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Appraisal and Property 

Requirements

Presented by: Kendra Harmon, Finance and Loan Analyst, Lender and Partner Activities Branch
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Today’s Topics

 SFHGLP Handbook 1-3555, Chapter 12

 Regulation 7CFR Part 3555 Subpart E

 Appraisal Review Tips

 Property & Site Requirements

 Frequently Asked Questions
7CFR Part 3555, Subpart E – Underwriting the Property

7 CFR, Part 

3555

It’s the Rule...

3555.201 Site Requirements

3555.202 Dwelling Requirements

3555.205 Special Requirements for Condominiums

3555.207 Special Requirements for Planned Unit 

Developments
Site Requirements

Must be 

located in 

rural areas 

designated 

by Rural 

Development

Must be 

modest in 

size and site 

typical for 

area

Must not 

have incomeproducing 

land or 

buildings

Must have 

contiguous to 

and have 

direct access 

from a street, 

road or 

driveway

Must be 

supported by 

adequate 

utilities, 

water and 

wastewater
Dwelling Requirements

New Vs. Existing

Must be constructed in accordance 

with certified plans and specs Must meet HUD 4000.1 requirements

Must meet or exceed IECC in effect 

at time of construction

Must be functionally adequate & 

structurally sound

Lender to obtain/retain evidence of 

construction costs, inspections, 

certifications & warranties

Must be in good repair, or placed in 

good repair with loan funds

All must be acceptable to Rural 

Development

Must have adequate and safe 

electrical, heating, plumbing, water 

and wastewater
Condominiums and Planned Unit Developments

Condos & PUDs 

must meet 

Agency 

requirements as 

well as HUD, VA, 

Fannie Mae or 

Freddie Mac 

standards
Handbook: HB-1-3555

Chapter 12: Property and Appraisal Requirements
Rural Area Definition
USDA Property Eligibility Site
NOTIFICATION OF Rural Area DESIGNATION

Website https://eligibility.sc.egov.usda.gov 

Eligible Property is located in an eligible 

area for the SFHGLP

Unable to Determine Lender must contact Agency to 

determine location eligibility

Ineligible Property is not located in an area 

eligible for the SFHGLP
USDA Property Eligibility Site
USDA Property Eligibility Site
USDA Property Eligibility Site
Site Requirements

Site Requirements

Site Size

There is no 

specific limitation 

to the 

size/acreage if the 

site.

Accessory 

Dwelling Unit

The presence of 

an ADU does not 

automatically 

render the 

property 

ineligible.

IncomeProducing 

Buildings

The property 

must not include 

buildings 

principally used 

for incomeproducing 

purposes.

Multiple Parcels

The lender will 

ensure the 

mortgage 

provides a valid 

1st lien covering 

each parcel. 

IncomeProducing Land

The site must not 

have incomeproducing land 

that will be used 

principally for 

income 

producing 

purposes.
Solar Panels

In general, properties with 

solar panels are not 

considered income 

producing properties.
Site Requirements

Site Specifications

The site must be contiguous 

to and have direct access from 

a street, road, or driveway.

Utilities

The site must be supported by 

adequate utilities, water and 

wastewater systems.

Zoning

The property must comply 

with applicable zoning and 

restrictions.

Site Requirements
Water and Wastewater Disposal Systems
Water Systems

Individual Privately Owned Vs. Individual Privately Owned 

Shared

Owned and maintained by the 

homeowner & subject to compliance 

with all requirements of the local and/or 

State Health codes.

Well serves properties that cannot be 

connected to an acceptable public or 

community water supply system.

Well location for individual water supply 

systems must be measured to establish 

the distance from the septic system.

A shared well must have a valve on each 

dwelling.

Individual water systems/wells should 

be located on the subject property site. 

Water supply must be adequate for all 

families served.

Water quality of well must meet 

requirements of the state or local 

authority.

