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
AMI.
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.
Single Family Direct Home USDA Loan
This USDA loan assists low-income individuals purchase, repair, or renovate homes in more rural areas.
The life of the loan depends on the income:
Up to 33 years for applicants with incomes of more than 60% of the average median income for the region
Up to 38 years for borrowers with less income
Up to 30 years for those purchasing a mobile home or some other home which was mostly made in a factory
You need to have a household income of under 80 percent of the median income for the area to qualify, in addition to being able to afford the monthly payments. The home’s market value must also be reasonable.
Single Family Guaranteed Housing USDA Loan
For those of modest income, this loan type can help them obtain a home loan so long as their income is not more than 115% of the median income for the area. Such loans are for 30 years with variable interest rates.
Rural Repair & Rehabilitation Loans
This loan is a way of obtaining the means to repair and otherwise improve a home to rid it of safety hazards or make it more sanitary. Your income needs to be under 50% of the area’s median income and be otherwise unable to obtain the needed credit elsewhere.
Mutual Self-Help USDA Loan
Mutual self-help loans help low-income families to afford safe and clean homes or build their own. Typically, the families perform most of the labor themselves. Eligible families must have an income of less than 80% of the area’s average, must be without adequate housing, and cannot obtain credit elsewhere.
Terms for these USDA loans are for up to 38 years with effective interest rates of roughly 1%.
