CHAPTER 5: PROPERTY REQUIREMENTS

HB-1-3550

5.1 INTRODUCTION

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.

A. Overview of Property Requirements

1. EnsuringQuality

Four sections of this chapter deal with quality assurance. Section 1 describes the 

requirements for approving a site -- its location, its size and amenities, and the adequacy of 

available utility systems. Section 2 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.

Section 3 describes the Agency’s requirements for the protection of environmental resources 

and the due diligence required with regard to hazardous substances. Section 6 provides 

guidance for monitoring construction activities to ensure that any construction or repair work 

is appropriately conducted and completed.

2. Ensuring Adequate Value

Before the Agency makes a loan, the Loan Originator 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.

Section 4 specifies Agency security requirements and Section 5 provides guidance on 

conducting appraisals of the property’s value.

B. Key Processing Steps Related to Property Requirements

When applicants locate properties, they must provide the Loan Originator with the basic 

information needed to initiate the Agency’s review of the property. Applicants who do not 

currently own the property must submit an option or sales contract. Applicants who already own 

the property must submit evidence of ownership, a legal description, and a property survey showing 

all structures on the site. Within 3 business days of the applicant identifying the property, the Loan 

Originator must send the applicant the items listed in Paragraph 3.8 A.

The Loan Originator will use the USDA Address Verification website 

(https://eligibility.sc.egov.usda.gov/eligibility/addressVerification) to verify the property address. If 

the resulting code is 1 or 2, the Loan Originator should enter the address as indicated into UniFi. If

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Revised (04-15-21) PN 549
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Paragraph 5.1 Introduction

the resulting code is not 1 or 2, the Loan Originator must verify the address with the appropriate 

local entities (such as the local post office or the local tax/property recording office), document 

how a reliable address for the property was established in the running record, enter that address 

into UniFi, re-verify the address using the address website prior to closing and update the address 

in UniFi if appropriate.

1. Appraisal

In general, appraisals are ordered under the nationwide contract with Appraisal 

Management Companies (AMCs). Field Staff request an appraisal through the Procurement 

Management Office’s (PMO) Procurement Requests SharePoint site using the current SFH 

Appraisal Request form (which can be found in the Direct Training Hub in SharePoint along 

with other appraisal training materials) and uploads all applicable supporting documents.

The AMC Administration Team (consisting of PMO and National Office staff) then orders 

the appraisal through the applicable AMC portal.

Under the nationwide contract, the AMCs are generally required to follow Attachment 

5-A (though contract terms may differ). The AMC Administration Team monitors the 

AMCs’ contract performance, reconciles invoices, handles payments, and handles all 

communications with the AMCs. Field Staff are not to communicate with the AMCs or 

their subcontracted appraisers; Field Staff must direct their general appraisal 

communications to rd.appraisals@usda.gov or to the Regional Appraisal Services

SharePoint site for requesting a technical review. If the communication is time sensitive (e.g. 

request for a correction or revision), use “Urgent” in the subject line.

2. Review of Property and Site for Compliance with Agency Standards

Before loan approval, the Loan Originator must confirm that the property meets, or will 

meet with any planned constructions or repairs, all applicable Agency requirements. This is 

accomplished through a review of opinions or determinations made by qualified third parties 

(such as appraisers, local building officials, architectural and engineering professionals, and 

trades professionals).

3. Identification and Correction of Deficiencies

If at any point during the review process, deficiencies are identified that jeopardize the 

Agency’s ability to approve a loan, the Loan Originator must notify the applicant and give 

the applicant at least 15 days to resolve the deficiency. For example, if an inspection 

reveals a structural deficiency that can be corrected, the applicant could negotiate with the 

seller to reduce the sales price so that funds to correct the deficiency could be included in 

the loan, or to correct the deficiency before the property is transferred.

If a deficiency cannot be satisfactorily corrected, the Loan Originator notifies the 

applicant and provides a new Form RD 1944-59, Certificate of Eligibility, which is 

signed by the Loan Approval Official.

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Paragraph 5.1 Introduction

4. Documenting the Acceptability of Seller Completed Repairs

As part of the contract negotiations, a seller often agrees to complete repairs 

identified by the buyer at the time of signing the sales contract or later identified by the 

buyer’s inspectors (refer to Paragraph 5.7 A.) and agreed to through an addendum to the 

contract. The Field Office should ensure that the repair conditions in the contract or 

addendum provide the specifics necessary for the seller to properly address the repair.

Ideally, the contract or addendum will detail the existing problem, how the repair will be 

completed, who will perform the work (a licensed contractor should perform work that 

demands technical expertise), and how the repairs will be verified. If the repair 

conditions are vague or ambiguous, the Field Office should encourage the buyer to seek 

an addendum that better defines the repair conditions.

Before loan closing can occur, receipts for the repair work and any associated 

permit/contract documents must be obtained from the seller and reviewed by the Field 

Office. Documentation on all agreed to repairs must be provided. In addition, the buyer 

must be instructed to inspect the completed work and provide the Field Office with a 

written statement of acceptance or a written statement outlining deficiencies in the seller 

completed repairs. If deficiencies are noted, the buyer and seller must work to address the 

deficiencies before loan closing can occur.

Special care should be given if completion of repair work cannot take place until after 

the loan closing to ensure there are adequate funds. Closing agents should be instructed

to release the funds to the contractor only after receiving written instructions from the 

Loan Approval Official. The Loan Approval Official may authorize the release of funds 

once the work, as indicated in the contract, is completed. The case file should be 

documented with invoices and the borrower’s acceptance that the work has been 

completed to their satisfaction.

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SECTION 1: SITE REQUIREMENTS [7 CFR 3550.56]

5.2 OVERVIEW

Once the applicant 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 addition, the site must be 

located in a rural area; be modest; meet minimum standards regarding water and wastewater 

systems; and meet the Agency’s street and access requirements of being on an all-weather road that 

is maintained by a public body or homeowner’s association. This section addresses these site 

requirements.

5.3 RURAL AREA DESIGNATION

A. Rural Area Definition

Rural areas are defined as:

• Open country or any town, village, city, or place, including the immediate adjacent 

densely settled area, which is not part of or associated with an urban area and 

which:

o Has a population not in excess of 2,500 inhabitants; or

o Has a population in excess of 2,500 but not in excess of 10,000 if it is rural in 

character; or

o Has a population in excess of 10,000 but not in excess of 20,000,and-

 Is not contained within a Metropolitan Statistical Area (MSA); and

 Has a serious lack of mortgage credit for lower and moderate-income families as 

determined by the Secretary of Agriculture and the Secretary of Housing and 

Urban Development.

• Any area classified as ‘‘rural’’ or a ‘‘rural area’’ prior to October 1, 1990, and 

determined not to be ‘‘rural’’ or a ‘‘rural area’’ as a result of data received from or after 

the 1990, 2000, 2010, or 2020 decennial census, and any area deemed to be a ‘‘rural 

area’’ at any time during the period beginning January 1, 2000, and ending December 

31, 2020, shall continue to be so classified until the receipt of data from the decennial 

census in the year 2030, if such area has a population in excess of 10,000 but not in 

excess of 35,000, is rural in character, and has a serious lack of mortgage credit for 

lower and moderate- income families.

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Paragraph 5.3 Rural Area Designation

1. Assessing “Open Country”

A site that is in “open country not part of or associated with an urban area” is one that is 

separated by open space from any adjacent densely populated urban area. Open space 

includes undeveloped land, agricultural land, or sparsely settled areas. Open space does not 

include physical barriers (such as rivers or canals), public parks, commercial and industrial 

developments, small areas reserved for recreational purposes, and open space set aside for 

future development.

In order to determine if a property is in open country, the Loan Originator should review 

recent maps, aerial photographs, and/or conduct a site visit. In particular, the Loan Originator 

should look for significant new development in parts of rural areas that adjoin non-rural 

areas, and investigate the likelihood that local authorities may re-designate the area’s 

corporate limits.

2. Assessing “Population”

In order to find the population figures for a locality, the Loan Originator should use 

the decennial U.S. Census of Population, or population updates published by the U.S. 

Bureau of the Census. In calculating population figures for a locality, any incarcerated 

prison population must be excluded from the total area population.

3. Assessing “Serious Lack of Mortgage Credit”

This determination is made jointly by the Secretary of Agriculture and the 

Secretary of Housing and Urban Development (HUD).

4. Assessing “Rural in Character”

A rural in character (RIC) analysis must be completed for areas meeting “Special 

Considerations” as outlined in Paragraph 5.3 B. 1. and 2.

However, an area is automatically considered to be RIC when the population density is 

less than or equal to 1,000 persons per square mile. When the population density is greater 

than 1,000 persons per square mile, a RIC analysis must be completed. When conducting a 

RIC analysis, the State Director should also account for other factors affecting population 

density that include, but are not limited to the following:

• Economic Vitality: The local economy may be adversely affected by industry 

or market conditions such as high unemployment, recent loss of a large 

employer, or similar factors. If so, the area may be currently or imminently 

subject to out-migration that affects the RIC analysis.

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Paragraph 5.3 Rural Area Designation

• Colleges and Universities: In contrast to prison populations, college populations 

cannot be excluded from the total area population. However, the college 

population may be considered when determining the population density as part 

of the RIC determination. However, only the portion of the college population 

living on campus may be excluded from population density calculations.

B. Special Considerations

1. Exception for Rural Areas Designated Prior to October 1990

If an area was classified as rural prior to October 1, 1990, even if it is within an MSA, it 

may be still considered rural as long as it: (1) has a population between 10,000 and 35,000,

(2) is rural in character, and (3) has a serious lack of mortgage credit. This designation can 

remain effective through receipt of census data for the year 2030. Or;

2. Exception for Rural Areas Designated Between January 1, 2000 and 

December 31, 2020.

If an area was classified as rural or deemed eligible any time between January 1, 2000 

and December 31, 2020, even if it is within an MSA, it may be still considered rural as long 

as it: (1) has a population between 10,000 and 35,000, (2) is rural in character and

(3) has a serious lack of mortgage credit. This designation can remain effective through 

receipt of census data for the year 2030.

3. Contiguous Areas

Two or more towns, villages, cities, or places that are contiguous may be considered 

separately for a rural designation if they are not otherwise associated with each other, and 

their densely settled areas are not contiguous.

When determining the population count for an area, the Loan Originator also should 

consider developed areas in contiguous counties or states. In cases involving contiguous 

counties, the appropriate population figure to be used for the area in question should be 

determined after consultation with the State Director. In an area involving contiguous states, 

the applicable population figure should be determined through an agreement between the 

two State Directors. The Loan Approval Official should contact both State Directors to help 

make this determination.

C. Reviewing Rural Area Designations

An area’s rural designation may be changed as a result of a periodic review or after 

the decennial census of population. Both types of review are discussed below. In all 

cases, the local office should maintain a perpetual master file to document all rural area 

decisions and include documentation of all public notification actions taken.

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Paragraph 5.3 Rural Area Designation

1. Periodic Reviews

Each Field Office must review all areas under its jurisdiction every 5 years to identify 

areas that no longer qualify as rural. In areas experiencing rapid growth and in eligible 

communities within MSAs, the review should take place every 3 years. Field Office files 

must contain documentation that local planning boards, where available, were contacted at 

the time of each review to verify that areas considered open spaces are not scheduled for 

development in the next 5 years.

Field Staff must prepare a rural area review report that includes a recommendation on 

those areas that should be re-designated. An acceptable form for this report is a map 

showing an outline of the area recommended to be re-designated, and a cover letter 

explaining the reasons for the recommendation. The review report must be signed by the 

Loan Approval Official, and submitted to the State Director on or before February 28 of the 

review year.

2. Census Reviews

In addition to periodic reviews, the State Director is responsible for implementing redesignations based on the decennial U.S. Census of Population and any biannual updates. 

Immediately after receiving the population information from the Census Bureau, the 

State Director must make appropriate changes in designation for areas with populations 

under 10,000.

3. Public Notice

90-Day Public Notice: State or Field Office must publish a 90-day notice 

informing the public that analysis is being conducted to determine the area’s eligibility 

designation. The 90-day public notice must specify the area that is being studied and invite 

comments from the public. The notice should be publicized and targeted to partners, 

groups, and organizations that are engaged in community and/or housing activities.

The notice may be published via the State Office ListServ notice or GovDelivery 

email service (if available), RD State Office Home page, or in a newspaper of general 

circulation within the area to be studied. When publishing via newspaper, the notice must 

be in easily readable type in the non-legal section of the newspaper(s) and must be 

bilingual if the affected area is largely non-English speaking or bilingual. The notice 

should appear for at least three consecutive days if published in a daily newspaper, or in 

two consecutive publications if published in a weekly newspaper.

30-Day Public Inspection Period: Prior to making the final rural area decision, 

the State Director must provide the public an opportunity to review any comments that 

were received in response to the 90-day public notice. The notice must describe the 

proposed revisions to the boundary lines and provide a link to the map eligibility site that 

will reflect the proposed revisions.

(01-23-03) SPECIAL PN 

Revised (07-22-19) SPECIAL PN

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Paragraph 5.3 Rural Area Designation

30-Day Final Notice: If the State Director determines that the rural area 

designation will change from rural to non-rural, a one-time 30-day notice must be 

published. The notice must describe the revised boundary lines, the effective date of the redesignation, and provide a link to the map eligibility site that will reflect the change. The 

notice must be disseminated using the methods described above.

4. Final Determination

The State Director will make a final determination on designations based on the 

review report and public comments and notify the Field Office of the final decision.

5. Designation of Eligible and Ineligible Area BoundaryLines

By September 30th of each review year, or after the census review is complete, the State 

Director will develop, clear and distribute a State Supplement that updates, establishes, lists, 

and maps all ineligible areas in accordance with RD Instruction 2006-B. The State 

Supplement will include county maps showing all ineligible areas in each county.

Designation of eligible and ineligible areas will be updated to the public website: 

http://eligibility.sc.egov.usda.gov/eligibility/welcomeAction.do.

Once the state has completed the review, a visual presentation of those areas designated 

as ineligible will be documented through the RD GIS Portal.

Boundary lines must meet the following criteria:

• If the boundary line is a road, the boundary between eligible area and ineligible area 

will be represented as the middle of the road. With this type of boundary line, one 

side of a road may be eligible, while the remaining side isineligible.

• Artificial buffer zones, such as an imaginary line 100 feet from a road will not be 

used.

• Boundary lines that are defined as city or town limits must be defined and labeled as of 

a specific date. Example – Ineligible area is the Claremore, Oklahoma limits as of 

January 1, 2009. Changes to the city limits such as annexation subsequent to the defined 

date will require review, public notification, preparation of a revised State Supplement, 

and update to the public eligibility website prior to implementation of the revised city 

limit boundary.

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Paragraph 5.3 Rural Area Designation

In this example, the re-designated area becomes ineligible when the process for the 

change is complete. The update of the State Supplement and the website should be 

implemented at the same time to the extent feasible.

Submitting Ineligible Area changes:

Requests for re-designation of ineligible area on the public website will be forwarded by 

the State Director together with the required State Supplement, in accordance with the 

instructions in Attachment 5-D. Please see Attachment 5-E, Eligibility System Modification 

Request Process, for detailed instructions and Attachment 5-F, Eligibility System 

Modification Workflow, is provided for visual purposes.

6. Making Loans in Areas Changed to Non-Rural

If an area’s designation changes from rural to non-rural, the Loan Approval Official 

may approve loans in that area only under the circumstances listed below.

• If an application is received before an area’s designation changed and the applicant 

selects a property in the newly designated non-rural area, a loan may be made for that 

property if it meets all other eligibility requirements.

• New conditional commitments may be issued in non-rural areas if a purchaser is 

found whose loan application was complete before the area’s designation 

changed.

• Existing conditional commitments will behonored.

• Real Estate Owned (REO) property sales and transfers with assumption may be 

processed in areas that have changed to non-rural.

• Section 504 Loan and Grant assistance may be provided on a property that already 

has an Agency loan.