Well must have an agreement that 

meets requirements
System and water supply meet all 

applicable federal, state and local 

requirements

System has the capacity to provide 

sufficient water supply during 

periods of peak demand

System is operated under a legally 

binding agreement that allows 

interested third parties to enforce the 

obligation of the operator to provide 

satisfactory service

Community Owned Water Systems:
Property is located in Hawaii or the 

Western Pacific Region

Property does not have an available 

affordable connection to a public or 

private community water system

An alternative water supply system 

complies with and/or is not prohibited in 

local jurisdiction where property is 

located

Individual Water Systems in Hawaii and 

Western Pacific Region

Water quality tests are not required if 

state or local authority does not have 

specific requirements

Reliance on rainwater catchment system 

does not diminish the marketability or 

value of the property

Applicant must acknowledge and certify 

their responsibility to maintain system
Wastewater Systems

Individual Privately Owned Wastewater Community Owned

Meets any applicable requirements of 

the state or local health authority 

Meets any applicable requirements of 

the state of local health authority

Is located entirely on the subject 

property

Is licensed, operating properly and has 

the capacity to dispose of all domestic 

wastes in a manner that will not create a 

nuisance or endanger public health

Properly operating system that has the 

capacity to dispose of all domestic 

wastes in a manner that will not create a 

nuisance or endanger public health

Is subject to a legally binding agreement 

that allows interested parties to enforce 

the obligation of the operator to provide 

satisfactory service
Street Access and Road Maintenance
Reviewing an Appraisal
Reviewing an Appraisal

The Appraiser Should...
Reviewing an Appraisal

The Lender Should...
Reviewing an Appraisal

The Lender Should...
Reviewing an Appraisal

The Lender Should...
Reviewing an Appraisal

The Agency Should...
Frequently Asked Questions...
Frequently Asked Questions...

An applicant would like to 

purchase a dwelling and an 

adjacent, vacant lot with the 

same USDA loan. Is this 

acceptable?
Frequently Asked Questions...

Yes, in some cases, the applicant may purchase multiple 

parcels, remembering that the program does not allow 

for income producing property and the intention should 

not be to purchase an adjoining buildable lot to 

construct a rental property. 

HB-1-3555, Chapter 12 – Multiple Parcels – The lender 

will ensure the mortgage provides a valid first lien 

covering each parcel in its entirety and have the same 

zoning. Parcels must be contiguous unless divided by a 

road and the remaining parcel cannot be developed. The 

entire property will contain only one dwelling but can 

have non-residential, non-income producing buildings, 

such as a garage. 
Frequently Asked Questions...

An appraisal was received showing the 

subject property with a garage that was 

converted into a living area with no 

permits. No value was given to the space. 

Cost to cure was noted within the report.

This resulted in non-traditional cost 

comparisons and large adjustments to 

comparables. 

Is this property eligible for a loan note 

guarantee? 
Frequently Asked Questions...

HB-1-3555, Chapter 12 – Unpermitted Work – When unpermitted 

work is discovered in the existing dwelling, the lender must 

ensure that the owner and/or contractor contact the 

appropriate code enforcement office to obtain retroactive 

permitting or devise a plan to permit the previous construction. 

The lender must ensure that the borrower obtains a 

rehabilitation loan permit certification prior to the loan closing 

so that all permit fees associated with the new and/or previous 

construction are included in the total bid.

Yes. The lender may move forward, as long as certain conditions are met:

HB-1-3555, Chapter 12 – Additions – New structures or additions to the existing 

dwelling must comply with local codes and applicable national codes.
Frequently Asked Questions...

An appraisal was received on a 

property that identified the 

property as a mini farm with two 

parcels for a total of 28 acres. A 

letter of explanation was provided 

from both seller and buyer that 

the property will no longer be a 

working farm once the buyer 

completes the purchase. 

Is this acceptable for a loan note 

guarantee?
Frequently Asked Questions...

HB-1-3555 – Income Producing Land – The site must not 

have income-producing land that will be used principally 

for income producing purposes. Vacant land or 

properties used primarily for agricultural, farming or 

commercial enterprise are ineligible.

Unfortunately, the answer is no. The Rural Development 

Guaranteed Loan Program cannot be used to finance income 

producing property, regardless of the applicant’s future intent. 

Since the property is currently a working 

farm, it does not meet the qualifications for a 

loan note guarantee.
Frequently Asked Questions...

An appraisal was received reflecting a 

single family residence with noted ADU and 

two additional storage units. The ADU is a 

stand-alone structure and has a kitchen, 

bedroom and bath. There was not a 

separate meter for the ADU. The appraiser 

has noted this is a single family dwelling.

Is this acceptable for a loan note 

guarantee?
Frequently Asked Questions...

Yes. This property would be eligible for a loan note 

guarantee.

HB-1-3555, Chapter 12 – Accessory Dwelling Unit – The 

presence of an accessory dwelling unit (ADU) does not 

automatically render the property ineligible. The 

appraiser will determine if the ADU represents a second 

single family housing dwelling unit. The Agency defers 

to the appraiser’s professional review of the property 

and expert opinion of the highest and best use of the 

subject property as a primary residence. The appraiser 

will include their evaluation in the site analysis section 

of the appraisal. 
Frequently Asked Questions...

