USDA Rural Development

General Purpose
To improve the living conditions and assist with needed repairs for very low income applicants in rural areas. Loans may be made to modernize the home or to remove health and safety hazards. Grants may be made only for repairs the remove health or safety hazards.

Authorized Loan & Grant Purposes
- Installation or repair of sanitary water and waste disposal systems, including plumbing and fixtures to meet local Health Dept. requirements.
-Payment of reasonable connection fees and installation costs for water and sanitary sewer.
-Energy conservation measures, such as insulation and combination screen-storm windows and doors (normally permissible with loan funds only).
- Repair or replace heating system.
- Electrical wiring.
- Repair or provide structural supports.
- Repair or replace roof.
- Replacement of deteriorated siding.
- Payment of incidental expenses such as surveys, title clearance, loan closing, and architectural or other technical services.
- Repair or remodel homes to make accessible and usable for persons who are developmentally disabled.

Necessary repairs to mobile/manufactured homes, if:
1.) The applicant owns the home and site prior to filing the application with Rural Development,
2.) The home is on a permanent foundation or will be put on a permanent foundation with 504 funds, and
3.) The home is in need of repairs to remove health and safety hazards

Limitation on Use of Loan OR Grant Funds

Section 504 loan or grant funds may not be used to:
-Assist in the construction of a new dwelling.
- Make repairs to a dwelling of such poor condition that when the repairs are completed the dwelling will continue to be a major hazard to the safety and health of the occupants.
- Move a home/manufactured home from one site to another.
- Pay for any off-site improvements, such as a well or sanitary system located off-site.

Limitation on Use of GRANT Funds

504 grant funds may not be used to make changes to the dwelling for cosmetic or convenience purposes. Cosmetic and convenience changes might include, but are not limited to:
-Painting
-Paneling
-Carpeting
-Improving clothes, closets, or shelving
-Improving kitchen cabinets
-Air conditioning
-Landscape plantings
-Repair or improvements to garages

Planning and Performing Repairs
After receipt of an application, a Rural Development representative will inspect the property to be repaired and develop a list of essential repairs.

At least two estimates should be obtained by the applicant. Cost estimates or bid prices for the removal of health or safety hazards, or other development work, will be based on the list of essential repairs prepared by the Rural Development representative.

Then, a development plan will be prepared by the rural Development representative and will contain written cost estimates describing materials and specifications with a complete cost breakdown on materials and labor for each item of development.

Contractors, builders, or tradespersons must be competent to perform the specified development work. All work shall be in accordance with local codes and standards.

Inspections
In addition to the initial property inspection, the authorized Rural Development representative will make development inspections as follows:

Three inspections will be made during new construction, such as room additions.

An inspection will be conducted on individual major items of development before payment will be issued for that item.

A final inspection on all Section 504 loan and grant development work before payment-in-full.

Loan & Grant Eligibility Requirements
The dwelling to be repaired must be located in an area eligible for Rural Development programs.
Applicant must own and occupy the home to be repaired.
The following can represent ownership:
-Full marketable title
-A land purchase contract
-An undivided interest in the property
-A lifestyle estate with right of present possession, control, and beneficial use of the property

The following can represent evidence of ownership:
-Any instrument, whether or not recorded, which is commonly considered evidence of ownership.
-Evidence that the applicant is listed as owner of the property by the local taxing authority.
-Affidavits by others in the community that the applicant has occupied the property as the apparent owner for a period of not less than 10 years, and is generally believed to be the owner.

Adjusted household income may not exceed income limits. (Income limits are available at local Rural Development Offices.)

Applicants must be unable to obtain financial assistance from other sources, and lack personal resources that can be utilized to meet heir needs.

Applicants are permitted to have liquid assets up to $7,500; if elderly the limitation is $10,000. The value of the dwelling and a minimum adequate site, personal automobile and household goods are excluded. Liquid assets are cash or any other asset that can be converted to cash in 90 days or less. Real estate acreage larger than a minimum adequate site will not be excluded from the evaluation.

Applicants must demonstrate repayment ability for the proposed loan.

To be eligible for a grant, an applicant must be 62 years of age or older and lack repayment ability for a 504 loan.

Loan-grant combinations are possible when an applicant has repayment ability for a portion of the financial assistance needed.

Application Processing
Application will be made on Form 410-4 (available at local origination office), Application for Rural Housing Assistance.

Form 1944-3 (available at local origination office), Budget and financial Statement, must also be prepared.

The Rural Development representative must visit the property within 30 days of receipt of the application when the request for assistance involves the removal of health or safety hazards.
-Applications to remove health or safety hazards will receive priority processing
-The visit will be made prior to the applicant's eligibility determination, unless the applicant is clearly not eligible.

All household income must be verified.

Credit history will be evaluated for loan applicants.

Rates and Terms
-All RH 504 loans will be at 1% interest.
-Loan terms will be for up to 20 years.
-Loans made in combination with grants should be amortized for 20 years.

Maximum Assistance Amounts
Loan limit is $20,000 outstanding balance.
Grant limit is $7,500 lifetime.

Security
Loans of $7,500 or more will be secured by a mortgage on the property being improved.
The total of all debts secured by a property may not exceed the value of the security,

Property value will be determined by Rural Development after inspection.

An appraisal of the real estate is required when security is taken and the total section 504 indebtedness will be more than $15,000.

Loans less than $7,500 may be by Promissory Note only.

Grant recipients will be required to sign a repayment agreement which requires that if the property is sold by the grantee's heirs or estate before the end of a three-year period, the full amount of the grant will be repaid to the Government.

Closings
If total Rural Development indebtedness is less than $7,500 and secured with a real estate mortgage, the Rural Development representative will use all practical means to verify that title lien information is complete and accurate. In most cases, this can be accomplished by a search of the courthouse records. Involvement of an attorney is not required.

If total Rural Development indebtedness will be more than $7,500 and secured with a real estate mortgage, title clearance and legal services will be required. All borrowers for repair loans of more than $7,500 will be required to have adequate hazard insurance. Flood insurance is required for any loan or grant over $5,000 if the property is located in a flood zone.