• Subsequent loans may be made on a property that already has an Agency loan to: (1) 

make necessary repairs; (2) pay equity in connection with an assumption of theAgency 

loan; or (3) to pay equity to a departing co-borrower or (4) refinance a direct or 

guaranteed borrower's loan with a new direct or guaranteed loan if it meets all other 

eligibility requirements.

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HB-1-3550

5.4 MODESTSITES

A qualified property must be predominately residential in use, character, and design (as 

opposed to commercial, industrial, or agricultural). Modest sites are defined by their size, 

income production use, and the presence of prohibited outbuildings outlined in Paragraph

5.6. The Loan Originator must verify that the requirements listed below are met.

• Size. There is no specific limitation to the size/acreage of the site, provided it is 

not large enough to be subdivided under local subdivision regulations.

• 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.

• Zoning. The property must comply with applicable zoning and restrictions. If

an existing property does not comply with all current zoning ordinances, but it is 

accepted by the local zoning authority, the appraiser must report the property as 

legal non-conforming. The appraisal must reflect any adverse effect of the legal 

non-conforming use on the value and marketability of the property.

5.5 ADEQUATE SITE ACCESS, WATER, AND WASTEWATER SYSTEMS

The site must be accessible from an all-weather road maintained by either a public body or 

a homeowner’s association. When the road is privately maintained by an association, there must

be a legally enforceable arrangement for the ongoing maintenance needs of the roads.

The site must also 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 and 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.

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SECTION 2: DWELLING REQUIREMENTS [7 CFR 3550.63(a)]

5.6 MODESTHOUSING

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, meet the 

standard square footage consideration, and must not have certain prohibited features.

A. Establishing Area Loan Limits Within a State

The minimum standard area loan limit is 80% of the local HUD 203(b) limit in effect 

unless a higher percentage is approved by the Deputy Administrator, Single Family Housing. The 

review process occurs once annually, typically at the end of each calendar year, shortly after the 

annual updates to HUD’s 203(b) limits are published.

State Directors who have counties they believe merit loan limits exceeding the standard, 

may submit a request (upon notification of the annual review process) to the National Office by 

completing Form RD 2006-3, “Instruction and Form Justification.” The request should be 

accompanied by a narrative and supporting data. The analysis should include local values for both 

existing homes in program-acceptable condition and the total costs to acquire or construct new 

dwellings. Exceptions to set area loan limits below 80% of the local HUD 203(b) limit will not be 

permitted.

The Agency website will be updated after processing exception requests for higher limits, 

validating all limits, and revising the various data tables supporting UniFi, LoanServ, the Direct 

Self-Assessment tool, etc. It is recommended that states seek input from stakeholders at the 

beginning of each fiscal year, regarding the adequacy of the area loan limits and whether they are 

sufficiently meeting the needs of applicants, particularly in higher cost areas.

States are not authorized to alter their limits throughout the year; however, the National Office 

may allow for an interim review/update period if widespread extraordinary market conditions occur 

after the annual review/update.

1. Exceptions for Individuals An exception to an established area loan limit may be granted 

to accommodate the specific needs of an applicant, for example, to serve an exceptionally 

large household or to provide reasonable accommodation for a household member with a 

disability. Requests for exceptions may be approved by the State Director if the cost of the 

property will exceed the limit by $5,000 or less. To request an exception, the Loan 

Originator must fully document the need for the exception.

• For accommodations for household members with disabilities, the Loan Originator 

must provide the cost of accommodations that demonstrates that these costs cannot 

be accommodated within the area’s modest housing limit; and

• If exceptions are granted, the Loan Originator will follow UniFi procedures for 

overriding the maximum loan limits.

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Paragraph 5.6 Modest Housing

B. Notification

States should encourage stakeholders; such as certified loan packagers, intermediaries, real 

estate agents, brokers, building contractors, lenders, partners, etc. to sign up for GovDelivery to 

ensure they are informed of updates to the area loan limits as they occur.

C. Square Footage Consideration Standards

1. Maximum

Agency financed properties do not have limitations on maximum square footage.

2. Minimum

Agency financed dwellings are generally not less than 400 square feet to ensure they are 

designed and constructed for permanent occupancy and contain permanent areas for 

cooking, eating, sleeping and sanitary needs. Water and wastewater systems must be 

permanently connected. This square footage consideration may be waived by the Loan 

Approval Official’s next-level supervisor when the Field Office determines a smaller 

dwelling, or “tiny home”, otherwise meets the same property standards as other Agency 

financed dwellings (e.g., tiny homes which are built on a trailer chassis, or not 

permanently affixed to real property, are not eligible dwelling types).

D. Prohibited Features

1. Swimming Pools

Existing properties that include in-ground pools may be financed, provided the home 

meets the other modest dwelling requirements and the pool has been inspected by a 

qualified inspector. However, in-ground pools with new construction or with 

properties which are purchased new are prohibited.

2. Farm Service Buildings and Income-Producing Structures

The property must not include buildings principally used for incomeproducing purposes.

• Farm service buildings such as barns, silos, commercial greenhouses, 

or livestock facilities used primarily for the production of 

agricultural, farming or commercial enterprises are ineligible. 

However, barns, silos, livestock facilities or greenhouses no longer 

in use for a commercial operation, which will be used for storage, do 

not render the property ineligible.

• Outbuildings such as storage sheds and non-commercial workshops 

are permitted if they are not used primarily for an income

producing agricultural, farming or commercial enterprise.

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Paragraph 5.6 Modest Housing

•A minimal income-producing activity, such as maintaining a garden that 

generates a small amount of additional income does not violate this 

requirement. Home-based operations such as childcare, product 

sales, or craft production that do not require specific commercial real 

estate features are not restricted.

•Accessory Dwelling Units (ADUs) that include kitchen and bath areas 

and function as independent structures, commonly marketed as 

‘guesthouses’ or ‘backyard cottages’, are ineligible. However, 

design features such as converted portions of existing homes that 

include a kitchenette or additional attached living area (e.g., 

bedroom and/or bathroom) without independent utilities (e.g., water, 

gas, electricity) are not restricted, provided they function in support 

of the household members only.

5.7 DECENT, SAFE AND SANITARY DWELLINGS

To help ensure that dwellings are decent, safe, and sanitary (DSS) the Agency has 

established minimum standards for existing and new dwellings.

A. Existing Dwellings

Existing dwellings must be structurally sound and functionally adequate and be in good 

repair or be placed in good repair with loan funds.

For an initial Section 502 direct loan to purchase or refinance a non-Agency loan on an 

existing dwelling, the applicant must engage the services of a State-licensed inspector to perform a 

whole house inspection and provide a statement that the dwelling appears to meet the Agency’s DSS 

standards with respect to: (1) termites and other pests (this may be separate from the whole house 

inspection); (2) plumbing, water and sewage; (3) heating and cooling; (4) electrical systems; and (5) 

structural soundness. The inspection report must be a comprehensive document that meets the 

minimum standards of the professional home inspector associations. When a state does not license 

inspectors, a qualified, independent, third-party inspector may perform the inspection and provide 

the necessary certifications.

The Loan Originator should inform the applicant that if their loan application request 

falls through for whatever reason, they will remain responsible for paying their inspectors 

(unless the seller agreed to cover the inspection fees).

Once a report(s) covering all five items noted above is received by the Agency, the Loan 

Originator must identify any noted deficiencies that may make the home not decent, safe, and 

sanitary. If these deficiencies are not already addressed in the option or sales contract, the Loan 

Originator must inform the applicant that they must be addressed either through the seller 

assuming responsibility for the repair prior to closing or the repairs being required post-closing.

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Paragraph 5.7 Decent, Safe and Sanitary Dwellings

Special Considerations:

Low risk of termite infestation: A State Director may issue a state supplement waiving the 

termite inspection requirement provided: (a) the state’s probability of termite infestation is ‘none to 

slight’ or ‘slight to moderate’ as identified on the Termite Infestation Probability (TIP) map noted 

below, (b) state and/or local codes do not require one, and (c) the home inspection or appraisal have 

no indications of active infestation. A TIP map can be found at:

https://basc.pnnl.gov/images/termite-infestation-probability-map-adapted-2021-internationalresidential-code-irc-figure. The supplement must receive prior approval through the National Office.

Section 502 loan balance less than $7,500 and the repayment schedule does not 

exceed 10 years: If the Section 502 loan balance is less than $7,500 and the repayment schedule 

does not exceed 10 years, a whole house inspection is not needed and the dwelling may lack some 

equipment or features after repairs such as a complete bath, kitchen cabinets, closets, or 

completed finished interior in some rooms. These dwellings must otherwise meet the housing 

needs of the applicant and provide decent, safe, and sanitary living conditions when the 

improvements financed with the loan are completed.

Initial Section 502 loans for necessary repairs-only: An initial Section 502 loan can 

be made to an existing homeowner for necessary repairs provided any existing loan against the 

property is an affordable non-RHS loan. While a whole house inspection is not needed, the 

dwelling must otherwise meet the housing needs of the applicant and provide decent, safe, and 

sanitary living conditions when the improvements financed with the loan are completed.

B. New Dwellings

All construction must meet the standards contained in RD Instruction 1924-A. New 

dwellings include homes to be built, currently under construction, or those that are less than 12 

months old and never occupied. When applicants enter into a contract to purchase a new 

dwelling, the Loan Approval Official must consider how the construction quality will be 

documented. The process for ensuring that the Agency’s construction standards are met is 

described in Section 6 of this chapter and in Paragraph 6.7.

C. Survey Requirements

A survey is not required for any financed property unless the title insurance commitment 

specifically excludes coverage for the property and improvements in the loan policy. The 

currently adopted American Land Title Association (ALTA) loan policy (also referred to as 

“extended” or “ALTA extended”) provides explicit extended coverages, including “survey” (or 

boundary and encroachment) coverage without issuance of a special endorsement. A survey may 

be required by the title insurance company to remove the exclusions from coverage related to 

boundaries, encroachments, easements and other matters when issuing an owner’s title policy, 

but this is not common for the lender’s policy. Although an owner’s policy is not required by the 

Agency, the borrower may choose to have this coverage and use loan funds to pay for it provided 

the loan does not exceed the appraised value.

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Paragraph 5.7 Decent, Safe and Sanitary Dwellings

When a new survey is needed, it must contain boundary lines, any improvements, 

encroachments on the subject or adjacent property, above-ground easements, set-backs imposedby

either restrictive covenant or zoning, and any additional requirements necessary to obtain title 

insurance. For new construction, the boundary corners must be clearly marked. An existing survey 

may be used if it meets the requirements of the title insurance.

D. Flood-Related Requirements

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, substantial improvements, and existing dwellings the lowest 

floor (including basement) must be elevated to or above the 100-year 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 requirements.

All dwellings within the 100-year floodplain 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.

For all new construction, substantial improvements, and existing dwellings in a floodplain, 

the Agency must perform the eight-step decision making process for alternative consideration in 

order to determine if a reasonable alternative to committing federal funding to a property in a 

floodplain exists. This process is outlined in detail in RD Instruction 1970-F, section 1970.256.

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Environmental Library

At a minimum, each Field Office should 

maintain the following information in order to 

facilitate completion of environmental reviews. 

The State Environmental Coordinator can provide 

assistance in obtaining or understanding this 

information.

• The Environmental Resource Directory;

•

•

Federal Emergency Management Agency 

(FEMA) floodplain maps;

Natural Resources Conservation Service (NRCS) 

Soil Surveys and Important Farmland Soils; and

• U.S. Fish and Wildlife Service (USFWS) 

Coastal Barrier Resource System maps (as 

applicable).

SECTION 3: ENVIRONMENTAL REQUIREMENTS

[7 CFR 3550.5]

5.8 PROTECTION OFENVIRONMENTAL RESOURCES

The Agency considers environmental 

quality equally with economic, social, and other 

factors in its program development and decisionmaking processes. The environmental review 

process is intended to help Agency officials make 

decisions that are based on an understanding of the 

environmental consequences of a proposed action, 

and to take those actions that protect, restore, and 

enhance the environment.

This paragraph contains a general 

discussion of basic environmental requirements. 

Detailed environmental policies and procedures 

can be found in 7 CFR Part 1970 and the 

corresponding staff instructions in RD

Instruction 1970 series, which contains compliance 

requirements for the National Environmental Policy Act 

(NEPA), as well as numerous other laws, Executive Orders, 

and Departmental Regulations on a variety of other 

environmental issues.

In accordance with 7 CFR 1970.11, the environmental review must be concluded before 

the obligation of funds, therefore in no case will loan or grant funds be obligated without the 

completion of the environmental review. In addition, in accordance with 7 CFR 1970.5 (a) (5), 

mitigation measures described in the environmental review and decision documents must be 

included as conditions in Agency financial commitment documents, such as a conditional 

commitment letter or funding commitment.

While funds may be obligated subject to an appraisal, if the appraiser determines that there 

are environmental hazards on site, further environmental due diligence investigations may be 

required to determine the nature and extent of the contamination, and to determine the estimated 

cost of remediation. This information should be used by the Agency to make a decision related to 

property eligibility.

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Paragraph 5.8 Protection of Environmental Resources

A. Types of Environmental Reviews

NEPA requires that Agency actions be classified into 3 basic categories of actions: those that are 

categorically excluded from NEPA review; those for which more information is needed to determine 

if the project will significantly impact the environment, and therefore preparation of an 

Environmental Assessment (EA) will be required; and those that have been determined to 

significantly impact the environment, and therefore require preparation of an Environmental Impact 

Statement (EIS). The Agency has been allowed to establish 2 categories of Categorical Exclusions: 

those that involve no or minimal alterations in the physical environment and typically occur on 

previously disturbed land, and therefore require no or limited environmental documentation to be 

submitted by the applicant (RD Instruction 1970-B, section 1970.53), and those that will cause more 

alteration of the environment and therefore require the submission of an Environmental Report (a 

brief report on the current environment of the project area and the expected environmental impacts 

of the proposed project) (RD Instruction 1970-B, section 1970.54). This classification of actions

provides the Agency with a starting point for beginning its environmental review process. Most 

single family housing activities do not adversely affect environmental resources and have no 

cumulative effect, and therefore will qualify as a Categorical Exclusion without an Environmental 

Report; those which affect resources or have a cumulative effect may require an Environmental 

Review or an Environmental Assessment. For a complete list of housing actions and their 

classifications, refer to RD Instruction 1970-B, sections 1970.53 and 1970.54.

1. Categorical Exclusions

In accordance with RD Instruction 1970-A, a Categorical Exclusion is an action that 

does not individually or cumulatively have a significant impact on the quality of the human 

environment.

The following are routine financial actions related to single family housing 

transactions that are classified as Categorical Exclusions without an Environmental Report:

• Financial assistance for the purchase, transfer, lease, or other acquisition of real 

property when no or minimal change in use is reasonably foreseeable.

• Financial assistance for the purchase, transfer, or lease of personal property or 

fixtures where no or minimal change in operations is reasonably foreseeable.

• Sale or lease of Agency-owned real property, if the sale or lease will have no or 

minimal construction or change in current operations in the foreseeable future.

• The provision of additional financial assistance for cost overruns where the 

purpose, operation, location and design of the proposal as originally approved has 

not been substantially changed.

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Paragraph 5.8 Protection of Environmental Resource

• Minor construction proposals such as:

o Minor amendments or revisions to previously approved projects provided 

such activities do not alter the purpose, operation, geographic scope, or 

design of the project as originally approved;

o Repair, upgrade, or replacement of equipment in existing structures for such 

purposes as improving habitability, energy efficiency (including heat rate 

efficiency), replacement or conversion to enable use of renewable fuels, 

pollution prevention, or pollution control;

o Any internal modification or minimal external modification, restoration, 

renovation, maintenance, and replacement in-kind to an existing facility or 

structure;

o Construction of or substantial improvement to a single-family dwelling, or a 

Rural Housing Site Loan project serving up to four families and affecting less 

than 10 acres of land;

o Siting, construction, and operation of new or additional water supply wells for 

residential, farm, or livestock use;

o Replacement of existing water and sewer lines within the existing right-of-way and 

as long as the size of pipe is either no larger than the inner diameter of the existing 

pipe or is an increased diameter as required by Federal or state requirements. If a 

larger pipe size is required, applicants must provide a copy of written administrative 

requirements mandating a minimum pipe diameter from the regulatory agency with 

jurisdiction; and

o New utility service connections to individual users or construction of utility lines or 

associated components where the applicant has no control over the placement of the 

utility facilities.

