How to Qualify for USDA 502 Home Loan Program

Qualifying for a Section 502 rural housing loan

The USDA Rural Development Housing and Community Facilities Program offers loans and loan guarantees under Section 502 to assist low-income individuals and households to purchase homes in rural areas. Proceeds from a Section 502 home loan may be used to build, repair, renovate or relocate a home, or to purchase and prepare sites, including providing water and sewage facilities. Applicants must meet certain criteria to qualify for a USDA Rural Development Section 502 Loan.

Instructions

1. Review your credit score from all three main credit bureaus, making any needed corrections to maximize your scores. Applicants must have a good credit history and be able to afford to pay the proposed monthly mortgage payment, including taxes and insurance for the property to qualify.

2. Apply for financing from conventional lenders such as banks and mortgage companies. Individuals looking to obtain a Section 502 financing must have the legal capacity to incur a loan obligation and be able to repay the loan being requested.

   If you qualify for a traditional mortgage, the USDA can provide a loan guarantee to the lender. If you do not qualify for financing through conventional mortgage lenders, the USDA's program under Section 502 offers a direct loan option for qualified individuals and properties.

3. Check the income eligibility limits for your area. See the Resource section of this article for a link to the USDA's Eligibility Site. For the direct loan program you must have very low to low income--50 to 80 percent adjusted median income--for your area. To qualify for the loan guarantee program, applicants may have up to 115 percent median income for the area.

4. Obtain a copy of your birth certificate, if a US citizen, or Alien Registration Receipt Card, if a non-citizen who qualifies as a legal alien as defined by USDA regulation, to prove eligibility for the program.

5. Provide your lender with a copy of your current lease or letter from your landlord indicating that you do not already own a home. Those applying for a Section 502 Loan must use the home being purchased as their primary residence and must not already own adequate housing.

6. Choose a home or home site located in an eligible location. The home to be purchased must be located in a small rural community, typically in a town or city with a population of less than 20,000 people. See the Resource section for information on USDA eligible locations.

Tips & Warnings

• Prospective first-time homebuyers in some areas may be required to compete homeowner education training.

• If any of the pages on the USDA's site are blank, try viewing using Internet Explorer.

References

• Rural Development USDA: Individual and Family Opportunities
• State of California: Proof of Legal Presence in the United States

Resources

• USDA Rural Development: Income and Property Eligibility Site
• USDA Rural Development: USDA Properties for Sale by State