A review of an appraisal reveals a 2-

unit property, or duplex. The dwelling 

is zoned as a single family. The zoning 

department will not accept 2-unit 

properties so the appraiser completed 

the appraisal as a single family home. 

The applicant would like to have the 

kitchen removed from the second unit 

in order to receive a loan note 

guaranteed. Is this acceptable?
Frequently Asked Questions...

HB-1-3555, Chapter 12 – Income Producing Property –

Purchase or improvement of income-producing land or 

buildings that will be used principally/specifically for 

income producing purposes is not allowed. A qualified 

property must be predominantly residential is use, 

character and appearance. 

No. This property would not be eligible for a loan note guarantee. 

Two unit properties are considered income producing properties.

Rural Development cannot encourage sellers or buyers 

to alter a property, as that could appear to circumvent 

the regulations in order for the property to qualify.
Frequently Asked Questions...

Is a cistern an acceptable 

water source?
Frequently Asked Questions...

HB-1-3555, Chapter 12 – Water and Wastewater Disposal Systems –

The site must have acceptable water and wastewater disposal 

systems to ensure the property is decent, safe, sanitary, and meets 

community standards. Private systems must meet the requirements 

in HUD Handbook 4000.1 or meet the requirements of local and/or 

state health authority do not require additional inspections other 

than water purity tests.

Yes. If the system meets the HUD Handbook 4000.1 or the standards set 

by the state or local health department code. 

We defer to the MPR requirements in HUD Handbook 

4000.1 which state, in part: The Appraiser must report 

when water to a Property is supplied by dug wells, 

cisterns or holding tanks used in conjunction with water 

purchased and hauled to the site.
Frequently Asked Questions...

Is a “shouse” (pole-built house) 

eligible for the Single Family 

Housing Guaranteed Loan 

Program?
Frequently Asked Questions...

HB-1-3555, Chapter 12 – Qualified Appraiser – Approved lenders must 

select qualified and competent appraisers that are properly licensed or 

certified, as appropriate, in the State in which the property is located.

Yes. As long as the property meets the requirements of HUD Handbook 

4000.1 as certified to by an appraiser or inspector determined qualified 

by the lender. 

HB-1-3555, Chapter 12 – Appraisal Report – All appraisals must 

comply with the reporting requirements of the USPAP and meet 

the Uniform Appraisal Dataset (UAD) requirements set forth by 

Fannie Mae and Freddie Mac.

The appraiser will need to be able to find comparable 

properties to support the value.
Frequently Asked Questions...

An applicant wishes to purchase a 

property that is considered “off the grid” 

with alternative energy and utilities 

sources, such as a solar unit with battery 

back up and a wood burning stove as a 

heat source. Location eligibility has been 

determined to be eligible for the program.

Would this property be eligible for the 

guaranteed loan program?
Frequently Asked Questions...

HB-1-3555, Chapter 12 – Qualified Appraiser – Approved lenders must 

select qualified and competent appraisers that are properly licensed or 

certified, as appropriate, in the State in which the property is located.

Yes. As long as the property, including water, electrical, etc. meet the 

requirements of HUD Handbook 4000.1. 

HB-1-3555, Chapter 12 – Appraisal Report – All appraisals must 

comply with the reporting requirements of the USPAP and meet 

the Uniform Appraisal Dataset (UAD) requirements set forth by 

Fannie Mae and Freddie Mac.

The appraiser or inspector would need to make that 

certification/determination if any repairs would be 

required to meet HUD Handbook standards as well as 

provide comparable properties to support value.
Frequently Asked Questions...

Is a condominium that is not on the FHA 

approved condominium list, but meets 

Fannie Mae guidelines eligible for the 

Guaranteed Loan Program?
Frequently Asked Questions...

HB-1-3555, Chapter 12 – Condominiums– For all loans secured by a 

condominium unit, in a condominium project, the lender must perform 

an underwriting review of the condominium project to ensure the unit 

is approved or accepted by HUD/FHA, VA, Fannie Mae, or Freddie Mac.

Yes. Units in a condominium project may be eligible if the 

condominium has been approved or accepted by HUD/FHA, VA, Fannie 

Mae, or Freddie Mac.

The lender must document their decision and retain all 

supporting information in the permanent loan file.
Frequently Asked Questions...

Are in-ground swimming pools permitted 

in the single family housing guaranteed 

loan program?
Frequently Asked Questions...