For each proposed action, RD Instruction 1970-B, Exhibit D, “Environmental Checklist for 

Categorical Exclusions,” is prepared by the Agency to ensure that the specific proposal under 

consideration qualifies as a Categorical Exclusion, and that there are no extraordinary

circumstances (RD Instruction 1970-B, section 1970.52) or cumulative impacts related to the 

proposal, that the proposal is not connected to other actions with potentially significant impacts (see 

40 CFR 1508.25(a)(1)), and that it is not considered a cumulative action (see 40 CFR 

1508.25(a)(2)).

In general, extraordinary circumstances (RD Instruction 1970-B, section 1970.52) are 

unique situations presented by specific proposals, such as characteristics of the geographic area 

affected by the proposal, scientific controversy about the environmental effects of the proposal, 

uncertain effects or effects involving unique or unknown risks, and unresolved conflicts 

concerning alternate uses of available resources within the meaning of section 102(2) (E) of 

NEPA. Exhibit 5-2 provides a listing of the most common extraordinary circumstances.

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Paragraph 5.8 Protection of Environmental Resource

Exhibit 5-2

Extraordinary Circumstances

• Any violation of applicable Federal,state, or local statutory, regulatory, or permit requirementsfor 

environment, safety, and health.

• Any proposal that is likely to cause uncontrolled or unpermitted releases of hazardous substances, pollutants, 

contaminants, or petroleum and natural gas products.

• An adverse effect on the following environmentalresources:

o Historic properties;

o Federally listed threatened or endangered species, critical habitat, Federally proposed or candidate species;

o Wetlands;

o Floodplains;

o Areas having formal Federal or state designations such as wilderness areas, parks, or wildlife refuges; wild and scenic rivers; or marine sanctuaries;

o Special sources of water (such as sole source aquifers, wellhead protection areas, and other water sources 

that are vital in a region);

o Coastal barrier resources or, unless exempt, coastal zone management areas; and

o Coral reefs.

• The existence of controversy based on effects to the human environment brought to the Agency’s attention 

by a Federal, tribal, state, or local government agency.

RD Instruction 1970-B contains detailed information on the proper implementation of 

requirements affecting Categorical Exclusions.

It is important to note that development on tribal land or dependent Indian communities may 

require additional coordination with the tribe to determine if the proposal has an adverse impact on 

environmental or cultural resources. In accordance with RD Instruction 1970-H, Exhibit B, “When 

an applicant’s proposal is located on tribal lands, defined in 36 CFR § 800.16(x) as all lands within 

the exterior boundary of any Indian reservation and all dependent Indian communities, and that tribe 

has designated a Tribal Historic Preservation Officer (THPO) in accordance with Section 101(d)(2) 

of [National Historic Preservation Act (NHPA)], the SHPO participates only under the conditions 

specified in 36 CFR § 800.2(c)(1)(ii). If the Indian tribe has not designated a THPO, then the SHPO 

participates in Section 106 review pursuant to 36 CFR § 800.2(c)(2)(i)(B).” Exhibit D of RD 

Instruction 1970-H provides guidance on working with Indian tribes in the NHPA Section 106 

review.

2. Environmental Reports and Environmental Assessments

If it appears that extraordinary circumstances and/or cumulative impacts may be 

involved, an Environmental Report (ER) or an Environmental Assessment (EA) may be 

required in accordance with RD Instruction 1970-B, section 1970.54 and RD Instruction 

1970-C. Through these review processes, the Agency will acquire the necessary 

documentation to: (1) demonstrate compliance with requirements for protection of 

environmental resources, including the development of practical alternatives to either

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Paragraph 5.8 Protection of Environmental Resource

avoid or lessen any adverse environmental impacts; and (2) demonstrate why the 

potential impact on resources is not considered to be significant and, therefore, an EIS is 

not required.

B. Flood Hazard Determination

FEMA’s Standard Flood Hazard Determination Form (SFHDF) determines if the home is 

located in a Special Flood Hazard Area (SFHA) and states the availability of flood insurance 

based on if the community participates in the National Flood Insurance Program (NFIP). Flood 

insurance is required when any form of federal financial assistance is intended in whole or in part 

for acquisition, construction, reconstruction, or substantial improvement of any building located 

in a SFHA. The flood insurance can be through NFIP or under NFIP’s “write your own” program 

where the policy is through private insurance that meets the requirements of 42 USC 4012a 

(b)(1)(A). Flood insurance must be obtained and maintained throughout the life of the loan when 

any portion of the home is located in a SFHA, including attached garages, decks and carports, etc. 

Flood insurance is not required for any additional structure that is located on the property but is 

detached from the home (such as detached shed, garage, or other ancillary structure). Flood 

insurance is also not required if the financial assistance is less than the substantial improvement 

threshold discussed in HB-1-3550, Chapter 7.

The information on the SFHDF will assist in the preparation of the environmental review 

documentation, which must examine whether there is a reasonable alternative to a proposed 

purchase or construction in a floodplain. The Loan Originator will be responsible for acquiring 

the SFHDF from CoreLogic Flood Services at: https://www.floodcert.com/. CoreLogic provides 

“Life of Loan Determination” in which the Agency will be notified should the site’s floodplain

designation change. The SFHDF must be acquired prior to the completion of the environmental 

review.

If the dwelling is located within a SFHA, the lowest floor (including basements) must be 

elevated above the base flood elevation (BFE). Proof that this requirement has been met is usually 

in the form of a FEMA Elevation Certificate, however other forms of documentation may be 

accepted (see RD Instruction 1970-F).

Additionally, for applications to purchase, construct, or substantially rehabilitate a dwelling 

in a floodplain, utilities should be flood-proofed or located above the BFE. If the dwelling does not 

use public utilities, the domestic well must be a minimum of 50 feet from the septic drain field (or 

more, depending on local or state codes). For minor repairs, these requirements are not applicable 

if the dwelling existed prior to the publication of the first FEMA flood map for that location. In 

accordance with RD Instruction 1970-F, section 1970.256 (b) and 1970.261(b), if the property is 

within a floodplain, the Agency approval official is responsible for notifying the applicant about 

the hazards associated with occupancy of locations within a floodplain at the earliest possible point 

in the Agency’s decision-making process. A template notice can be found in RD Instruction 1970-

F, Exhibit B, Attachment 2.

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Paragraph 5.8 Protection of Environmental Resource

C. Responsibility for Environmental Reviews

The Loan Originator is responsible for ensuring that the appropriate level of environmental review has 

been completed prior to the commitment of federal funds. This includes the assembly and analysis of 

relevant material, the development and analysis of practical alternatives and mitigation measures (as 

appropriate), and the development of recommendations regarding environmental impacts and 

environmental compliance. Applicants may be requested to provide information needed for the 

analysis.

Prior to the appraisal, the Agency will begin the appropriate level of environmental 

review using submitted documents and available online resources. If the appraiser marked “No” 

to the question, “Are there any adverse site conditions or external factors (easements, 

encroachments, environmental conditions, land uses, etc.)?” under the site portion of the Uniform 

Residential Appraisal Report, then the Field Office is not required to conduct a site inspection in 

order to complete the environment review. However, if the appraiser answers in the affirmative, a 

qualified Rural Development official must conduct a site inspection to determine if the initial 

environmental review decision is accurate based on observations of Agency staff during the site 

visit.

The Loan Approval Official will use the environmental review documents and, as 

appropriate, the recommendations of the State Environmental Coordinator (SEC), to make the 

Agency’s final decision regarding an environmental impact determination and compliance with 

environmental requirements, as well as flood insurance requirements. For Categorical Exclusions 

without an ER, this decision is evidenced by the completion of RD Instruction 1970- B, Exhibit 

D, which will be signed by the form’s preparer and the Loan Approval Official (if these are the 

same person, both applicable signatory lines should be signed). For Categorical Exclusions with 

an ER, the SEC must review the environmental documentation and sign the Exhibit D in addition 

to the preparer and Loan Approval Official. The Agency’s decision for EAs is documented by

the signing of the Finding of No Significant Impact (FONSI) by the Loan Approval Official; 

after reviewing the EA, the SEC will assist with the FONSI’s preparation.

SECs are available to provide technical assistance and guidance. They also are available 

to assist in problem resolution on environmental issues. Environmental questions or problems 

should be referred promptly to the SEC. Furthermore, SECs will review and sign off on all 

Categorical Exclusions with an ER and EAs.

D. NoiseAbatement

If a site is located near a major source of noise, the appraiser should consider this in their 

appraisal report. The information should be made available to the applicant, who may not be 

aware of the problem. The applicant, once informed, may wish to look for a different site or to 

consider some method of noise reduction. The Loan Approval Official should consult with the 

State Architect and the SEC on any proposals for noise reduction.

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Paragraph 5.9 Management of Hazardous Substance

5.9 MANAGEMENT OF HAZARDOUSSUBSTANCES

The Agency must consider the management of hazardous substances, including hazardous 

wastes and petroleum products, from two perspectives: liability under hazardous substance and 

hazardous waste laws, and the economic risks posed by the presence of hazardous substances.

Both of these issues are addressed through due diligence. Due diligence is the process of inquiring 

into the environmental condition of real estate, in the context of a, real estate transaction, to 

determine the presence of contamination from hazardous substances including hazardous wastes 

and petroleum products, and to determine what impact such contamination may have on the 

market value of the property.

Appraisers are required to notify the Agency if they observe contamination from hazardous 

substances, or if information from research or interviews with individuals knowledgeable about the 

property indicates that the property might contain hazardous substances.

If an appraiser notices that a property may contain hazardous substances, or if the Agency 

has any other reason to suspect that a property is contaminated, the Loan Approval Official must 

initiate a due diligence review by completing Attachment 5-B, Single Family Housing Site 

Checklist. If the completed Attachment 5-B raises any concerns, it must be sent to the SEC for 

further evaluation and guidance. The SEC will contact a National Office Program Support Staff 

Environmental Protection Specialist to determine what further steps will need to be taken.

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SECTION 4: SECURITY REQUIREMENTS

5.10 ACCEPTABLE MORTGAGE

Generally, there should be no non-Agency liens on the property at the time of or 

immediately after closing, unless they are part of a formal leveraging strategy, or the Agency 

loan is for essential repairs and a senior lien secures an affordable non-Agency loan. However, 

the Loan Originator may accept prior or junior liens as long as: (1) the lien will not interfere with 

the purpose or repayment of the Agency loan; (2) the total value of all liens on the property is 

less than or equal to the property’s market value (except in cases where a junior lien is soft, 

silent, or a forgivable subordinate affordable housing product as noted in Paragraph 6.7 F.); and

(3) the prior lien does not contain provisions that may jeopardize the Agency’s security position 

or the applicant’s ability to repay the loan.

5.11 OWNERSHIP REQUIREMENTS [7 CFR3550.58]

If the applicant defaults on the loan, the Agency must be able to foreclose on the property 

to settle the debt. Therefore, after the loan is closed, the applicant must have an ownership 

interest in the property that is acceptable to the Agency.

A. Responsibilities

In preparation for closing, the closing agent selected by the applicant must review the 

ownership interest the applicant will have to ensure that it meets the requirements established by 

the Agency in RD Instruction 1927-B. The closing agent must also ensure that the form of 

ownership conforms with the requirements of relevant state laws. After closing, the Loan 

Originator should compare the deed of trust or mortgage with the title opinion to assess lien 

priority, to verify recordation of the date and time, and to ensure that the loan closing instructions 

have been followed.

B. Acceptable Forms of Ownership

Several forms of ownership are acceptable to the Agency, but in all cases the 

applicant’s ownership interest must be carefully documented.

1. Fee-Simple Ownership

The most common form of ownership 

is fee-simple ownership, under which the 

borrower holds a fully marketable title to 

the property. This title is evidenced by a 

deed that vests full interest in the property 

to the borrower.

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Land Purchase Contracts

When the ownership interest is by virtue of a land 

purchase contract, the ownership interest must be 

converted to a deed/mortgage interest prior to 

closing the loan.
HB-1-3550

Paragraph 5.11 Ownership Requirements [7 CFR 3550.58]

2. 2. Secure LeaseholdInterest

Although fee-simple ownership is preferable, the borrower may have a secure leasehold 

interest in the property. Leasehold interests are acceptable only when all of the following 

conditions apply.

• The applicant must be unable to obtain fee-simple title to the property, and the rent 

charged for the lease must not exceed the rate being paid for comparable leases.

• The lessor must own the fee-simple title (this provision does not apply to a lessor who 

is an American Indian possessing a leasehold interest on tribal allotted or trust land).

• Neither the leasehold nor the fee-simple title may be subject to a prior lien unless the 

Agency authorizes acceptance of the prior lien before loan approval. The amount of 

the Agency’s loan, plus any prior liens, must not exceed the market value of the 

property including the value of the leasehold.

• The lease must be in writing, and must contain all of the followingprovisions:

◊ The lessor’s consent to allow the Agency’smortgage;

◊ The right of the Agency to foreclose and sell the property without restrictions that 

adversely affect the market value of the property;

◊ The right of the Agency to bid at a foreclosure sale or to accept voluntary 

conveyance of the property in lieu offoreclosure;

◊ The right of the Agency to occupy, sublet, or sell the property should the 

leasehold be acquired through foreclosure, voluntary conveyance, or 

abandonment;

◊ The right of the applicant to transfer the leasehold and Agency mortgage to an 

eligible transferee who will assume the Agency’s debt, if the borrower defaults or is 

unable to continue with the lease;

◊ Advance written notice of at least 90 days to the Agency of the lessor’s intentionto 

cancel or terminate the lease;

◊ Provisions are negotiated with the lessor before the leasehold interest is approved 

regarding the Agency’s obligation to satisfy unpaid rent or other charges accrued 

before or during the time the Agency has possession of or title to the leasehold. 

During negotiations, the Loan Originator should consider the length of time it will 

take to foreclose, how much the Agency would be responsible for, and when the 

Agency would have to pay;

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Paragraph 5.11 Ownership Requirements [7 CFR 3550.58]

◊ Provisions to ensure fair compensation to the borrower for any part of the 

property taken by condemnation; and

◊ The unexpired term of the lease must be at least 150 percent of the term of the 

mortgage, unless the loan is guaranteed by a public authority, Indian Tribe, or 

Indian Housing Authority. For guaranteed loans, the unexpired term of the lease 

must be at least 2 years longer than the mortgage term. In no case may the 

unexpired term of the lease be less than 25 years.

• The language, specified in Attachment 5-C, must be inserted in themortgage.

3. Life Estate Interest

The applicant may hold a life estate interest with the rights of present possession, 

control, and beneficial use of the property. All persons with any remainder interests in the 

property must be signatories to the mortgage, except as described in Paragraph 5.11 B. 4.

4. UndividedInterest

To be eligible for a loan if an applicant only has an undivided interest in the land, coowners must also be unable to provide or obtain the financing for the improvements, either 

individually or jointly with the applicant. Generally, all legally competent co-owners must 

sign the mortgage. However, when one or more of the co-owners cannot be located, are not 

legally competent (and there is no legal representative who can sign the mortgage), or if the 

ownership interests are divided among so many co-owners that it is not practical to 

mortgage all of their interests, their interests may be excluded from the security 

requirements, as long as their interests do not exceed 50 percent of the property’s value.

The loan amount shall be limited based on the percentage of the market value that is 

proportional to the percentage of the property interest owned by all persons signing the 

mortgage. The determination of market value should take into account any adverse effects 

that might result from selling mortgaged interests separately from nonmortgaged interests.

