Loan Officer Practice Exam

Which feature is NOT associated with a Section 502 Direct Loan offered by the USDA?

1. Up to 33, and in some cases 38, year payback period

2. 3.5% down payment

3. Fixed interest rate based on current market rates at loan approval

4. Interest rate as low as 1% via payment assistance

The correct answer is: 3.5% down payment

The feature that is typically not associated with a Section 502 Direct Loan is the down payment requirement of 3.5%. Section 502 Direct Loans are designed to promote homeownership among low- and very low-income individuals and families in rural areas. One of the key benefits of this loan program is that it offers no down payment requirement, which makes it accessible to borrowers who may not have substantial savings. In contrast, the other options reflect characteristics of the Section 502 Direct Loan. The option mentioning a payback period of up to 33 years (and in some cases 38 years) aligns with the program’s flexibility to accommodate the financial situations of borrowers by providing manageable monthly payment structures. The fixed interest rate based on market rates at the time of loan approval is a standard feature that ensures borrowers know their rate at the outset, which helps in budget planning. Lastly, the possibility of an interest rate as low as 1% through payment assistance further emphasizes the program's focus on affordability and support for low-income borrowers.