DIFFERENCES BETWEEN THE SECTION 502 GUARANTEED AND DIRECT LOAN
PROGRAMS IN KENTUCKY
The important differences between the Kentucky Section 502 guaranteed and Kentucky direct USDA and RHS loan programs are as follows:
The Kentucky RHS or USDA lender for Section 502 guaranteed loans is a private savings and loan institution, bank, or mortgage company which also handles all the loan servicing. The lender for the direct program is the Rural Housing Service; Rural Development handles the servicing.
Income levels for Section 502 guaranteed borrowers are capped at 115 percent of the area
median income. Income levels for the direct program must be no more than 80 percent of the
Payment assistance subsidy is not available through the guaranteed program.
Payment assistance, which can reduce the interest paid on the mortgage to as low as 1 percent, is available for borrowers in the direct program and is based on the borrower’s income as a percent of AMI.
Borrower protections differ between the programs.
Applicants for guaranteed loans do not have the rights of moratorium or of appeal that accompany the direct program. Also, in the case of default, Section 502 guaranteed loans are liquidated by the commercial lender, while direct loans are
liquidated by the government.