Only the State Director may approve the exclusion of co-owners’ interests. The Loan 

Originator or the Loan Approval Official should prepare a recommendation for the State 

Director’s review. The memo should include a full statement of ownership and the reasons 

for the proposed exclusion.

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Paragraph 5.11 Ownership Requirements [7 CFR 3550.58]

5. Possessory Rights

Possessory rights on an American Indian reservation or state-owned land, and the 

interest of an American Indian in land held in trust or deeds containing restrictions 

against alienation are acceptable forms of interest as long as the trust or restricted land 

will remain in trust or restricted status.

Tribal allotted or trust land must remain in trust or restricted status. In these cases, 

the mortgage, deed of trust, leasehold interest or other security interest must be 

approved by the Secretary of the Interior. Each state should issue a supplement to give 

guidance about making loans under these circumstances.

5.12 EXCEPTIONSTO THE AGENCY’S SECURITY REQUIREMENTS

Exceptions may be made under the circumstances described below.

A. Unsecured (Note Only) Section 502Loans

A loan of less than $7,500 that is scheduled for repayment within 10 years from the date 

of the loan may be secured by a promissory note alone as long as the applicant:

• Has a credit history that indicates an ability and willingness to pay the debt when due;

and,

• Has principal, interest, taxes, and insurance (PITI) and total debt (TD) ratios that 

indicate that the applicant will have sufficient income to meet all obligations.

In order to verify the above conditions, the Loan Originator should review the applicant’s 

credit history as described in Section 3 of Chapter 4. The applicant cannot receive payment 

subsidy on an unsecured loan.

B. Best Mortgage Obtainable

Except for unsecured loans described in Paragraph 5.12 A., loans must be secured by a 

mortgage. In addition, title clearance and the use of legal services as required by RD Instruction 

1927-B are necessary, unless the total RHS indebtedness is less than $7,500 or the loan is a 

subsequent loan made for minimal essential repairs necessary to protect the Government’s 

interest.

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SECTION 5: APPRAISALS [7 CFR 3550.62]

5.13 OVERVIEW

High-quality appraisals are key to ensuring that the Agency obtains adequate security for its 

loans. This section provides guidance about the types of appraisals that may be needed, when 

appraisals are required, how they are ordered, and how they must be reviewed.

5.14 REQUIREMENTS FOR APPRAISALS

Appraisals must meet the following requirements:

• Qualified Appraiser: In nearly all cases, Direct Single Family Housing appraisal 

assignments will be completed by a state–certified or licensed appraiser using nationwide 

contracts with Appraisal Management Companies (AMCs). Contract appraisers must be 

certified or licensed (or hold a “Temporary Practice Permit” issued by the respective

state for a specific period of time and for a specific property), in the state in which the 

subject property is located. When using a contract appraiser, the Agency will contract 

with qualified 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 territories.

• Standards: All appraisals must be consistent with the current edition of the Uniform 

Standards of Professional Appraisal Practice (USPAP) available at 

www.appraisalfoundation.org and comply with Agency appraisal requirements, as 

described in this chapter and in 7 CFR3550.62(a).

• Timelines: In general, appraisals are ordered under the nationwide contracts with 

Appraisal Management Companies (AMCs) and are generally completed within 15 

business days. 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 a Third Party Appraisal: The Agency may only use an appraisal for which it did 

not contract for when the appraisal was obtained from a leveraged lender involved in the 

transaction and that lender is financing at least 20 percent of the transaction with loan funds 

or 15 percent if entirely a grant, forgivable loan or deferred loan except when the lender is 

also a party to the transaction such as seller, builder, developer, or contractor.

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Paragraph 5.14 Requirements for Appraisals

The Agency reviewer should be especially diligent in reviewing these appraisals to ensure 

they meet USPAP and Agency appraisal requirements and the expected intended use is 

the same as the intended use reported in the appraisal. The Agency is not required to use 

any appraisal that it did not contract for directly.

5.15 TYPES OF VALUES

Depending on the type and purpose of the appraisal needed, an appraiser will be asked to 

provide an estimated value of the property based on one of the following:

• As Is. For existing dwellings that require no repairs/alterations or require 

repairs/alterations that typically add no value (e.g., general maintenance to the 

home’s infrastructure and machinery); newly constructed dwellings; and to support

a loan servicing action or to determine a disposition plan for a REOproperty.

• Cost Approach Only. See Paragraph 5.16 for a description.

• Subject to Completion of Plans & Specs. For newly constructed dwellings to be built.

• Subject to Repairs/Alterations. For existing dwellings that require repairs/alterations 

that typically add value (e.g., window replacement, siding replacement, and bathroom 

remodel).

5.16 APPRAISAL METHODOLOGY

Real estate appraisers make judgments about a property’s value based on many factors, 

including location, market conditions, construction quality, and amenities. Single Family 

Housing Appraisals require one, two, or three approaches to value, as described below, 

depending on the specific assignment.

• Sales comparison approach. Under this method, the appraiser uses the recent sales data of 

properties that are comparable in location and characteristics to the security property in 

order to estimate a market value for the property.

• Cost approach. Under this method, the appraiser derives an estimate of value using 

replacement cost estimates for the improvements, less depreciation and an estimate of the 

site value. If applicable, the appraiser will identify the source of cost estimates, such as 

Marshall and Swift, used in the cost approach.

The methodology used to estimate depreciation and an analysis may be stated in the report. 

This method is required for a dwelling to be constructed, or a dwelling that is less than one 

year old. The remaining economic life must be stated for all properties.

• Income Approach. Under this method the appraiser derives a value indication for an 

income-producing property by converting its anticipated benefits (cash flows and 

reversion) into property value. This conversion can be accomplished in two ways, direct 

capitalization or yield capitalization. This method may only be used for Agency nonprogram REO properties.

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Paragraph 5.16 Appraisal Methodology

The appraisal must be completed using Fannie Mae Form 1004/Freddie Mac Form 70, 

“Uniform Residential Appraisal Report,” for all one-unit, single family dwellings; Fannie Mae 

Form 1004C/Freddie Mac Form 70B, “Manufactured Home Appraisal Report,” for all 

manufactured homes; or Fannie Mae Form 1073/Freddie Mac Form 465, “Individual 

Condominium Unit Appraisal Report” for all individual condominium units.

5.17 ORDERING APPRAISALS

A. When Appraisals Are Needed

An appraisal is always required if the RHS loan is $7,500 or more and the Agency’s debt 

plus prior liens against the property will exceed $15,000. (Another lender’s appraisal is acceptable 

when the loan is part of a leveraging strategy under certain circumstances as described in Chapter

10.) If the total indebtedness against the property is less than or equal to $15,000, an appraisal is 

not required if the Loan Originator is confident that the property has sufficient value to serve as 

adequate security. Total indebtedness includes any prior liens on the property. The Loan Originator 

should include a statement of the property’s value in the case file whenever an appraisal is not 

completed.

For subsequent loans, no appraisal is required if the loan is less than $7,500 and is for 

minimal essential repairs needed to ensure that the dwelling is decent, safe, and sanitary. An 

appraisal is not required when a subsequent loan is made to protect the Government’s interest, 

regardless of the amount. The Loan Originator must include a statement of the estimated 

property value in the case file. If the subsequent loan is for $7,500 or more, no appraisal is 

needed unless the property will be taken as security and at least 1 of the following conditions 

exists:

• The latest appraisal report of the real estate is over 2 years old;

• The physical characteristics of the property have changedsignificantly;

• The economic characteristics of the market have changed significantly;

• The Loan Originator is uncertain of the adequacy of the security;or

• The subsequent loan is in connection with a transfer of an existing loan.

B. Program Responsibilities

In accordance with RD Instruction 2024-A, contract services shall not involve decision 

making or other inherently governmental functions. Accordingly, prior to ordering an appraisal on 

the subject property, the Field Office will ensure that the property is located in an eligible area 

(which should be accomplished by entering the property’s address in the Agency’s property 

eligibility website); and review the sales contract and related materials (such as the property’s 

Multiple Listing Service sheet, tax bills, etc.) to confirm that the dwelling and/or site appear to 

comply with the Agency’s regulations and guidance.

(01-23-03) SPECIAL PN

Revised (12-08-22) PN 572

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Paragraph 5.17 Ordering Appraisals

If appropriate, the Field Office will also prepare a list of detailed repairs with estimated costs, 

or provide copies of bids from the applicant’s contractor needed to ensure the property meets the 

Agency’s regulations and guidance. This list of repairs, which is based upon the inspection reports 

prepared by State-licensed inspectors or qualified, third party inspectors hired by the applicant (refer 

to Paragraph 5.7 A.), will be provided to the appraiser for the purpose of obtaining a subject to 

repairs/alterations value provided those repairs/alterations typically add value and are not routine 

maintenance items (e.g. check smoke detectors, pest or septic inspection, add GFCI protection to 

exterior, kitchen, or bathroom electrical outlets, etc.).

C. RequiredInformation

When the Loan Originator or Staff Appraiser requests an appraisal through the PMO’s 

Procurement Requests SharePoint site using the current SFH Appraisal Request form (which can 

be found in the Direct Training Hub in SharePoint along with other appraisal training materials), 

the following information will be uploaded (as applicable): Cost Breakdown, Legal 

Description/Deed, Plan & Specs (New Construction), Plat of Property, Prior Appraisal (1004D 

only), Property Inspection Report, Proposed Repairs – Est. Cost $, Purchase Agreement & 

Amendments, and Survey (if available).

The applicant has until the expiration of their Certificate of Eligibility, as described in 

Paragraph 4.25, to present this information to the Loan Originator. Originals of this information 

should be kept in the case file, with copies provided to the appraiser.

D. Appraisal Disputes

In situations where the market value of the security is inadequate to support the loan 

request, the Loan Originator will send Handbook Letter 17 (3550), Adverse Decision Involving an 

Appraisal. Handbook Letter 17 informs the applicant of their right to request a meeting with the 

Local Office to review the appraisal report and present new, objective information or evidence for 

the Agency’s consideration. The Loan Approval Official will then request a technical review by an 

RD staff appraiser, and must attach the additional data provided by the applicant. New information 

or evidence may include, but is not limited to, incorrect number of bedrooms, bathrooms, garage 

bays, finished percentage of basement, repaired or renovated conditions not captured in the report, 

etc. However, consideration of additional (or alternate) comparable sales are not part of the 

Agency’s technical appraisal review process. If the applicant believes they have experienced racial 

discrimination, the Loan Approval Official shall document the allegations, initiate a technical 

review by an Agency appraiser with the documented allegations, and provide the applicant with 

contact information for the Interagency Task Force on Property Appraisal and Valuation Equity 

(PAVE) at www.pave.hud.gov/gethelp or call (800) 669-9777) to file a complaint.

If the RD staff appraiser’s technical review concurs with the original appraisal, or if after 

revisions are coordinated and the market value still does not support the loan amount, then 

the Loan Originator will send the applicant Handbook Letter 18 (3550), Unfavorable 

Decision after Technical Review of an Appraisal, with appeal rights (Attachment 1-B). The 

appeal will consider the Agency’s underwriting decision regarding inadequate security 

(market value) to support the loan request. Once an appraisal has been accepted by the 

Agency the market value reported within the appraisal is not appealable.

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5.18 APPRAISER RESPONSIBILITIES

The appraiser must provide the required estimates of value on the appropriate form. The 

appraiser may also be asked to provide a list of repairs deemed essential for the property to be made 

decent, safe, and sanitary.

If an appraiser observes potential contamination from hazardous substances, hazardous 

wastes, or petroleum products on the property, or obtains other information about such 

contamination, that information should be provided to the Agency together with an indication of 

its potential impact on the value of the property. The Loan Originator must initiate the due 

diligence process by completing Attachment 5-B. The completed Attachment 5-B must be sent 

promptly to the SEC for further evaluation and guidance.

5.19 REVIEWING APPRAISALS

Appraisals will be reviewed through a combination of administrative reviews and technical 

reviews. Administrative reviews can be completed by Agency staff trained to do so while technical 

reviews must be completed by certified Agency appraisers. A technical review for loan origination 

is an inherently governmental function and must be completed by an Agency appraiser. If an 

appraisal is found to be unacceptable by any review, other than a post review, the original AMC 

can make corrections or a new appraisal can be requested. The appraisal report must be acceptable 

before the loan-making process can continue.

A. Administrative Review

Administrative reviews are performed by the Loan Approval Official using Form RD 

1922- 15, Administrative Appraisal Review for Single Family Housing, and should be completed

as soon as possible (but not later than 7 days from receipt of the appraisal). Reviews are performed 

on all contract appraisals and the contract appraiser’s invoice cannot be paid until the appraisal 

review is complete. This review determines if there are inconsistencies in the appraisal report that 

warrant a secondary review of the property and the sales contract prior to loan approval, or if a 

technical review should be conducted by the staff appraiser prior to paying the appraiser’s invoice.

Indicators that a technical review may be required consist of the following: (1) Photos and 

maps are not consistent with the information provided in the appraisal; (2) Large variances in 

actual and effective age are not supported; (3) Comparables are located outside of the subject’s 

market area or they are superior/inferior to the subject warranting excessive adjustments that are 

not supported; (4) Sales and Financing concessions are not reported or comparables are not 

properly adjusted when they are reported; (5) History of the subject property was omitted or not 

analyzed; and (6) Inconsistent information in the appraisal.

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(01-23-03) SPECIAL PN

Revised (04-15-21) PN 549
HB-1-3550

Paragraph 5.19 Reviewing Appraisals

If the appraisal is acceptable, Field Staff must promptly forward (within 7 days) the email 

received from the appraiser or AMC to rd.appraisals@usda.gov with “Appraisal Reviewed & 

Accepted” in the subject line. If the appraisal is not acceptable, Field Staff must forward the 

appraisal and Form RD 1922-15 to the Agency’s Regional Appraisal Services for a technical 

review. The request for the technical review must be through the Regional Appraisal Services

SharePoint site.

B. Technical Review

A technical review can be either a field review or a desk review and is performed to 

determine whether the appraisal is credible within the intended use, was clearly reasoned, 

followed accepted appraisal techniques and RD requirements and had adequate support for the 

conclusion of value. Technical reviews are an inherently governmental function and must be 

performed by Agency certified appraisers. Technical reviews completed by Agency appraisers 

should be consistent with current USPAP requirements which can be found at 

www.appraisalfoundation.org.

Field reviews involve on-site visits to the subject property and the comparables while desk 

reviews are performed in the office. Technical reviews must be completed for the first appraisal 

conducted by any contract appraiser and for each appraiser that does multiple appraisals in a 12-

month period. Additionally, each contract appraiser must be reviewed at least once in a three-year 

period. At the discretion of the Regional Appraisal Staff, additional technical reviews may be 

ordered if concerns were encountered on the first technical review. In addition to the initial review, 

technical desk or field reviews will be done in a random, spot- check method established by the 

State Director for contract appraisals but should be completed on a minimum of 5 percent of the 

contract appraisals received.

A technical review also may be requested by the Loan Approval Official when concerns are 

detected by the administrative review. The concerns will be documented on Form RD 1922-15.

The Regional Appraisal Staff must determine if the concerns merit a technical review before the 

vendor’s invoice can be paid or the loan closed.

5.20 PAYING FOR APPRAISALS

The Agency will charge a standard fee for each loan application that requires an appraisal. 

This fee is updated periodically, along with TRID related implementation instructions, through

an Unnumbered Letter (UL) posted to the Agency’s Directives website. The UL will generally be 

posted 30 days prior to the effective date of the fee change. Within 3 business days of receiving a 

completed application, the Loan Originator will provide the applicant with CFPB’s standard

Loan Estimate, which includes the amount of the appraisal fee listed in the current UL.

The Agency may waive the fee for appraisals done for subsequent loans needed to make 

minimal, essential repairs necessary to protect the Government’s interest, or for leveraged loans 

if a participating lender is obtaining an appraisal that is acceptable to the Agency.

