USDA tightens rules for rural homebuyer loan program
Issue Date: February 23, 2026
USDA Rural Development announced changes to policies governing its Section 502 Direct Loan program earlier this month, which helps low- and very low-income borrowers purchase homes in rural areas. The changes, effective February 10, touch on several aspects of how loans are processed and who qualifies.
The most significant change for homebuyers is a reduction in the program's loan limit. Previously set at 80% of local HUD limits, the cap has been lowered to 60%, meaning borrowers will have access to less financing than before. USDA also removed the ability to grant exceptions to this limit.
Among the other updates, SNAP benefits will no longer count toward a borrower's income when determining eligibility, and appraisals must now be completed before a loan can be approved, eliminating the prior practice of obligating loans "subject to appraisal." Applicants with unresolved federal debt will no longer be able to seek an exception to continue the application process. The certified packaging fee has been capped at $750, and the 38-year loan term now requires State Director approval.
When direct loan funds are unavailable, applicants will now be directed to consider the Section 502 Guaranteed Loan program as an alternative. USDA also updated its priority processing thresholds for loans that include affordable housing financing.
Unlike formal rulemaking, handbook updates do not require public notice or a comment period, so these changes were not subject to formal stakeholder input before taking effect.
NAR will continue to monitor implementation of these changes and their impact on rural homebuyers and REALTORS® serving rural markets.