(a) When loan awards are made by RUS to individuals, the individuals must meet the applicable requirements of paragraphs (a)(1) through (5) of this section:

(1) Must demonstrate adequate ability to repay the loan;

(2) Have an ownership interest in the dwelling to be improved or connected to the system, and the dwelling must be located in an eligible, rural area;

(3) At the time of loan approval, the household's 12-month adjusted income must not be more than the statewide nonmetro median household income for the state or territory in which the individual resides, according to the most recent decennial census. Adjusted income is used to determine program eligibility and the amount of payment subsidy for which the household qualifies. Adjusted income is annual income less any of the following deductions for which the household is eligible:

(i) For each household member, except the head of household or spouse, who is under 18 years of age, 18 years of age or older with a disability, or a full-time student, the amount determined pursuant to section 501(b)(5) of the Housing Act of 1949, as amended.

(ii) A deduction of reasonable expenses for the care of minor 12 years of age or under that:

(A) Enable a family member to work or to further a member's education;

(B) Are not reimbursed or paid by another source; and

(C) In the case of expenses to enable a family member to work do not exceed the amount of income earned by the family member enabled to work.

(iii) Expenses related to the care of household members with disabilities that:

(A) Enable a family member to work;

(B) Are not reimbursed from insurance or another source; and

(C) Are in excess of three percent of the household's annual income.

(iv) For any elderly family, a deduction in the amount determined pursuant to section 501(b)(5) of the Housing Act of 1949, as amended.

(v) For elderly households only, a deduction for household medical expenses that are not reimbursed from insurance or another source and which in combination with any expenses related to the care of household members with disabilities described in paragraph (a)(3)(iii) of this section, are in excess of three percent of the household's annual income;

(4) Must not be delinquent on any Federal debt; and,

(5) Are unable to pay for the costs of improvements without the loan.

(b) Grants may be made to individuals who meet all applicable requirements of paragraphs (b)(1) through (4) of this section:

(1) Have an ownership interest in the dwelling to be connected to the system or improved and located in an eligible, rural area;

(2) At the time of grant approval, meet the income requirements established within item (a)(3) of this part;

(3) Must not be delinquent on any Federal debt; and

(4) Are unable to pay for the costs of improvements without a grant.