If there is a conditional commitment, the appraisal fee should be paid to the contractor at 

closing as reimbursement for the cost of the appraisal that was included in the conditional 

commitment fee.

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5.21 APPRAISALS IN REMOTE RURAL AREAS, ON TRIBAL LANDS, OR WHERE 

THERE IS A LACK OF CONVENTIONAL MARKET ACTIVITY

In remote rural areas, on Tribal lands, or areas with a lack of conventional lending market 

activity it may be difficult to obtain adequate comparable sales to appraise a property. In these 

areas, the sales comparison approach is not required. Instead, Form 1007, Marshall and Swift 

Square Foot Appraisal Form must be used. These appraisals may be conducted by Agency staff 

appraisers or by contract appraisers.

Remote rural areas are identified by the State Director and are defined as areas with these 

types of characteristics:

• Scattered population;

• Low density of residences;

• Lack of basic shopping facilities;

• Lack of community and public services and facilities;and

• Lack of comparable sales data.

The results of the cost analysis completed using Form 1007 should be documented on the 

Uniform Residential Appraisal Report and efforts to obtain comparable market data must be 

documented in lieu of the sales comparison approach. External depreciation based on the 

remoteness of the site must not be considered; however, factors that impact the site such as 

immediate proximity to a feedlot, factory, or other similar considerations should be included.

When a market is established in these areas, the Agency will again require complete appraisals.

(01-23-03) SPECIAL PN

Revised (12-08-22) PN 572

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SECTION 6: MANAGING CONSTRUCTION

This section generally refers to when the Agency is advancing funds through draws for new 

construction or substantial rehabilitation to a dwelling and when the funds are secured by a deed of 

trust or mortgage. Typically, this work will involve a general contractor who is responsible for 

supervising and directly paying their subcontractors. Work described in this section is more 

complex and would commonly take more than 30 days to complete.

When applicants enter into contracts with builders who own the site and are self-funding 

the construction process, the Loan Originator will enter the dwelling type in LoanServ as 

“Purchase New” rather than “Build”. The Loan Approval Official should communicate with the 

applicant and builder on how acceptable construction quality will be documented in accordance 

with Paragraph 6.7 B. and the standards in RD Instruction 1924-A.

5.22 DESIGN

A. Disseminating the Standards

The applicant needs to know the standards the dwelling must meet before the design process 

begins. The Loan Originator should advise the applicant of the Agency’s rehabilitation or 

construction standards.

The applicant and/or designer should also be provided with Form RD 1924-2, Description of 

Materials, prior to loan approval. This form may be used by the designer as a basis for preparing 

specifications. When other suitable specifications are available which will adequately describe the 

materials, equipment, and fixtures to be used on the job, this form need not be used.

B. Review and Approve the Drawings andSpecifications

Once the drawings and specifications are finished, the Loan Originator should review them 

to ensure that they have been certified as meeting the Agency’s minimum standards contained in RD 

Instruction 1924-A. The plans, specifications, calculations, and any modifications should be

certified by the design professional on Form RD 1924-25, Plan Certification, to ensure that the 

appropriate codes and standards are met. If all applicable requirements are met, the Loan Originator 

may accept the documents. If they do not meet the applicable requirements, the Loan Originator 

should inform the applicant and designer, in writing, of the deficiencies or discrepancies. Once 

these issues are resolved, the Loan Originator should review the drawings and specifications again.

5.23 PREPARING FOR CONSTRUCTION

A. Selecting the Contractor

The applicant should select the contractor who will build or rehabilitate the dwelling. The 

contractor must have a valid state contractor’s license if required in the state, and such license must 

be documented by the Loan Originator. The Loan Originator must also verify the validity of the 

license with the appropriate state entity and document the applicant’s file. For new construction,

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Paragraph 5.23 Preparing for Construction

the applicant will usually have a contractor in mind. For rehabilitation, the applicant will provide an 

adequate number of bid(s) from a qualified contractor(s).

The local office must review the bid(s) obtained to ensure costs are reasonable for the area 

serviced, the number of bid(s) are sufficient, and clearly identify the work and materials to be 

furnished. Bids should be solicited based on the developed set of specifications. Detailed 

specifications must include a complete breakdown on materials and labor and describe the 

quantity, quality, grades, styles, model numbers, etc.

The development budget may include an amount for contingencies not to exceed five 

percent of the construction cost for unusual and unforeseen circumstances beyond the contractor’s 

or borrower’s control (e.g. a major disaster in the region that causes an increase in materials and 

subcontracted labor costs). The contractor and borrower must submit a signed change order to the 

Loan Approval Official for concurrence to use the contingency funds. Contingency funds may 

also be used for other eligible loan purposes when approved by the Loan Approval Official. If 

not used, contingency funds will be deobligated or applied as a principal curtailment before or 

after the construction loan is converted to a permanent loan.

With the exception of approved manufactured dealer-contractors, the Agency should not 

maintain a list of approved contractors and an in-depth investigation of a contractor by the Agency 

is not required unless the surety requirements are triggered and an exception by the State Director is 

being considered. The need for an in-depth investigation should be rare; refer to RD Instruction 

1924-A for further guidance. While a list of approved contractors should not be maintained, the 

Agency should give the applicant general advice on selecting a contractor (e.g. the benefits of 

“shopping around”, ask for and check references, check the contractor’s record with the Better 

Business Bureau, etc.).

B. Pre-Construction Conference

Once the contractor has been selected and the funds have been obligated, the Agency, the 

applicant, the designer (if applicable), and the contractor should hold a pre-construction conference. 

The purpose of the conference is to ensure that each party understands their respective roles and 

responsibilities. The parties should review the drawings and specifications to make sure everyone 

understands the scope of work, construction/thermal standards, environmental mitigation 

requirements, materials, inspection, change orders, and payment procedures. In addition, the 

contractor must be advised that should human remains, historic or cultural resources be uncovered 

during excavation or site development, all work must be stopped until an additional environmental 

analysis is completed.

For new construction or rehabilitation, the Loan Originator should provide Exhibits F and 

G of RD Instruction 1924-A to the contractor at or before the preconstruction conference. These 

exhibits give details on the completion assurance (surety) that the contractor can elect to obtain. 

The Loan Originator also should provide the “Equal Employment Is The Law” poster, which 

explains the requirements of applicable fair labor standard laws to the contractor to post at the 

work site.

(01-23-03) SPECIAL PN

Revised (12-08-22) PN 572

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HB-1-3550

Paragraph 5.23 Preparing for Construction

The Loan Originator should prepare an agenda before the meeting and take minutes during 

the meeting. All parties should review and sign these minutes to indicate their approval. The Loan 

Originator may use Form RD 1924-16, Record of Pre-Construction Conference, or Attachment

12-F (for 504’s) as a basis for preparing the agenda and recording the minutes.

To prepare for loan closing, the contractor and applicant should undertake any preconstruction activities necessary to ensure that construction can begin shortly after closing. This 

might include getting building permits and lining up material suppliers.

C. Construction Contract

For new construction, a written construction contract is always required. Written contracts 

are strongly recommended for all rehabilitation-related construction and are required if there is a 

contract that exceeds $10,000 and/or there is construction work involved that would affect the 

dwelling’s structural integrity (otherwise, a rehabilitation plan with cost estimates and bid 

specifications may be used). The applicant and contractor must sign the construction contract no 

later than at the pre-construction conference.

The Agency is not a party to this contract; however, the Agency provides many forms 

that should be executed during the preconstruction conference (at or before closing) when 

contracts exceed $10,000 for any single contractor, including:

• Form RD 1924-6, Construction Contract;

• Form RD 400-1, Equal Opportunity Agreement;

• Form RD 400-3, Notice to Contractors and Applicants;and

• Form RD 400-6, Compliance Statement.

D. Department of Labor Notification

For contracts greater than $10,000, the Loan Originator must prepare a letter within 10 days

after the contract is signed to notify the U.S. Department of Labor (DOL) of the execution. The letter 

notifies the U.S. Department of Labor of the contract period and amount, and the contractor’s name, 

address, and employer identification number. Exhibit C of RD Instruction 1901-E provides a format 

for the Loan Originator to use. To obtain the most current DOL address, visit the DOL website 

https://www.dol.gov/ofccp/contacts/regkeyp.htm

5.24 CONSTRUCTION PERIOD

Once the construction contract is in place, construction can begin. All construction work 

should be inspected periodically in accordance with RD Instruction 1924-A to ensure that the work 

is done properly. When Agency staff perform an inspection, Form RD 1924-12 Inspection Report 

should be retained in the borrower’s case file. The borrower should attend all inspections and be 

available to sign checks if payment is approved for the completed work.

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HB-1-3550

Paragraph 5.24 Construction Period

A. Qualified Inspector

The borrower will be responsible for 

making inspections necessary to protect their 

interest. Agency inspections are to protect the 

Agency’s interest and to ensure the

completion of construction or rehabilitation without implication of duty or obligation to the 

borrower. The final inspection can be conducted by the Loan Approval Official/Originator, or by a 

qualified third party. Inspections fees from third parties, like building permits, are eligible loan 

purposes. The inspector must be qualified to perform a construction inspection. A qualified third 

party includes, a local building official, an inspector certified by a nationally recognized home 

inspection entity, or a state-licensed inspector who inspects property according to the International 

Code Council (ICC). The ICC publishes the International Building Codes used by most of the 

jurisdictions within the United States. An appraiser may perform a completion valuation inspection 

but this report is not sufficient for the Agency’s purpose without other supporting documentation 

such as a certificate of occupancy, or a final inspection from a local building official or other 

qualified third party.

A qualified third party inspector should be able to execute each of the following, as 

applicable:

• Inspecting for conformity with development plans and building codes, with written 

reports, at footing, framing, and final project phases.

• Preparation of additional inspection reports to include an analysis of the project’s 

progress and quality of workmanship. Reports may include notes from 

teleconferences, inspection reports, video and/or photos.

• Issue specific and critical activity reports, video or photos of apparent errors or 

problems with workmanship.

• Document and evaluate any expressed opinion, fact, and observation by the owner, 

third party inspector, or building/code official.

• Document discussions with the owner, inspector(s) and contractor.

B. Periodic Inspections

If inspections are conducted by a third party, the inspector should submit periodic inspection 

reports to the Agency. The number and timing of inspections varies by the type and extent of work 

performed. When concerns are raised by the inspector, contractor, borrower, or Agency staff, clear 

communication between the parties is critical to successful completion of the work.

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(01-23-03) SPECIAL PN

Revised (12-08-22) PN 572

Borrower’s Responsibility 

for Inspection

The borrower is responsible for making 

inspections to protect his or her interest. The 

Agency’s inspections are not intended to assure 

the borrower that the house is built according to 

the approved plans and specifications.
HB-1-3550

Paragraph 5.24 Construction Period

• New construction. Inspections may be conducted as necessary, but a minimum of 3 

generally are required: (1) footings while under construction; (2) after the dwelling 

is framed-in; and (3) a final inspection once all work is complete.

• Substantial rehabilitation. A new addition, remodeling, moving walls, changing the 

foundation, or structural integrity of the home are examples of substantial 

rehabilitation. It is more complex than simple repairs and oftentimes affects multiple 

major components of the dwelling. This type of work generally requires permits and 

inspections by the local building department. All rehabilitation work must be 

inspected, but the Agency does not prescribe specific guidelines for inspecting 

rehabilitation work that does not involve new construction. A qualified third-party 

inspector may be used and should inspect at intervals that are appropriate for the 

complexity of the work. The Loan Originator may also rely on current media (photos, 

video) and third-party inspection reports, which are quickly and easily transmitted, to 

render an effective remote assessment for compliance determinations.

• Final Inspection: The following documents should be submitted prior to final 

payment and the Loan Originator should address the acceptability of the 

documentation and the completed repairs in the running record:

◊ The forms listed in Paragraph 5.27.

◊ Borrower’s written acceptance of the completedwork.

◊ Photos of the completed work as provided by the borrower and/orcontractor.

◊ A copy of a third-party inspection (if applicable).

• Environmental requirements. If environmental mitigation measures are required, 

the Agency’s inspector should follow up on the implementation of such measures and 

document compliance on Form RD 1924-12. Noncompliance with environmental 

mitigation measures must be reported promptly to the Loan Originator and the SEC.

C. Partial Payments

Partial payments for work completed can be issued after each inspection. The contractor and 

Loan Originator establish a draw schedule before loan closing. This schedule identifies when 

partial payments may be made, based on the amount of work completed. The amount of the

payment is typically based on the value of the work, according to Exhibit A of RD Instruction 

1924-A, or the Marshall and Swift guidelines. To ensure that all work will be satisfactorily 

completed, 40 percent (or a lesser percent if required by state law) of each payment request is 

typically withheld until all of the work items established in the draw schedule are complete 

and final payment is made, as described in Paragraph 5.27. The amount withheld can be 

reduced to 10 percent if the contractor obtains a Surety Bond, Performance Bond, or Payment 

Bond, but this is extremely rare.

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HB-1-3550

Paragraph 5.24 Construction Period

D. Changes DuringConstruction

If changes to the approved drawings and specifications are required during construction, the

applicant and contractor must sign Form RD 1924-7, Contract Change Order. All modifications 

must be certified on Form RD 1924-25, Plan Certification, if the modification is regulated by the 

applicable development standard. Before signing it, the Loan Approval Official must review and 

sign the change order to ensure that the change fits within the approved loan amount and the funds 

are being used for an eligible loan purpose.

If the change order does not fit within the approved loan amount, several courses of action 

are possible:

• If the change is necessary and the borrower has repayment ability, the Agency may 

make a subsequent loan for the amount required to pay for the change;

• The scope of work may be scaled back to accommodate the change;

• The Agency may increase the loan amount if it can be supported by the appraisal, the 

cost of the property remains below the applicable area loan limit, and the borrower has 

repayment ability; or

• The borrower may be required to provide additional cash.

The environmental review for the project must be amended if there are changes to plan and 

specifications during construction (with or without the provision of additional financial assistance), 

which will alter the purpose, operation, location, or design of the project as originally approved.

5.25 CONSTRUCTION CLOSEOUT

Once construction or rehabilitation work is satisfactorily completed, the Agency will make 

final payment to the contractor. Before that can occur, the Loan Originator must ensure that the 

work has been done properly and that no one will make any claims against the property(such as 

dissatisfied subcontractors). The Agency provides several forms to help the Loan Originator close 

out the construction process, as listed below.

• Certificate of Contractor’s Release. Form RD 1924-9, Certificate of Contractor’s 

Release must be signed by the contractor; it certifies that the work has been completed 

according to the drawings and specifications and the Agency’sstandards.

• Release by Claimants. The contractor must have each subcontractor used during 

construction sign Form RD 1924-10, Release by Claimants. It certifies that the contractor 

has paid each subcontractor and that there are no outstanding claims against the property 

for work performed.

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(01-23-03) SPECIAL PN

Revised (12-08-22) PN 572
HB-1-3550

Paragraph 5.25 Construction Closeout

• Builder’s warranty. A warranty is a guarantee of the quality of work or materials. 

The Agency must have a copy of 1 of the 2 acceptable forms of builder’s warranties 

as listed below (the applicant keeps the original).

◊ Form RD 1924-19, Builder’s Warranty is a 1-year warranty provided to the 

borrower by the contractor after the construction work has been accepted by the 

borrower and the Agency. A builder’s warranty is issued for new construction (or 

rehabilitation involving construction) that has had appropriate periodic inspections 

conducted by the Agency (or third party). The warranty guarantees that the builder 

will repair or replace any defects in materials or construction that occur within 1

year from the date of acceptance. The Servicing and Asset Management Office 

(Servicing Office) will be responsible for notifying the borrower of the expiration 

of the builder’s warranty within eleven months of acceptance of the final 

inspection

◊ An insured 10-year warranty is purchased by the builder and insures the 

borrower against builder defaults and/or major structural defects. This policy is 

typically used when the borrower is purchasing an existing or newly 

constructed dwelling and the Agency does not have acceptable documentation 

of construction quality. If construction quality is not adequately documented, 

loans for new dwellings are limited to 90 percent of the market value plus 

allowable excess costs (see Paragraph 6.7).

