(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; or

(D)

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

(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)