(c) Housing Assistance Council, January 2000

Permission is granted ONLY to nonprofit community-based organizations to reproduce and/or adapt this document, and only for their own use.

I.  INTRODUCTION

A. What is the Rural Homeownership Loan Program?

The Section 502 Rural Homeownership Loan Program of the Rural Housing Service (RHS) makes loans to low- and very low-income households (incomes up to 80 percent of area median) in rural areas to purchase, build, repair, renovate or relocate houses, including mobile/manufactured homes.¹  Loans can also be used to purchase and prepare sites and/or to provide water supply and sewage disposal facilities. No down payment is required, and interest rates are subsidized. Through the Section 502 direct loan program, RHS, a "lender of last resort," brings homeownership to those who otherwise could not afford it.

Households with adjusted incomes between 80 and 115 percent of median income, as defined by the Department of Housing and Urban Development (HUD), may qualify for the Section 502 single-family housing guaranteed loan program. In the guaranteed program, unlike the direct program, loans are made by banks or savings and loan institutions rather than by RHS.

This guide refers to RHS (the agency responsible for the Section 502 program at the national level) and Rural Development (the designation for local, regional, and state offices and staff administering the program). Like other rural housing programs, Section 502 was formerly administered by the Farmers Home Administration (FmHA) and then by the Rural Housing and Community Development Service. FmHA has been eliminated through USDA restructuring. The FmHA farmer programs and about 30 percent of its staff were transferred to the Farm Service Agency (FSA), as part of a "one stop" center for farmers. The remaining FmHA programs were transferred to three small agencies: the Rural Business-Cooperative Service, the Rural Utility Service and the Rural Housing Service (originally named the Rural Housing and Community Development Service). Field staff and most program support staff for all three agencies became Rural Development staff. The latter are directly responsible to the Under Secretary of Agriculture for Rural Development.

This guide is intended to familiarize the reader with the direct loan Section 502 Rural Homeownership Program. Important segments of FmHA/RHS Instructions are reprinted in the text or inserted as appendices. While it may be possible to submit an application solely by studying this guide, HAC strongly advises that loan packagers (and applicants not working with a loan packager) obtain and utilize the complete FmHA/RHS Instructions. (For ordering information, see Section II. F.) Packagers and applicants should also check with the local Rural Development office about application requirements, because some offices require different forms and information than others.

Brief information about the Section 502 guaranteed program is provided in Section V.D, but this manual is not intended to cover the guaranteed program in depth.

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