However, a builder may provide an insured 10-year warranty as acceptable 

documentation of construction quality so that the Agency may loan 100 percent 

of the market value plus allowable costs, provided the policy is non-refundable 

or cancellable, the policy is from an insurance company licensed to do business 

in the state where the property is located, and the coverage includes (from 

effective date) at least one year for any defects caused by faulty workmanship 

or defective materials, two years coverage on major systems (e.g., electrical, 

plumbing, HVAC), and ten year structural defect coverage.

• Other documentation. The Agency should maintain the following documentation, 

if applicable:

◊ Certificate of Occupancy (in some localities, a certificate of occupancy from 

the local authority is required before a new or renovated structure may be 

occupied);

◊ Copies of building permits;

◊ Form RD 1924-25, Plan Certification;

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Paragraph 5.25 Construction Closeout

◊ Certifications regarding the adequacy of all systems, as described in Paragraph

5.7 A.; and

◊ Additional certifications and warranties, including insulation, carpet,major 

equipment and appliances.

◊ Thirty days after the final inspection and issuance of the Builder’s Warranty, the 

Loan Originator will send Guide Letter 1924-1 of RD Instruction 1924-F informing 

the borrower that financial assistance may be available to them under the

Compensation for Construction Defects Program.

5.26 SPECIAL SITUATIONS

A. Funds Remaining AfterCompletion

When all planned construction or rehabilitation work has been completed, remaining loan 

funds may be used for any additional authorized loan purposes agreed upon by the applicant and the 

Agency. The Loan Originator must document the purposes for which the funds disbursed to the 

borrower will be used. The Loan Originator should adjust the development plan accordingly. Once 

the work is complete, the Loan Originator should maintain documentation of the work performed, 

such as invoices and receipts for materials, equipment or supplies. If no agreement can be reached, 

the Agency should apply the funds to the borrower’s outstanding principal balance.

B. Construction Disputes or Work That Is Not Progressing:

If construction or rehabilitation work cannot be completed because the contractor is unable or

unwilling to do so, whether due to dispute with the borrower or some other reason, and the applicant 

is unable to obtain another contractor (even with the Agency’s assistance), funds should be applied to 

reduce the borrower’s principal balance. The Agency is not a party to, or arbiter of a contract, and in 

the case of a dispute the contractor and borrower must use good-faith efforts to reach an agreement 

between themselves so the construction can continue in the best interest of all parties. Agency staff 

may assist with communication between the parties, at the Agency’s discretion, but the borrower and 

the contractor are the responsible parties for resolving a dispute, to effectively not put the Agency’s 

security at risk.

Agency Field Staff should act promptly upon learning that a dispute has delayed, or will 

likely delay, the completion of the subject property. A letter should be sent to the borrower that 

summarizes the current situation and requests the borrower’s action plan within 30 days of the 

Agency’s letter. The letter should include:

• The current state of construction (as observed or reported),

• Agency known and/or borrower’s claims of deficiencies,

HB1-3550

(01-23-03) SPECIAL PN

Revised (12-08-22) PN 572

5-41
HB-1-3550

Paragraph 5.26 Special Situations

• Funds remaining to complete construction (SBA and/or funds not yet drawn),

• Remaining construction period per the contract,

• Options the borrower has, including:

o Resolving the dispute with the contractor, including correcting any 

deficiencies if applicable. Form RD 1924-7, Contract Change Order, must 

be executed if there are material changes to design/features/materials, 

additional costs are incurred, or timeframe for completion needs to be 

extended.

o Review Form 1924-6, Construction Contract, to determine if there is 

cause to terminate the contract, and if so, work with the Agency to 

determine the appropriate payment to be authorized for any work in place.

o Select a new contractor to complete the construction with the remaining 

funds (after original contractor has been notified of termination).

o Sell the property to the contractor, investor, or other third party for an 

amount sufficient to pay the outstanding Agency debt (a short sale may be 

considered if it is in the Agency’s best interest).

• Actions the Agency may take if a resolution is not reached within a specific and 

reasonable timeframe:

o Convert the construction loan to a permanent loan (even if construction is 

not yet completed and/or the borrower is not occupying the property), 

which will require the borrower to begin repayment at the full note rate. 

Payment assistance may be activated only if the borrower is occupying the 

home and they have submitted all required documentation, including final 

inspection or certificate of occupancy.

o Return any unused loan funds in a supervised bank account to the 

Servicing Office as a principal curtailment on the permanent loan.

o Provide the borrower Guide Letter 1924-1 regarding compensation for 

construction defects claims in accordance with RD Instruction 1924-F 

(see Paragraph D, below).

o Once converted, assuming other alternatives have been unsuccessful, 

notify the Servicing Office for their review of servicing options, including 

nonmonetary default foreclosure actions.

Agency staff may be asked by contractors and subcontractors for payments of

completed work and/or materials during a dispute. However, the Agency may not disburse any 

payment to a contractor without the borrower’s written authorization (e.g., borrower’s 

countersignature on the check).

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HB-1-3550

Paragraph 5.26 Special Situations

C. Deceased Borrowers

If a borrower dies before funds are disbursed for completed construction or rehabilitation 

work, the Loan Originator may authorize payment for work completed when there is written 

evidence (such as a letter) that the work was accepted as complete and satisfactory by the borrower 

or an authorized representative, and an authorized Agency representative has inspected the work and 

found it satisfactory. The authorized representative can endorse the check on behalf of the deceased 

borrower. If there is no authorized representative or the contractor files a mechanics lien, advice 

from the Office of the General Counsel (OGC) should be sought to ensure the Agency’s interests are 

protected.

D. Compensation for Construction Defects

RD Instruction 1924-F defines a newly constructed dwelling. The Government may pay 

for major defects in dwelling construction that are not repaired adequately by the builder (such 

defects are usually the result of poor workmanship, and the contractor refuses to repair the defect 

or the repairs are inadequate) only in dwellings that meet the eligibility requirements. To be 

eligible, the borrower must submit a claim to the Field Office within 18 months after the date the 

borrower signs the final inspection report. Guidance on how to notify borrowers of this policy, as 

well as instructions on how to implement the policy, can be found in RD Instruction 1924-F. This 

option should only be used as a last resort after all other actions to correct the defects have failed.

5-43

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Revised (12-08-22) PN 572
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Attachment 5-A 

Page 1 of 12

ATTACHMENT 5-A

STATEMENT OF WORK (SOW) FOR APPRAISAL SERVICES AND 

APPRAISAL INSTRUCTIONS SINGLE FAMILY HOUSING

RESIDENTIAL PROPERTY

BACKGROUND: USDA Rural Development (RD) provides direct loans to eligible applicants 

for single family housing (SFH) residential property. To support this program, RD requires 

qualified appraisers to provide appraisal services, in accordance with 7 Code of Federal 

Regulations (CFR) Part 3550, at https://www.rd.usda.gov/files/3550appendix01.pdf.

OBJECTIVE: High quality appraisals to determine market value of SFH residential properties 

are key to ensuring the Agency obtains adequate security for its loans.

1. REQUIREMENTS FOR APPRAISALS:

A. The appraiser(s) signing the appraisal must be currently licensed in the state where the 

subject property is located as a Certified General, Certified Residential, or Licensed 

Appraiser. The appraiser shall be identified as active on the Appraisal Subcommittee 

website (www.asc.gov) at time of award and maintain professional errors and omissions 

insurance coverage in accordance with local and state government requirements. The 

appraiser shall have the specialized knowledge and experience necessary to be competent 

to appraise single-family housing.

A trainee may sign the report. If a trainee signs the report, the trainee’s registration shall be 

provided to RD and the qualified appraiser shall sign as Supervisory Appraiser and 

personally inspect the subject property.

If an appraisal assignment is awarded to a contractor not holding an appraisal license, the 

awarded contractor may subcontract the appraisal assignment (or any part of it) to a 

qualified appraiser as outlined above with prior written consent of the RD Contracting 

Officer (CO). In the event of subcontracting the assignment, the contractor must also 

adhere to any licensure requirements imposed by any entity having jurisdiction in the state 

where the property is located.

If required by RD, the appraiser(s) signing the report shall defend the appraisal in court or 

in the RD appeals process. Cost associated with the defense of the appraisal, when 

necessary, will be negotiated under a separate purchase order/contract.

Except where noted herein, the contractor or appraiser shall provide all facilities, materials, supplies, 

tools, equipment, personnel, and travel to accomplish the performance of the requirements of this 

agreement.

(01-23-03) SPECIAL PN

Revised (12-08-22) PN 572
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Attachment 5-A 

Page 2 of 12

B. The appraisal must comply with the current edition of the Uniform Standards of 

Professional Practice (USPAP) and agency requirements as described in Handbook-1-

3550 https://www.rd.usda.gov/files/hb-1-3550.pdf , Handbook-2-3550, Chapter 2,

https://www.rd.usda.gov/files/3550-2chapter02.pdf , together with 7 CFR 3550 as 

applicable to all additional appraisal requirements 

https://www.rd.usda.gov/files/3550appendix01.pdf, and Rural Development Instruction 

1922-A, https://www.rd.usda.gov/files/1922a.pdf.

C. All appraisals for RD will provide market value based on the following market value 

definition used by federally insured financial institutions; Title XI of the Financial 

Institutions Reform and Recovery Enforcement Act of 1989; Definition of Market Value 

(12 U.S.C. 1818,1819):

Definition of Market Value:

Market value means the most probable price which a property should bring in a 

competitive and open market under all conditions requisite to a fair sale, the buyer and 

seller each acting prudently and knowledgeably, and assuming the price is not affected by 

undue stimulus. Implicit in this definition is the consummation of a sale as of a specified 

date and the passing of title from seller to buyer under conditions whereby:

(1) Buyer and seller are typically motivated;

(2) Both parties are well informed or well advised, and acting in what they consider their 

own best interests;

(3) A reasonable time is allowed for exposure in the openmarket;

(4) Payment is made in terms of cash in U.S. dollars or in terms of financial 

arrangements comparable thereto; and

(5) The price represents the normal consideration for the property sold unaffected by 

special or creative financing or sales concessions granted by anyone associated with 

the sale.

D. The appraisal must be completed using the most recent version one of the following forms: 

Fannie Mae Form 1004/Freddie Mac Form 70, "Uniform Residential Appraisal Report," for 

all one-unit, single family dwellings; Fannie Mae Form 1004C/Freddie Mac Form 70B, 

“Manufactured Home Appraisal Report,” for all manufactured homes; Fannie Mae Form 

1073/Freddie Mac Form 465, “Individual Condominium Unit Appraisal Report” for all 

individual condominium units; Fannie Mae Form 2055/Freddie Mac Form 2055, "ExteriorOnly Inspection Residential Appraisal Report," for all one-unit, single family dwellings for 

all properties when there is no visual inspection of the interior required or requested by RD; 

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

Report”.
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Attachment 5-A 

Page 3 of 12

2. TYPES OF VALUES:

Depending on the purpose of the appraisal, an appraiser will either determine the estimated 

market value of the property in its current condition (the “as-is” value) or; determine the 

estimated market value of the property, based on completion of construction in accordance 

with plans and specifications, or completion of rehabilitation based on a list of repairs to be 

considered (the “as-improved” value). https://www.rd.usda.gov/files/3550-1chapter05.pdf

(Handbook-1-3550, Chapter 5 (5.15))

A. As-Improved value (Value Subject to Completion) - Loans for planned new construction 

or rehabilitation require an estimate of the “as-improved” value considering all

construction / repairs / rehabilitation are complete.

B. As-Is value – Loans for existing dwellings (including a new construction dwelling that 

has been completed at the time of appraisal) involving no repairs require an as-is value. 

As-is value appraisals may also be needed to support loan servicing actions or to 

determine a disposition plan for real estate owned (REO)properties.

C. Liquidation Value – Liquidation appraisals may be needed to support loan foreclosure 

actions or to determine a disposition plan for real estate owned (REO) properties.

Liquidation Value, is defined as:

The most probable price that a specified interest in property which a property should 

bring under the following conditions:

1. Consummation of a sale within a short time period;

2. The property is subjected to market conditions prevailing as of the dateof 

valuation ;

3. Both buyer and seller are acting prudently andknowledgably;

4. The seller is under extreme compulsion to sell;

5. The buyer is typically motivated;

6. Both parties are acting in what they consider to be their bestinterests;

7. A normal marketing effort is not possible due to the briefexposure time;

8. Payment will be made in cash in US dollars (or the local currency) or in termsof 

financing arrangements comparable thereto;

9. The price represents the normal consideration for the property sold unaffected by 

special or creative financing or sales concessions granted by anyone associated 

with the sale.

Source: Appraisal Institute, The Dictionary of Real Estate Appraisal, 6th Ed., (Chicago: 

Appraisal Institute, 2015):

(01-23-03) SPECIAL PN 

Revised (06-21-18) SPECIAL PN
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Attachment 5-A 

Page 6 of 12

3. SPECIAL INSTRUCTIONS:

A. Loan Servicing Appraisal - In the event the appraiser is requested to complete an 

appraisal for a servicing action such as foreclosure, short sale, deed-in-lieu, etc., an 

appraisal reflecting the market value of the property in its “as-is” condition is necessary 

for RD use.

Additionally, the appraiser shall provide under the same cover within the addenda, a 

liquidation value estimate for the subject property, as defined in Item 2, considering a 

prescribed marketing period of 30 days.

Typically, when a property in foreclosure is occupied, the appraiser will not be required to 

gain access for a visual inspection of the interior of the subject property. In this case, the 

appraiser must complete the appraisal report on the Fannie Mae Form 2055/Freddie Mac 

Form 2055, “Exterior-Only Inspection Residential Appraisal Report” unless specifically 

instructed otherwise by RD. The report must include an extraordinary assumption that 

there was no visual inspection to the interior and details of the sources being used for the 

interior components and the assumed condition of the interior. 

https://www.rd.usda.gov/files/3550-1chapter13.pdf (Handbook-1-3550, Chapter 13 

(13.17) (C) (3).

B. Subsidy Recapture Appraisal – The appraiser must complete an as-is market 

value appraisal.

The appraiser must provide the estimated contributory value of all capital improvements 

added to the subject property from original date of purchase as specified / indicated by the 

owner. In the event the appraiser cannot determine from local records what capital 

improvements may have been added, the appraiser may contact the Authorized Government 

Representative (AGR) to determine if original loan records detail historic property 

conditions. Each capital improvement must be noted individually. The appraiser must 

provide the estimated contributory amount of market value, if any, for each capital 

improvement item. Items considered to be general maintenance are not considered to be 

capital improvements. Values shall be supported by market evidence or other valuation 

methods deemed appropriate by the appraiser. https://www.rd.usda.gov/files/3550-

2chapter02.pdf (Handbook-2-3550, Chapter2 (2.23) (8)
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Attachment 5-A 

Page 5 of 12

4. APPRAISAL METHODOLOGY

RD requires appraisers to use the following appraisal methods to arrive at a final estimate of 

value.

A. Sales Comparison Approach: Under this method, the appraiser uses the recent sales prices 

of properties that are comparable in location and characteristics to the subject property in 

order to estimate a market value for the property. The appraiser must use at a minimum 

three (3) comparable closed sales of single family residential properties that sold in the 

previous 12 month period unless the appraiser provides documentation that such 

comparable transactions are not available in the area. Comparable sales should be located 

as close as possible to the subject dwelling, from within the competitive market area, and 

should be the most comparable available for purposes of valuation.

B. Cost Approach: This method is specified in Handbook 1-3550, Chapter 5, found at this 

web address, http://www.rd.usda.gov/files/3550-1chapter05.pdf. For all proposed 

construction or all homes having an age of one year or less, RD requires that the 

appraiser develop, report and reconcile the cost approach to value. On homes over one 

year of age, the appraiser should determine whether the cost approach is relevant or 

necessary to determine a valid opinion of market value. This determination must be 

developed and reported in accordance with the USPAP.

