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USDA Rehab and Repair Loans Program

Zero Down USDA Renovation and Repair Loan

USDA Rehab and Repair Loans Program Guidelines

Loan Purpose

  • Purchase
  • Refinance transactions aren’t permitted

Credit Profile

  • Minimum 580 middle credit score for all borrowers on the loan
  • Guaranteed Underwriting System (GUS) findings can be an Accept/Eligible, Refer, or Refer with Caution
  • A minimum of 2 qualifying credit scores are required for all qualifying borrowers
  • No foreclosure or short sale within three years of contract ratification date
  • No Chapter 7 bankruptcy discharge within three year of contract ratification date

Amount of Repairs

  • Minimum $5,000
  • USDA Renovation Loan has no fixed loan limit

Construction Time

  • Must start within 30 days of the loan closing
  • No more than six (6) months from closing

Contingency Escrow Reserve

  • 10% to 15% of the Contractor proposal, based on the following:
    • 10% to cover any unexpected costs arising from the project
    • 15% if utilities are not operational at time of Appraisal inspection
      • If the utilities are off at the time of the inspection, the Appraiser must ask to have them turned on and complete all requirements under Mechanical Components
      • However, if it is not feasible to have the utilities turned on, then a pressure test and electrical test is required and must be completed by an appropriately licensed professional
  • If unused the contingency escrow reserve will be used to reduce the outstanding mortgage amount after settlement or make additional improvements to the property


  • For the Limited USDA Renovation Loan the General Contractor is paid as follows:
    • At settlement the following may be paid:
      • Permit Fees
      • 50% of the base bid amount to defray the cost of material and labor
    • Up to two draws permitted
  • For the Standard USDA Renovation Loan the General Contractor is paid as follows:
    • At settlement the Permit Fees may be paid
    • Up to five draws permitted

Eligible Repairs

  • Removing safety and health hazards
  • Making the dwelling accessible to persons with disabilities
  • Repair or installation of septic system and wells
  • Additions or structural alterations
  • Modernization (kitchens and bathrooms, interior floor cover, exterior siding, etc.)
  • Installation of energy conservation or weatherization features
  • Repairs to existing swimming pools, hot tubs, or saunas

Ineligible Repairs

    • Installation of new inground swimming pools, hot tubs, or saunas
    • Repairs to new or existing manufactured homes
    • Repairs to condominiums
    • Converting structures to SFH dwellings (barns, schoolhouses, etc.)
    • Alterations that allow income-producing features
    • Installation of luxury items (exterior fireplaces and kitchens, etc.)
    • Repairs or improvements to common space areas (community meeting rooms, playgrounds, etc.)
    • Any repair/removal/remediation of Oil Tanks
    • Tear downs to foundation and rebuilds are not permitted
    • Ineligible repairs for transactions below $35,000:
      • Structural Modifications
      • Any repair/removal/remediation of Oil Tanks
      • Any repair/installation for private water systems (Wells)
      • Any repair/installation for private waste management systems (septic systems, lagoons, cesspools, pits, etc.)
      • Mold remediation

General Contractors

  • Only 1 General Contractor (“GC”) allowed
  • GC can’t be related to the borrower(s) or an employee/employer of the borrowers
  • GC must be insured, licensed, and bonded
  • GC must provide a detailed contractor estimate itemizing all repairs that are to be completed with costs broken down by material and labor and if applicable permit costs

General Contractor Requirements

  • Construction General Contractor (“GC”) must have:
    • Two or more years of experience building and constructing all aspects of single family dwellings similar to the type of project being proposed
    • Evidence of a state-issued construction or contractor license, as required by state law or local law
    • Evidence of commercial general liability insurance with a minimum coverage of $500,000
    • The GC must have an acceptable credit history being free of open judgements, collections or liens related to previous construction projects. The GC must not have a previous felony record.  A background check will be performed by AFR.  This information may be obtained by such means as an individual credit report, business report, information published by the Securities and Exchange Commission (SEC), State Corporation Commission (SCC), LexisNexis, or Dun and Bradstreet
  • GC who are repairing their own residence are ineligible
  • GC must prepare a detailed and fixed cost estimate that fully describes the work being performed to include itemized costs for labor and material. The cost estimate must identify the borrower’s name, subject property address, contractor’s name, contact information and license number, where applicable.  For work repairs $35,000 or less, the cost estimate must indicate that the repairs are non-structural

