((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 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 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 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 , the Secretary shall determine the appropriate level of insurance to be required under paragraph (1).April 4, 19961996-04-04