Under this method, the appraiser derives an estimate of value using replacement cost 

estimates for the improvements, less depreciation of all forms, and then adding an 

estimate of the site value.

The appraiser will identify the source of cost estimates, such as Marshall and Swift 

Residential Cost service, local builder’s cost data or other national

publication for residential costs, used in the cost approach. The methodology used to 

estimate depreciation must be stated in the report.

Properties in remote rural areas, on tribal lands (American Native and Alaskan Native), areas 

with a lack of market activity, or those representing a leasehold interest, where it may be 

difficult to obtain adequate comparable sales to be used for comparative purposes in order to 

appraise a property. In these areas, the sales comparison approach is not required. Instead, 

Marshall & Swift Form 1007, Square Foot Appraisal Form, must be used.

Remote rural areas are identified by RD and are defined as areas lacking sufficient 

market activity and having the following characteristics:

• Scattered population;

• Low density of residences

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Revised (02-15-19) PN 521
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Attachment 5-A 

Page 6 of 12

C. Income Approach: Under this method, the appraiser derives a value indication for an 

income-producing property by converting its anticipated benefits (cash flows and 

reversion) into property value. This conversion can be accomplished in two ways. One 

year’s income expectancy can be capitalized at a market-derived capitalization rate or at a 

capitalization rate that reflects a specified income pattern, return on investment, and 

change in the value of the investment. Alternatively, the annual cash flows for the 

holding period and the reversion can be discounted at a specified yield rate.

The Income Approach method of valuation may only be used for Agency NonProgram Properties such as Real Estate Owned (REO) or Non-Program Loan 

Assumptions.

USPAP Standards Rule 2-2 (a) (viii) require the appraisal report to summarize the 

information analyzed, the appraisal methods and techniques employed, and reasoning 

that supports the analyses, opinions, and conclusions; and also, exclusion of the sales 

comparison approach, cost approach, or income approach must be explained.

5. APPRAISAL REQUIREMENTS:

A. The appraiser signing the appraisal report must understand and agree that RD is the client, 

and all reports must be addressed to USDA – Rural Development. The intended user of 

the report will be RD and any other intended user specified by the agency. Any questions 

relating to agency requirements of the appraisal assignment should be directed to the AGR 

and will not be directed to the property owner, real estate agent, builder/contractor, or any 

other party to the transaction. Communication relating to the assignment, directed

B. to the AGR, can come from the appraiser signing the appraisal report or the contractor 

selected for the assignment and in all instances RD staff will be granted permission to 

directly communicate with the appraiser signing the report.

C. The appraisal report must be Uniform Appraisal Dataset (UAD)compliant.

D. A property contact person will be provided by the AGR and ensure the appraiser has access 

to the subject property for inspection, unless the property is occupied and the appraisal is 

for foreclosure purposes. In this situation, a drive-by / exterior only appraisal shall be 

conducted utilizing the extraordinary assumption the condition of the exterior of the 

dwelling indicates a similar condition for the interior.
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Attachment 5-A 

Page 7 of 12

Appraisal fees or turnaround times must not be discussed with the property contact, the 

property owner or the borrower. The appraiser must notify the AGR immediately if any of 

the following occurs:

(1) The appraiser cannot gain adequate access to theproperty;

(2) The appraiser does not receive essential property information in a timely manner;

(3) The appraiser has previously appraised or is in the process of appraising the property 

for another client; or

(4) The appraiser has any other potential conflict of interest with respect to 

the assignment.

E. If appropriate, the RD Field Office will prepare a list of repairs needed to insure the 

property meets the Agency regulations and guidance. The list of repairs, which is based on 

the inspection reports prepared by state-licensed inspectors or qualified third-party 

inspectors hired by the applicant will be provided to the appraiser for the purpose of 

obtaining an “as-improved” value. The list of repairs shall be provided by the RD Office 

processing the loan application. The appraiser is responsible to take into account the RD 

required repairs and must include the list of repairs in the addendum of the appraisal 

report.

F. The appraiser must provide an opinion of site value supported by a narrative of 

comparable land sales or other methods used for estimating site value. If support is not 

included in the appraisal report, a statement by the appraiser that such information is 

available for review upon request and in the appraiser’s work file should be made. The 

land must be valued as though vacant and ready for development.

• The appraiser must specify whether the site is or can be subdivided into more 

than one site under existing local zoning ordinances.

• The appraiser shall discuss the site size and the concluded site value and 

whether they are typical for the subject market.

• Any land area of the subject property that is determined by the appraiser as 

either excess land or surplus land must be addressed and valued accordingly 

together with documentation and support within the appraisal report for the 

appraiser’s conclusions.

G. In addition, the appraisal report for a manufactured home must also meet thefollowing 

requirements:

(1) Cost Approach: Manufactured Home Appraisal Reports will require a published 

cost data service such as the Marshall and Swift Residential Cost Guide or the

N.A.D.A. Manufactured Housing Appraisal Guide calculations to be included. The 

appraiser must take at least one of those values into consideration in arriving at a 

value conclusion.

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Revised (02-15-19) PN 521
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Attachment 5-A 

Page 8 of 12

(2) Sales Comparison Approach: The appraisal report must contain at least two 

comparable manufactured home sales of similar configuration and quality. The 

appraiser may use either site-built housing or a different type of factory-built housing 

as the third comparable sale if the appraiser explains the reason for selecting the 

comparable and support the appropriate adjustments in the appraisal report.

H. All extraordinary assumptions, hypothetical conditions, and limiting conditions must be 

clearly and prominently described in a single location near the beginning of the report 

and in appropriate sections of the appraisal. General assumptions and limiting conditions 

that reduce the normal scope of appraisal due diligence are not allowed.

I. The appraiser must keep all information and materials furnished by Rural Development, the 

owner, and/or property contact regarding the subject property confidential, as required by 

USPAP and the Gramm-Leach-Bliley Act (also known as the Financial Services 

Modernization Act of 1999). Any information obtained through public sources is not 

considered confidential information. Disregard of this privacy requirement will be cause 

for immediate debarment as a contractor for the federal government.

J. All appraisals must comply with the Fair Housing Amendments Act of 1988. 

According to the Act, it is unlawful for an appraiser to use factors that are 

discriminatory on the basis of race, color, religion, sex, disability, familial status, or 

national origin in the sale, rental, leasing, or financing of housing.

K. Each appraisal will be submitted electronically, using the industry standard Extensible 

Markup Language (XML) appraisal data formats Mortgage Industry Standard 

Maintenance Organization (MISMO), with embedded PDF. Electronic submissions, in 

the above formats, must be emailed to the AGR as indicated on the confirmed Single 

Family Appraisal Order Form, Purchase Order, or Task Order (SF 1449).

6. OBSERVED CONDITIONS:

The appraiser is required to make a property inspection to gather data to support the 

determination of value. Readily observable conditions shall be noted.

A. The appraiser(s) signing the appraisal report must make at a minimum a personal inspection 

of the subject (interior and exterior) unless the appraisal is for foreclosure purposed of an 

occupied dwelling, then an exterior only inspection is required. Also, inspection of all 

comparable sales (exterior) at a minimum from the street. The appraiser must indicate that 

the subject’s interior and exterior and all comparable sales were personally inspected / 

observed within the appraisal report. Readily observable conditions must be noted for the 

following: attic space, crawl space, floors and walls for significant structural failure, 

moisture damage, or evidence of past fire damage; the roof condition for remaining life; the 

mechanical systems for operability; and all surfaces for defective paint.
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Attachment 5-A 

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B. In the event that access to the subject interior and/or exterior cannot be obtained, the 

appraiser must obtain prior authorization to continue the assignment without inspection. In 

the event RD authorizes valuation without an inspection, the appraiser must comply with 

USPAP Standard Rule 1-2 (F) which requires the appraiser to identify any extraordinary 

assumptions necessary in the assignment. The extraordinary assumption must include 

detailed disclosure of the assumed condition, the source(s) the extraordinary assumption is 

based upon and must be clearly labeled as such within the appraisal.

C. The appraiser must note any suspected environmental hazards, including issues external to 

the property that could adversely impact the property's value. Examples of environmental 

hazards would include damaged asbestos-containing building materials, underground 

storage tanks, chemical leaks, spills, staining of ground surfaces, or on-site waste disposal 

such as sludge, oil, paints, or chemical residues. If the appraiser observes any suspected 

environmental hazards, he/she must notify the AGR immediately and refrain from 

finalizing aspects of the appraisal that could be impacted until resolution of the issue or 

until instructed otherwise.

D. The appraiser must notify the AGR. In the event the appraiser observes a deficiency in 

the property that does not meet minimum property requirements, of decent, safe and 

sanitary as outlined in HB-1-3550, Paragraph 5.7. (http://www.rd.usda.gov/files/3550-

1chapter05.pdf).

E. For uninhabited dwellings where utilities are temporarily disconnected, the appraiser will 

inspect all mechanical systems (heating, plumbing, electrical) for observable conditions, 

but will not be responsible for reporting operability of these systems. Unless otherwise 

notified, the appraiser may assume operability for valuation purposes and this must be 

mentioned as an “extraordinary assumption” in the appraisal report.

F. Where applicable, appraisers should be familiar with the general provisions of “green 

properties” in single-family housing. The appraiser shall consider what impact (if any) 

such factors have on the value of the subject property. Any impact on value should be 

supported by market evidence.

G. The Mutual Self-Help Program is a housing program utilizing supervised labor 

performed by borrowers as part of the construction process. Construction conducted 

under the program is supervised by technical experts to assure the quality of its 

completion.

Appraisal of properties constructed under the Mutual Self-Help Program should consider 

construction, materials and finish will be completed in a workmanlike and professional 

manner.

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Revised (02-15-19) PN 521
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Attachment 5-A 

Page 10 of 12

7. DOCUMENTATION:

All approaches to value and the value opinion must be in accordance with acceptable 

appraisal methodology.

A. All reports must include a location map (should include proximity to applicable 

road/highway), flood plain map when the property is located in a designated flood plain, 

land sales map, sales comparable map, rent comparable map (if applicable), plat map, and 

building sketch (indicating interior building layout, garages and all external buildings).

B. For new construction, the appraisal report must include clear original color photographs of 

the subject’s front, rear, street and street easement (private access), if applicable. In all other 

appraisals colored photographs showing at a minimum the front, rear, and both sides to the

exterior. Interior photographs should be included showing each room type, attic and crawl 

spaces, other non-gross living area (sunrooms, patio/deck/porch/fences) and any noted 

structural, safety and/or sanitary deficiencies. Additionally, photographs of improvement 

components that have been upgraded shall be included to document and support the 

appraiser’s determination of the subject’s effective age if different than its actual age. A 

current original photograph of each comparable sale and listing used in the completion of 

the appraisal is required. If the comparable sale and listing photographs are not available

the appraiser should provide, at a minimum, multiple listing service photographs, whenever 

possible, along with the cited source from which the photographs were obtained.

C. The bedroom shall meet legal requirements (building code, zoning ordinance, etc.) as 

mandated by the local county/state government enforcement agency and applicable agency 

regulations where subject property is located, if any such legal requirements exist.

D. Verification from third party sources should be noted within the appraisal and maintained as 

part of the appraisers work file.

E. The appraisal shall include photographs of all external buildings as well as interior photos 

of the external buildings (if possible). The external dimensions for each of the external 

buildings must be included, preferably in the building sketch or identified in the addendum 

of the appraisal report.

The appraiser must estimate the remaining economic life of the subject's improvements, (the remaining 

number of years that the subject's improvements will contribute value to the land) and report this 

estimate in the cost approach section. An explanation is required if the remaining economic life is less 

than 30 years (the explanation is used to justify reducing the term of the mortgage to less than 30 years).
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Attachment 5-A 

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F. All appraisals of existing properties must include a discussion of deferred maintenance

for the subject property. Items of deferred maintenance must be listed, and cost to cure

for each item must be estimated with support provided.

G. All reports must include a written explanation and documentation to support individual line 

item adjustments. Total net adjustment percentages and gross adjustment percentages when 

compared with the comparable sale unadjusted sale price shall be discussed.

8. COMPLETION CERTIFICATION:

A. If determined by Rural Development (RD), the appraiser may be requested to re-inspect 

properties to determine if repairs to the home or construction of home were completed. 

RD shall determine the need for an appraiser to re-inspect a property. Re-inspection 

services may also be ordered on a separate contract if required. A list of additional repairs 

will be provided to the appraiser. Not all “subject to” appraisals will require re- inspection 

services.

B. The appraiser shall submit their findings using the Fannie Mae Form 1004D/Freddie Mac 

Form 442 “Appraisal Update and/or Completion Report.” The completed report shall be 

delivered to the AGR within 7 business days from the date the order was received. The 

report shall include pictures of completed work.

C. Re-inspection reports are due within 7 business days after notification is received 

from the AGR.

9. APPRAISAL REPORTDELIVERY DEADLINES:

The appraiser shall complete and deliver appraisals to the AGR within 10 business/working 

days or specified noted delivery time after date of order, or upon receipt of the appraisal 

information from AGR unless a different deadline is set by written mutual agreement at the 

time of order. If corrections and/or amendments to the appraisal are requested by the AGR, the 

corrections and/or amendments are to be delivered as soon as possible, but not later than 4

business days following the request unless, by written mutual agreement, other arrangements 

are made. If, for any reason the timely delivery of the appraisal report is delayed for reasons 

beyond the appraiser's control, the appraiser must contact the AGR and convey the reasons for 

the delay.

If, for any reason the timely delivery of the appraisal report is delayed for reasons beyond the 

appraiser's control, the appraiser must contact the AGR and convey the reasons for the delay.

(01-23-03) SPECIAL PN 

Revised (06-21-18) SPECIAL PN
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Attachment 5-A 

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10. REVIEW OF THE APPRAISAL REPORT:

All appraisals prepared for RD are subject to technical review by the agency. Appraisers 

must be prepared to discuss their analyses, reasoning, opinions, and conclusions.

Additionally, if requested, they must provide additional written support, clarification, and/or 

corrected appraisal pages or report. If requested by the AGR or RD’s Regional Agency 

Appraiser, they will provide assistance to monitor the progress and quality of the appraiser’s 

performance and in all instances RD Regional Agency Appraisers will be granted permission 

to directly communicate with the appraiser signing the report as part of the review process.

11. ATTACHMENTS:

The Agency will provide the appraiser all necessary support information available at the time 

of appraisal engagement.

12. COMPLIANCE WITH STATEMENTOF WORK:

The appraiser must follow all provisions and instructions contained in this Statement of 

Work. When, in the opinion of the appraiser, the Regional Agency Appraiser or the AGR 

request effort(s) falling outside this Statement of Work, the appraiser shall promptly notify 

the AGR, in writing.

The Regional Agency Appraiser or the AGR has the authority to direct the accomplishment 

of any effort which goes beyond the Statement of Work, however, any changes resulting in 

additional charges must be approved by the contracting officer prior to commencement of 

work.

If the appraiser is unable to fully comply with this Statement of Work, the appraiser must 

decline the appraisal assignment in accordance with the USPAP.

