because they don't have enough underwriters to support the volume.  If they would just hire a few more underwriters they could provide twice as many low to very-low income families with loans.

The Direct mortgage is a great loan so if you have a lot of time on your hands you should apply if you meet the income and credit guidelines.

USDA Rural Development Single Family Housing Programs:

502 Guaranteed Mortgage

The USDA Rural Housing Guaranteed loan is also a 100% LTV mortgage.  No down payment is required and the seller can pay closing cost.  There is a 2% funding fee charged for this loan but it can be financed into the loan.  That would make it a maximum 102% LTV mortgage.  This loan is acquired through outside lenders, banks, or mortgage brokers

The guaranteed loan is focused at moderate income families but if you are low income you may still qualify if you have good credit and a low DTI.  As with all Rural Development programs the house must be in an eligible rural area.  You can learn about the underwriting guidelines at the following site:  Rural Development Guaranteed Mortgage Underwriting Guidelines

502 Direct Mortgage

The 502 Direct mortgage is what this website is all about.  Use the menu on the left for details on the mortgage underwriting guidelines.  This is a great program but you do have to qualify.  Take your time to brows the mortgage guidelines and buyer eligibility guidelines.

Subsequent 502 Direct Repair loans

Subsequent 502 loans are made to people who already have a 502 direct mortgage and need repairs on their home but do not qualify for the 504 repair loan because their income is too high.  It's very complicated because there is no such thing as a 502 repair loan.  However, it does happen to protect the government's interest in the property.  The only way to get this loan is if you cannot qualify for any other loan to fix your home.  Your current 502 mortgage must be in good standing.  This loan is not covered here in detail because qualification is determined on a case by case basis. If you want more information you should contact the USDA office that provided you with your mortgage.

504 Direct Repair Loan

This is a home repair loan.  It's purpose is to provide people with VERY LOW income a source of funds to keep their home repaired and in a livable condition.  It focuses on health and safety.  And again, ... the home must be located in an eligible rural area. We have included a page that covers the details of this loan.  See the menu on the left.

504 Grant

Everyone wants a Government Grant.  This happens to be a wonderful program directed at the elderly in our communities. It is also the only grant program available in USDA Rural Development Single Family Housing Programs. People eligible for this grant must be 62 years of age or older.  The maximum amount is $7500 in anyone's life time.  The funds must be used for home repairs that involve health and safety.  The use of these funds are controlled and supervised by the agency.  There is a link in the menu for more details.

Take your time to review the site.  If you have specific questions we suggest you contact your closest USDA RD office because all offices operate differently and because loan limits/income limits change from county to county.  If you have a general question you can send us an email.  

You can locate your nearest office from this URL:  www.rurdev.usda.gov.