HB-1-3555, Chapter 12 – Existing and New Dwellings – The objective of 

the SFHGLP is to assist eligible rural households in obtaining an 

adequate, safe, and sanitary single-family home. An existing dwelling 

may be attached, detached or semi-detached dwellings and must be 

inspected to determine the dwelling meets the current minimum 

property requirements of the Single Family Housing Policy Handbook 

(SF Handbook; HUD Handbook 4000.1

Yes. The Agency may approve dwellings with in-ground swimming 

pools.

o The Agency may approve dwellings with in-ground swimming 

pools 
Frequently Asked Questions...

When a water test is required, what 

elements must be addressed?
Frequently Asked Questions...

HB-1-3555, Chapter 12 – Water and Wastewater Disposal Systems – The 

water quality of the well must meet the requirements of the state or 

local authority. If the state of local authority does not have specific 

requirements, the maximum contaminant levels established by the 

Environmental Protection Agency (EPA) will apply.

Rural Development does not identify specific elements that must be 

tested for.
Frequently Asked Questions...

A recent appraisal and inspection 

for a new construction shows that 

the attic space was inaccessible 

during the initial inspection. Can 

the appraisal be submitted with 

the loan request without the attic 

photos and conditioned to be 

completed prior to closing on the 

conditional commitment?
Frequently Asked Questions...

HB-1-3555, Chapter 12 – Appraisals– Fannie Mae Form 

1004D/Freddie Mac Form 442, “Appraisal Update and/or 

Completion Report” may be utilized be the lender to report the 

completion of a repair and/or satisfaction of requirements and 

conditions noted in the original appraisal report.

Yes. Since the Agency only issues one conditional commitment, the 

commitment may be issued “subject to”.

This is the case for any other new construction 

requirements prior to the issuance of the Loan Note 

Guarantee.
Frequently Asked Questions...

May an appraisal be transferred 

between approved lenders?
Frequently Asked Questions...

HB-1-3555, Chapter 12 – Appraisals– An appraisal ordered by 

another lender for the applicant can be transferred to the 

lender who will complete the purchase transaction. The initial 

lender must agree to the transfer of the report. A letter from 

the initial lender who ordered the appraisal report must be 

retained in the permanent loan file as evidence the lender 

transferred the report to the lender completing the purchase 

transaction. The receiving lender must assume full 

responsibility for the integrity, accuracy and thoroughness of 

the appraisal report, including the methods that the original 

lender used to acquire the appraisal.

Yes. Appraisals may be transferred between approved lenders for the 

same applicant for purchase transactions only.
Frequently Asked Questions...

I have a property with a public water 

source for the home, but also has a 

well on the property that is only used 

for watering the lawn. Does that well 

need to be inspected?
Frequently Asked Questions...

HB-1-3555, Chapter 12 – Water and Wastewater Disposal 

Systems – The site must have acceptable water and 

wastewater disposal systems to ensure the property is 

decent, safe, sanitary and meets community standards. 

Public water and wastewater disposal systems are 

presumed to meet state and local requirements with no 

additional documentation or inspections.

No. If the site has public water, it is assumed to meet state and local 

requirements with no additional documentation or inspections. 

The additional well, when it is not the primary source of 

water, does not require an inspection.
Important Program Updates
HB-1-3555, Chapter 11 Updates
HB-1-3555, Chapter 11 Updates
HB-1-3555, Chapter 11 Updates
Lender Toolkit
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HB-1-3555

HB-1-3555

Bookmark It!

Use Ctrl-F to find 

answers quickly!

https://rd.usda.gov/resources/directives/handbooks 
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HB-1-3555

Origination FAQs

Bookmark It!

Use Ctrl-F to find 

answers quickly!

https://www.rd.usda.gov/sites/default/files/rd-sfh-faqloanorigination.pdf
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HBTraining & -1-3555

Resources

Great for new 

employees and 

those needing a little 

refresher!

https://www.rd.usda.gov/resources/usda-linc-training-resourcelibrary/loan-origination

https://www.rd.usda.gov/page/usda-linc-training-resource-library 

GovDelivery 

Updates
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Have a question on 

POLICY?

Contact the PAC team!

Need TRAINING?

Contact the LPA team!

Have a question on a 

SPECIFIC FILE?

Contact the OPD!
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Today’s Topics

Thank you all for taking the time to 

attend our training today!

We hope you found it to be beneficial and 

will provide assistance with the processing 

of your USDA Single Family Housing 

Guaranteed Loans!
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www.rd.usda.gov

1 (800) 800-670-6553

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