 TITLE: What Is a USDA Loan? CONTENT: Types of USDA Loans\n-------------------\nThere are three types of USDA loans:\n### Section 502 Direct Loans\nThis type of USDA mortgage loan is available to low- and very-low-income borrowers. Loan proceeds may be used to purchase, renovate or relocate a home, or to make site improvements including installation of water and sewage services.\nThe current interest rate for direct home loans is 2.5%, but rates can drop as low as 1% when modified by payment assistance—a subsidy that temporarily reduces mortgage payments. Loan repayment periods are typically no longer than 33 years, but 38-year loans are available to recipients who cannot afford monthly payments on a 33-year loan.\nThe home you wish to finance using Section 502 direct loans must meet certain requirements, including cost. Because home values vary widely by geography, each county has its own price limit for purchases made using Section 502 loans.\n### Single Family Housing Repair Loans & Grants\nAlso known as the Section 504 Home Repair Program, this USDA initiative lends funds to homeowners who wish to repair or upgrade their homes. The program is available to applicants with incomes that fall below 50% of the local median income who cannot get affordable credit elsewhere, to fund improvements on homes they occupy (no rental properties or vacation homes).\nSingle Family Housing Repair Loans offer financing of up to $20,000 at a fixed interest rate of 1%, to be repaid over a period of up to 20 years.\nSingle Family Housing Repair Grants allow applicants aged 62 or older who cannot afford home improvement loans to receive as much as $7,500 for projects that make their homes safer. Individuals can apply for multiple grants over time, but the total lifetime grant amount cannot exceed $7,500. The grant must be repaid if the property is sold within three years of the grant being issued.\nHomeowners who can afford to make partial, but not full, repayment on Section 504 loans are eligible to apply for a combination of grants and loans to fund qualified home improvement projects, for total funding of up to $27,500.\nThe USDA Single Family Housing Section 504 Repair Pilot Program is offering qualified applicants even higher loan and grant amounts in rural areas of California, Hawaii, Illinois, Indiana, Iowa, Kentucky, Maine, Michigan, Mississippi, New Jersey, New Mexico, New York, North Carolina, Oregon, Pennsylvania, Puerto Rico, South Carolina, Texas, Tennessee, Virginia, Washington and West Virginia.\nTo learn more about USDA Single Family Housing Repair Loans and Grants and to apply for them, contact your regional [Rural Development office](;agency=rd).\n### USDA Guaranteed Loans\nA contrast to the direct loans issued by the USDA itself, USDA Guaranteed Loans are issued through USDA-approved lenders, including banks and credit unions. The Guaranteed Loan program promises lenders it will cover 90% of any loan issued under its guidelines if the borrower fails to repay the loan. That enables lenders to offer low-interest loans to borrowers who don't have a down payment and have a less-than-ideal credit score. With this type of loan, the buyer will be required to pay a type of mortgage insurance fee called a guarantee fee if they don't put any money down.\nTo get this type of loan, you'll need to work with a USDA-approved lender. While many lenders offer USDA loans, it's best to work with one that specializes in this type of mortgage. END