General Contractor Payment Schedule

  • General Contractor can receive a 50% initial advance in relation to estimated materials and labor costs before beginning construction , which includes but is not limited to materials, labor and permits, at the time of closing for non-structural repair transactions
  • General Contractor will receive for non-structural repairs a maximum of 2 draws after closing and requires all draw requests to be performed in writing and executed by the Contractor and Borrower using a Draw Request Form

HUD Consultant

  • Required when using the USDA Standard Renovation Loan, which is required when:
    • Repairs are structural
    • Repairs budget is in excess of $35,000
    • If the dwelling is not habitable at the time of closing, reserves for principal, interest, taxes and insurance may be established to cover the mortgage payments for up to 6 months as determined by the HUD consultant
  • The HUD Consultant will:
    • Charge a fee of $400 to $1,000+ depending on the dollar amount of the project
    • Perform a thorough inspection of the property and prepare a detailed write-up of the work to be repaired and include estimated costs for labor and materials and associated fees that are customary and typical for the area. The write-up must be used to obtain cost estimates from the contractors
    • Reviews any proposed changes to the Work Write-Up and prepares change orders
  • An inspector or consultant is not required for non-structural repairs of $35,000

Loan Amount

  • No maximum loan amounts

Commitment Fee/Monthly Annual Fee

  • USDA charges a 1% Commitment Fee
  • Commitment Fee can be financed into the loan
    • Example:
      • Purchase price – $100,000
      • Base Loan amount – $100,000
      • Base Loan amount – $100,000
      • Commitment Fee – $1,010 ($100,000 [purchase price] /.99 – 100,000)
      • Maximum financed loan amount = $101,010
  • USDA requires a monthly Annual Fee (i.e. mortgage insurance premium) with an annual factorial of .35%


  • 33.99/45.99% (DTI) with GUS Accept/Eligible underwriting findings
  • 29/41% debt-to-income (DTI) with GUS Accept/Refer underwriting findings and credit score less than 679
  • 31.99/42.99 with GUS Accept/Refer underwriting findings and credit score greater than 680 and with compensating factors such as:
    • 680 or higher credit score
    • No or low “payment shock” – less than a 100% increase in proposed mortgage payment Vs. current rental housing expenses
    • Fiscally sound use of credit
    • Ability to accumulate savings
    • Stable employment history with 2 or more in current position or continuous employment history with no job gaps
    • Cash reserves available for use after settlement
    • Career advancement as indicated by job training or additional education in the applicants profession
    • Trailing spouse income – as a result of a job transfer, the house is being purchased, prior to the secondary wage-earner obtaining employment. If the secondary wage-earner has an established history of employment and has a reasonable chance to obtain new employment in the area
    • Low total debt load

Property Type

  • Must be located in an eligible USDA Rural Development Location
  • Owner-occupied properties
  • Eligible property types, include:
    • Existing attached and detached single-family residences
    • PUD’s (i.e. Townhomes)
  • Ineligible property types, include:
    • Multiunit
    • Co-Ops
    • Mixed Use
    • Manufactured Housing
    • Off Grid
    • Properties with commercial influence are subject to additional review
    • Any property where marijuana is grown or processed inside the home or on the property, regardless of the quantity or state law is unacceptable
    • Non-traditional heating methods (solar, wood burning stoves, etc.) without a heating


  • Owner occupied only
  • All borrowers on the loan must have ownership in and occupy the property
  • No co-signers permitted

Property Valuation

  • The appraisal order can’t be processed without a copy of the original write-up (Bid Proposal), of the cost estimate including reserves
  • Appraiser to provide an “As Improved” appraisal value
  • HUD Consultant’s work write up must be included in appraisal request for repairs exceeding $35,000
  • Value must be a minimum 100% of the combined purchase price and renovation budget


  • All loans must be fully documented per Agency Guidelines
  • For Self Employed borrowers, in addition to Agency Guidelines, two years of the tax returns (personal and business) along with a year-to-date profit and loss (unaudited)

Down Payment/Closing Costs

  • 0% down payment required
  • Seller contribution toward buyers closing costs and escrows up to 6% of the purchase price
  • Closing costs can be included in the loan amount up to the “after completed value” of the property


  • Amortization period: 30-year fixed rate
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