### §1923. Purposes of loans

#### (a) Allowed purposes

#### (1) Direct loans

A farmer or rancher may use a direct loan made under this subchapter only for—

(A) acquiring or enlarging a farm or ranch;

(B) making capital improvements to a farm or ranch;

(C) paying loan closing costs related to acquiring, enlarging, or improving a farm or ranch;

(D) paying for activities to promote soil and water conservation and protection described in section 1924 of this title on a farm or ranch; or

(E) refinancing a temporary bridge loan made by a commercial or cooperative lender to a farmer or rancher for the acquisition of land for a farm or ranch, if—

(i) the Secretary approved an application for a direct farm ownership loan to the farmer or rancher for acquisition of the land; and

(ii) funds for direct farm ownership loans under section 1994(b) of this title were not available at the time at which the application was approved.

#### (2) Guaranteed loans

A farmer or rancher may use a loan guaranteed under this subchapter only for—

(A) acquiring or enlarging a farm or ranch;

(B) making capital improvements to a farm or ranch;

(C) paying loan closing costs related to acquiring, enlarging, or improving a farm or ranch;

(D) paying for activities to promote soil and water conservation and protection described in section 1924 of this title on a farm or ranch; or

(E) refinancing indebtedness.

#### (b) Preferences

In making or guaranteeing a loan under this subchapter for purchase of a farm or ranch, the Secretary shall give preference to a person who—

(1) has a dependent family;

(2) to the extent practicable, is able to make an initial down payment on the farm or ranch; or

(3) is an owner of livestock or farm or ranch equipment that is necessary to successfully carry out farming or ranching operations.

#### (c) Hazard insurance requirement

#### (1) In general

After the Secretary makes the determination required by paragraph (2), the Secretary may not make a loan to a farmer or rancher under this subchapter unless the farmer or rancher has, or agrees to obtain, hazard insurance on any real property to be acquired or improved with the loan.

#### (2) Determination

Not later than 180 days after April 4, 1996, the Secretary shall determine the appropriate level of insurance to be required under paragraph (1).

(Pub. L. 87–128, title III, §303, Aug. 8, 1961, 75 Stat. 307; Pub. L. 87–703, title IV, §401(1), Sept. 27, 1962, 76 Stat. 631; Pub. L. 90–488, §1, Aug. 15, 1968, 82 Stat. 770; Pub. L. 95–113, title XIV, §1448(a), Sept. 29, 1977, 91 Stat. 1011; Pub. L. 96–438, §1(1), Oct. 13, 1980, 94 Stat. 1871; Pub. L. 97–98, title XVI, §1602, Dec. 22, 1981, 95 Stat. 1346; Pub. L. 104–127, title VI, §602(a), Apr. 4, 1996, 110 Stat. 1085; Pub. L. 107–171, title V, §5002, May 13, 2002, 116 Stat. 341.)

#### **Editorial Notes**

#### Amendments

2002—Subsec. (a)(1)(E). Pub. L. 107–171 added subpar. (E).

1996—Pub. L. 104–127 amended section generally, substituting present provisions for provisions outlining preferences for loans made or insured under this subchapter and defining terms "improving farms" and "qualified non-fossil energy system".

1981—Subsec. (a). Pub. L. 97–98 substituted "who have dependent families" for "who are married or have dependent families".

1980—Subsec. (b)(1). Pub. L. 96–438 substituted "the acquisition, installation, and modification" for "the acquisition and installation" and struck out "in any residential structure" after "energy system".

1977—Pub. L. 95–113 designated existing provisions as subsec. (a) and added subsec. (b).

1968—Pub. L. 90–488 designated existing provisions as cls. (1), (2), (4), (5), and added cl. (3).

1962—Pub. L. 87–703 authorized loans to be made or insured for recreational uses and facilities.

#### **Statutory Notes and Related Subsidiaries**

#### Effective Date of 1996 Amendment

Pub. L. 104–127, title VI, §602(b), Apr. 4, 1996, 110 Stat. 1085, provided that: "Section 303(c)(1) of the Consolidated Farm and Rural Development Act [7 U.S.C. 1923(c)(1)] shall not apply until the Secretary of Agriculture makes the determination required by section 303(c)(2) of the Act." [The Secretary's determination relating to hazard insurance under this provision was contained in interim rules published Mar. 3, 1997, and effective Mar. 24, 1997, see 62 F.R. 9351.]

#### Effective Date of 1981 Amendment

Amendment by Pub. L. 97–98 effective Dec. 22, 1981, see section 1801 of Pub. L. 97–98, set out as an Effective Date note under section 4301 of this title.

#### Effective Date of 1977 Amendment

Amendment by Pub. L. 95–113 effective Oct. 1, 1977, see section 1901 of Pub. L. 95–113, set out as a note under section 1307 of this title.

#### Transfer of Functions

Powers, duties, and assets of agencies, offices, and other entities within Department of Agriculture relating to rural development functions transferred to Rural Development Administration by section 2302(b) of Pub. L. 101–624.