USDA Section 502 Direct Home Loan (Kentucky)

What is USDA Section 502 Direct Home Loan (Kentucky)?

USDA Section 502 Direct Home Loan (Kentucky) is a first mortgage for homebuyers in Kentucky, administered by USDA Rural Development - Rural Housing Service.

• The Section 502 Direct Home Loan Program helps low- and very-low-income Kentuckians buy decent, safe and sanitary housing in eligible rural areas by lending directly through USDA Rural Development with no down payment typically required. Payment assistance (a subsidy that can lower the effective rate to as low as 1%) reduces the monthly payment based on adjusted family income. As of June 1, 2026 the note rate is 5.125%, with terms up to 33 years (38 for very-low-income borrowers). Applications are accepted year-round at local Kentucky RD offices.
• No down payment typically required.
• Payment subsidy can lower effective rate to as low as 1%.
• Up to 33-year (38-year for very-low-income) repayment.
• Direct federal lending.
• Available statewide in eligible rural areas.
• This is a federal program, so it is available beyond a single state or city.
• Funding comes from USDA Rural Development (Housing Act of 1949, 7 CFR Part 3550).

Do you have to pay it back?

USDA Section 502 Direct Home Loan (Kentucky) is a first mortgage and is repaid under the terms set by USDA Rural Development - Rural Housing Service.

• Repayment is triggered by Payment assistance (subsidy) recapture: all or a portion of the subsidy received must be repaid when title transfers or the borrower no longer occupies the dwelling.
• The assistance is recorded in First position.
• Forgiveness and repayment terms are set by the program and can change — confirm them on the official program page before applying.

Who qualifies?

USDA Section 502 Direct Home Loan (Kentucky) is open to buyers who will live in the home as their primary residence.

What are the income limits?

USDA Section 502 Direct Home Loan (Kentucky) limits household income to 80% of the area median income, which varies by county and household size.

• Adjusted household income at or below the applicable low-income limit for the area; see USDA Direct income limit map for Kentucky counties.
• Area median income figures are published by HUD and updated annually, so check the current table for the county before relying on a number.

What kind of home can it be used for?

USDA Section 502 Direct Home Loan (Kentucky) caps the purchase price as follows: Property market value must not exceed the applicable USDA area loan limit for the county.

• Eligible property types include Single Family.
• New construction is eligible.

Where does it apply?

USDA Section 502 Direct Home Loan (Kentucky) is a federal program, so it is not limited to Kentucky.

• The program gives priority to designated target areas, so the address matters as well as the county.

How do you apply?

Applications for USDA Section 502 Direct Home Loan (Kentucky) go through USDA Rural Development - Rural Housing Service, which publishes the current terms and the application steps on its own site.

1. 1

   Contact USDA Rural Development - Rural Housing Service to reserve funds

   Funds are reserved through Applications accepted year-round (Oct 1 - Sep 30 cycle) through local Kentucky USDA Rural Development offices., and are subject to availability.

2. 2

   Work with a lender who handles the program

   Hey Prescott is not a lender and does not accept applications; this page describes the program so a buyer can take it to a lender or housing counselor.