504 Repair Loan
How To Apply
USDA Property Eligibility
Ensuring that the quality and the value of the property meet certain minimum thresholds
is as important as ensuring that the applicant is willing and able to repay a loan. The Agency
imposes quality and value requirements to protect the borrower's interest and, in the event of
liquidation, the Agency's interest.
Ensuring quality includes the requirements for approving a site -- its location, its size and amenities, and the adequacy of available utility systems. It also describes requirements for the dwelling itself,
which must be modest, but also decent, safe, and sanitary. The standards that apply differ
somewhat depending upon whether the dwelling will be newly constructed or is an existing home. We will also describe the Agency's requirements for the protection of
environmental resources and the due diligence required with regard to hazardous substances.
Property Site Requirements
Once the Buyer has found a property, the Agency needs to ensure that it fits
program guidelines regarding sites. The site must be developed according to the
development standards imposed by State or local government. These standards are
often contained in zoning ordinances, building codes, subdivision regulations, and/or
construction standards. In particular, sites must be in rural areas,
be modest, and
meet minimum standards regarding water and wastewater systems, and Agency
street and access requirements. The Agency uses an electronic mapping system as one means of
making information available to the public. When determining eligibility boundary lines this
must be taken into consideration.
Rural Area Definition
Rural areas are defined as: Open country that is not part of or associated with an urban area; or
Any town, village, city, or place (including the immediately adjacent densely settled
area) that is not part of or associated with an urban area, and that:
Is rural in character with a population of less than 10,000; or
Is not contained within a Metropolitan Statistical Area (MSA) and has a serious
lack of mortgage credit with a population between 10,000 and 20,000.
Modest sites are defined by their size, value, and the presence of any outbuildings.
Therefore, the underwriter must verify that the requirements listed below are met.
Size. The site must not be large enough to be subdivided under local subdivision
Value. The value of the site must not exceed 30 percent of the as-improved market
value of the property. The 30 percent limitation may be exceeded if the site cannot be
subdivided into two or more sites and the value of the site is typical for the area, as
evidenced by the appraisal and the practices of other lenders.
Farm Buildings. The property must not include farm service buildings; however
smaller outbuildings such as storage sheds are allowed.
Water and Waste Water
The site must have water and wastewater disposal systems, whether individual,
central, or privately-owned and operated, that meet the applicable water and wastewater
disposal system requirements of RD Instruction 1924-C. There must be assurance of
continuous service at reasonable rates for central water and wastewater disposal systems. A
system owned or operated by a private party must have a legally irrevocable agreement which
allows interested third parties to enforce the obligation.
Private companies usually inspect individual wells and septic system drainfields
-- these companies provide written results of the inspection. In addition, the
responsible local or State regulatory agency must verify, in writing, that the privately-
owned water and wastewater disposal systems, that serve multiple households, comply with the
Safe Drinking Water Act (42 U.S.C. 300h) and the Clean Water Act (33 U.S.C. 1341),
respectively. Inspections are not required on public water and wastewater disposal systems.
To be considered "modest", the property must be one that is considered modest for the
area, must not have a market value in excess of the applicable area loan limit, and must not have
certain prohibited features.
Properties that include in-ground pools will not be financed. It is not acceptable
to remove a pool before or after closing to meet this requirement.
Income-Producing Land or Structures
Properties that include income-producing land or buildings designed to
accommodate a business or income-producing enterprise will not be financed.
Homebased operations that do not require specific features such as child care,
product sales, or craft production are not restricted.
Flood insurance is required for all dwellings located within the 100-year flood plain,
unless FEMA has granted an exception, and flood insurance is available as part of the
community's flood plain management regulations.
For all new construction and substantial improvements the lowest floor (including
basement) must be elevated to or above the 100-year flood level. For existing dwellings, the
first floor elevation of the habitable space must be at or above the 100-year (base) flood level.
In addition, for newly constructed and substantially rehabilitated dwellings, the
construction materials and methods used must be for the purpose of making the structure
resistant to flood damage, and minimizing any damage that may occur. RD Instruction 426.2
contains further guidance on the National Flood Insurance Program and flood-related
All dwellings within the 100-year flood plain must be served by public utilities that are
located and constructed to minimize or eliminate flood damage, or have an on-site water supply
and waste disposal system located and constructed to avoid contamination of the water supply
by the septic system due to flooding.
Before the Agency makes a loan, the underwriter must ensure that the applicant
will have an appropriate form of ownership and that the Agency's interest in the property
is adequately secured by the value of the real estate and the Agency's lien position.
Appraisals must meet the following requirements:
Qualified Appraiser: Direct Single Family Housing appraisal assignments will be
completed by a state licensed appraiser. Contract appraisers must be licensed (or
registered for Non-Resident Temporary Practice) in the state in which the subject
property is located. When using a contract appraiser, the Agency will contract with
qualified state licensed appraisers that are active on the Appraisal SubCommittee website
(www.asc.gov). However, when a contract appraiser is not available at an acceptable
cost or is unable to complete an appraisal timely, a qualified Agency appraiser may
conduct the appraisal. For credit transactions that are $100,000 or greater, Agency
appraiser must possess the same qualifications as those required for contract appraisers,
except that an Agency appraiser is only required to be certified in one State or Territory
to perform real property appraisal duties as a Federal employee in all States and
Standards: All appraisals must comply with the current edition of the Uniform
Standards of Professional Appraisal Practice (USPAP) available at
www.appraisalfoundation.org and Agency appraisal requirements.
Timelines: The Loan Originator should order appraisals within 3 business days of an
Agency determination that the property appears to be acceptable. Depending on the
State, appraisals are conducted by either in-house Agency staff, or private appraisers
under contract to the Agency. In-house appraisals are to be completed within 7 calendar
days of receiving the appraisal order.
Nondiscrimination: The appraiser may not use factors that are discriminatory on the
basis of race, color, religion, sex, disability, familial status, or national origin in
conducting the appraisal and valuing the property.
Use of Third Party Appraisals: The Agency may use appraisals for which it did not
contract, including those obtained by participating lending institutions. The Agency
reviewer should be especially diligent in reviewing these appraisals to ensure they meet
USPAP and Agency appraisal requirements.