13. SPECIFIC STATE REQUIREMENTS:

None

*PLEASE NOTE: FAILURE TO FOLLOW THE STATEMENT OF WORK AND

APPRAISAL INSTRUCTIONS CAN RESULT IN DENIAL OF FUTURE

ASSIGNMENTS.*
HB-1-3550

Attachment 5-B

Page 3 of 5

ATTACHMENT 5-B

SINGLE FAMILY HOUSING SITE CHECKLIST

Buyer/Owner Name PropertyAddress

Name of Subdivision:

Year Built: 

Property is currently ( ) occupied ( ) unoccupied. Was interior accessible? ( ) Yes ( )No

1. SITESUITABILITY, ACCESS, AND COMPATIBILITYWITH SURROUNDING 

DEVELOPMENT

Has the site been used as a dump, sanitary landfill, or mine waste disposal area? ( ) Yes ( ) No If 

no, is the site in proximity to any such uses? ( ) Yes ( ) No

Is there indication of:

Yes No Yes No

distressed vegetation ( ) ( ) oil/chemicalspills ( ) ( ) 

waste material/containers ( ) ( ) abandoned machinery, cars,

soil staining, pools of liquid ( ) ( ) refrigerators, batteries, tires, etc. ( ) ( ) 

loose/empty drums, barrels ( ) ( ) transformers, fill/vent pipes,

foul odor ( ) ( ) pipelines, drainage structures ( ) ( ) 

underground or above ground

storage tanks ( ) ( )

Are there property easements for high-tension power lines or gas lines? ( ) Yes ( ) No

Are there other unusual conditions on site which might indicate potential for contamination from hazardous 

waste, hazardous substances, or petroleum products? ( ) Yes ( ) No

Is the site adjacent or in proximity to industrial areas, refineries, dry cleaners, chemical storage areas, recycling 

facilities, oil or gas wells, fueling stations, etc.? ( ) Yes ( ) No

Note: Complete a Transaction Screen Questionnaire (TSQ) for any “YES” answer in item 1 before proceeding 

further. Contact the State Environmental Coordinator with any questions.

(01-23-03) SPECIAL PN

Revised (11-03-17) PN 505
HB-1-3550

Attachment 5-B 

Page 2 of 5

Are any of the following conditions present? Check if observed and explain on page 5 of 5:

( ) mold/mildew ( ) peeling paint(interior)

( ) insect infestation ( ) peeling paint(exterior)

( ) asbestos(interior) ( ) ponding/standingwater

( ) asbestos (exterior) ( ) evidence of water runoff from adjacent properties 

( ) knowledge of past or current use for production of methamphetamine

Is the site compatible with surrounding area in terms of:

Yes No Yes No

Land use ( ) ( ) Building type ( ) ( )

Height, bulk, mass ( ) ( ) Building density ( ) ( )

Will the site be unduly influenced by:

Yes No Yes No

Building deterioration ( ) ( ) Transition of land uses ( ) ( )

Postponed maintenance ( ) ( ) Incompatible land uses ( ) ( )

Obsolete public facilities ( ) ( ) Inadequate off-street parking ( ) ( )

2. SOIL STABILITY, EROSION, ANDDRAINAGE

Slopes: ( )Not applicable ( ) Steep ( ) Moderate ( ) Slight

Is there evidence of slope erosion or unstable slope conditions on or near the site? ( ) Yes ( ) No

Is there evidence of ground subsidence, high water table, or other unusual conditions on the site?

( ) Yes ( ) No

Is there any visible evidence of soil problems (foundations cracking or settling, basement flooding, etc.) in the 

neighborhood of this site? ( ) Yes ( ) No

Have soil studies or boring been made for the site or the area? ( ) Yes ( ) No ( ) Unknown

Do the soil studies or boring indicate marginal or unsatisfactory soil conditions? ( ) Yes ( ) No

Is there indication of cross-lot runoff, swales, drainage flows on the property? ( ) Yes ( ) No

Are there visual indications of filled ground? ( ) Yes ( ) No

Are there active rills and gullies on site? ( ) Yes ( ) No

If the site is not to be served by a municipal waste water disposal system, has a report of the soil conditions 

suitable for on-site septic systems been submitted?( ) Yes () No ( ) Not Applicable
HB-1-3550

Attachment 5-B

Page 3 of 5

3. NUISANCES AND HAZARDS

Will the site be affected by natural hazards:

Yes No Yes No

Faults, fracture ( ) ( ) Fire hazard materials ( ) ( )

Cliffs, bluffs, crevices ( ) ( ) Wind/sand storm concerns ( ) ( )

Slope-failure from rains ( ) ( ) Poisonous plants, insects, animals ( ) ( )

Unprotected bodies of water ( ) ( ) Hazardous terrain features ( ) ( )

Will the site be affected by built hazards and nuisances:

Yes No Yes No

Hazardous street 

Dangerous intersection

( )

( )

( )

( )

Railroad crossing 

Inadequate screened

( ) ( )

Through traffic ( ) ( ) drainage catchments ( ) ( )

Inadequate separation Hazards in vacant lots ( ) ( )

of pedestrian/vehicle traffic ( ) ( ) Chemical tank-carterminals ( ) ( )

Traffic way ( ) ( ) Other hazardous chemical storage ( ) ( )

Inadequate street lighting ( ) ( ) High-pressure gas or liquid

Quarries petroleum transmission

or other excavations ( ) ( ) lines on site ( ) ( )

Dumps/sanitary landfills or Overhead transmission lines ( ) ( )

mining ( ) ( ) Hazardous cargo

Heavy industry ( ) ( ) transportation routes ( ) ( )

Incinerators ( ) ( ) Oil or gas wells ( ) ( )

Power generating plants ( ) ( ) Industrial operations ( ) ( )

Oil refineries ( ) ( ) Cement plants ( ) ( )

Will the site be affected by nuisances:

Yes No Yes No

Gas, smoke, fumes ( ) ( ) Unsightly land uses ( ) ( )

Odors ( ) ( ) Abandoned vehicle ( ) ( )

Vibration ( ) ( ) Vermin infestation ( ) ( )

Vacant/boarded-up Industrial nuisances ( ) ( )

buildings ( ) ( ) Other ( ) ( )

(01-23-03) SPECIAL PN

Revised (11-03-17) PN 505
HB-1-3550

Attachment 5-B 

Page 4 of 5

4. WATER SUPPLY, SANITARY SEWERS, AND SOLID WASTE DISPOSAL

Is the site served by an adequate and acceptable:

water supply ( ) Yes ( ) No ( ) Municipal ( ) Private;

sanitary sewers and waste disposal systems ( ) Yes ( ) No ( ) Municipal ( ) Private; and

trash collection and solid waste disposal ( ) Yes ( ) No ( ) Municipal ( ) Private.

If the water supply is non-municipal, has an acceptable “system” been approved by appropriate authorities and 

agencies?

( ) Yes ( ) No

If the sanitary sewers and waste water disposal systems are non-municipal, has an acceptable “system” been 

approved by appropriate authorities and agencies?

( ) Yes ( ) No

5. NOISE ABATEMENT

Is the site located near a major noise source, i.e., civil airports (within 5 miles), military airfields (15 miles), 

major highways or busy roads (within 1000 feet), or railroads (within3000 feet)? ( ) Yes ( ) No

6. AIRPORTHAZARDS

Is the project within 3,000 feet from the end of a runway at a civil airport? ( ) Yes ( ) No

Is the project within 2-1/2 miles from the end of a runway at a military airfield? ( ) Yes ( ) No

7. OTHERCONDITIONS

Are there any field conditions not specified above that would adversely affect the acceptability of the 

lots/sites? ( ) Yes ( ) No

Prepared By Date
ITEM NUMBER ADDITIONAL COMMENTS

(01-23-03) SPECIAL PN

Revised (11-03-17) PN 505

HB-1-3550

Attachment 5-B

Page 5 of 5
ATTACHMENT5-C

HB1-3550

Attachment 5-C

Page 1 of 1

AMENDMENTS TO MORTGAGES WITH LEASEHOLDINTEREST

The following paragraphs must be inserted in the mortgage. The first paragraph should be placed 

directly before the legal description of the real estate.

“All Borrower’s right, title, and interest in and to the leasehold estate for a term of 

years beginning on , 20 , created, executed and established by 

certain Lease dated , 20 , by , Page of

Records of said County and State, and any renewals and extensions thereof, and 

all Borrower’s right, title, and interest in and to said Lease, covering the following real 

estate.”

“Borrower will pay when due all rents and any and all other charges required by said 

Lease, will comply with all other requirements of said Lease, and will not surrender or 

relinquish, without the Government’s written consent, any of Borrower’s right, title, or 

interest in or to said leasehold estate or under said Lease while this instrument remains in 

effect.”

(01-23-03) SPECIAL PN

Revised (11-03-17) PN 505
ATTACHMENT 5-D

HB1-3550

Attachment 5-D 

Page 1 of 1

TRANSMITTAL COVER SHEET FOR MAPPING SYSTEM MODIFICATION

Utilize this as a coversheet to transmit your request for ineligible area re-designations or errors identified 

to the present public website mapping system. Complete all fields to avoid delays in your request.

Request: Re-designation of rural areas

Correction of Error to existing mapping system

State:

Applicable Counties:

Submitters Name -

Point of Contact:

Email Address:

Telephone #:

Form RD 2006-3, Instruction and Form Justification has been completed 

and a copy of the State Supplement to the HB-1-3550

has been approved or isincluded with thissubmission.

Documentation Submittal:

Email

Send to: RA.dcwashing3.SFHGLD(SFHGLD@usda.gov) 

AND

RA.dcwashing2.RDSFHDP(SFHDIRECTPROGRAM@usda.gov)

(When an email copy is not feasible, contact the SFH Direct Loan Division for instructions.)

Comments: Include additional information regarding errors to the present mapping system or re- designation 

comments.

(01-23-03) SPECIAL

Revised (03-19-20) PN 534
ATTACHMENT 5-E

ELIGIBILITY SYSTEM MODIFICATION REQUEST PROCESS

Instructions for Eligibility Map Changes

HB-1-3550

Attachment 5-E 

Page 1 of 6

No map changes will be processed without an approved Form RD 2006-3 showing the rural 

area changes as adopted by the state.

The preferred method of delivery is electronic. Refer to Attachment 5-E regarding the 

level of detail and process flow that occur once modified maps and text is submitted. There are 

three types of modification requests. The level of complexity (the number of modifications 

requested) determines the length of time to production implementation.

Allow ample time prior to implementation of revised ineligible areas. The RD GIS Portal is the 

preferred method for maps as they are digitized and facilitate changes to the mapping system.

Maps that require digitizing to enable posting to the public eligibility website will require 

additional time, as will substantial changes to the existing mapping system.

Occasionally states identify actual errors to the public website mapping system (i.e. a 

correction to an incorrectly coded map). This type of modification falls under Type 1 identified 

in Attachment 5-F.

Attachment 5-F is provided for visual purposes.

The following information discusses the process of requesting changes to the public 

eligibility website. It also discusses what the State Offices need to do in order to test and 

approve requested modifications. Finally, it will provide an idea of what is involved in the 

request approval process that must go through the Configuration Management & Standards 

Compliance Branch in the St. Louis DCIO office. The level of detail is provided to keep states 

abreast of the processes that must take place in order to modify the public eligibility website.

I. Modification Request Types, Request Instructions and Examples

There are 3 types of modification requests. Their descriptions are below, along with the procedure 

to complete a request. The differences are (1) the number of modifications within a request and

(2) the length of time it will take for making the modifications and their eventual deployment to 

the Production environment.

The RD GIS Portal will be used to collaborate with and convey map changes to the RD GIS 

Specialist. For further guidance, please refer to the RD GIS Portal Collaboration Guide which is 

published on the Single Family Housing SharePoint site under the Rural Areas folder.

(01-23-03) SPECIAL PN

Revised (12-08-22) PN 572
HB-1-3550

Attachment 5-E 

Page 2 of 6

* Type 1 – Basic Modification\Correction Request:

A basic modification request is a request that requires modification to the text description and/or a 

state’s eligibility map (mapping to be based at a county level). A basic modification has no more 

than 2 ineligible areas within the request. This request should include a map with an outline of the 

new or modified ineligible area. Type 1 requests (including changes to boundary lines or 

corrections to erroneous maps) take approximately one to two weeks for modifications. When 

modification is complete, the requestor will be contacted for testing. Once the maps are tested and 

approved by the requester, the implementation process will begin. The timeline for modification 

and implementation is typically 3 to 5 weeks.

* Type 2 - Moderate Modification\New Eligibility Area Request:

A moderate modification or new eligibility area request is a request that requires significant 

modifications to more than 2 ineligible areas on a state’s eligibility map (mappings being based at 

a county level), or is a newly defined ineligible area. This request should include a map with an 

outline of the new or modified ineligible area. Type 2 requests take approximately two to four 

weeks for modifications. When modification is complete, the requestor will be contacted for 

testing. Once the maps are tested and approved by the requester, the implementation process will 

begin. The timeline for modification and implementation is typically 4 to 7 weeks.

* Type 3 – Text Description Modification Request:

A text description modification request is only for text changes. Type 3 requests should contain the 

exact text the Field Office requires to be placed on the site. The text description will be utilized to 

prepare the boundary lines and will be compared to the map submitted. It is important that the text 

version clearly defines the boundaries submitted. When modification is complete, the requestor 

will be contacted for testing. Once the text version is tested and approved by the requester, the 

implementation process will begin. The timeline for modification and implementation is typically2 

to 3 weeks.
* How to request a modification, addition or correction:

HB-1-3550

Attachment 5-E

Page 3 of 6

The State Office should request changes through utilization of a transmittal similar to Attachment 

5-D. The Program Director is the state point of contact and communication regarding

modifications, additions or corrections must be transmitted through the Program Director. 

Requests will not be accepted from Field Offices. Electronic requests will be forwarded to the 

National Office at: RA.dcwashing3.SFHGLD (SFHGLD@usda.gov) and RA.dcwashing2.RDSFHDP (SFHDIRECTPROGRAM@usda.gov). Accompanying each request, the state must 

clearly indicate the type of request to be performed. The request should have detailed listings 

of all changes required by county and\or city.

The transmittal should also clearly reference what should be changed on the public eligibility map. 

Clearly referencing the changes to occur are recommended as follows: 1) If the State or Field 

Offices have access to Microsoft Word (place a copy of a map of the area to be modified into a 

Microsoft Word document. Utilize the drawing tools within Microsoft Word for highlighting 

changes that are needed. 2) If the State or Field Offices have access to Adobe Acrobat, use the 

tools to draw on an existing map. 3) Scan a hand-written modification on a printed map. The 

examples provided are suggestions to a timelier more accurate implementation of boundary line 

changes. If the State or Field Office cannot provide a detailed mapping, a text description only will 

be accepted. Insure the text version clearly defines the ineligible boundaries. Personnel from the 

Enterprise Technologies Branch in the St. Louis DCIO office will contact the requestor with any 

questions.

(01-23-03) SPECIAL PN

Revised (12-08-12) PN 572
HB-1-3550

Attachment 5-E 

Page 4 of 6

II. Testing RequestedChanges

Once the modifications have been made, they are implemented into the Test environment. Upon 

these changes being made in the Test environment, the requestors will be contacted and asked to 

review the requested modifications for approval.

The State or Field Office representatives that made the initial request should then review the 

requested changes in the Test environment. An email notification will be sent to the requestor 

notifying them of modifications implemented into the Test environment. The Test environment 

can be found at the following link:

Eligibility Test Site: https://eligibility.test.sc.egov.usda.gov/eligibility/welcomeAction.do 

The user’s e-authentication identification will be utilized to access the site.

Log into the test environment and review the changes on both the map and the text description. If 

there are any issues with what has been changed, or questions, refer those issues/questions to 

whom the email request was received from.
III. Approving Requested Changes and the ImplementationProcess

HB-1-3550

Attachment 5-E 

Page 5 of 6

Once the requestor has reviewed and approved the changes necessary for their ineligible area 

map, respond to the email requestor stating that the changes made fit the business needs of the 

State and Field Offices. The following information lists specific detail that must accompany your 

response and confirmation. The items are required by the Configuration Management process in 

order to get the changes implemented to the Certification and deployed to the Production 

environments. The items that need to be listed in the email response are:

• What county and state have been reviewed

• State that all changes made have been tested and are acceptable

• State that all changes made should be moved to the Certification and Production 

Environments

• In the email, please refer to RFA number “A-11012” and RFC number “RFC-11108”

The above listed items are a requirement for the User Acceptance letters used in the 

Configuration Management implementation process.

Once received, the Enterprise Technologies Branch (ETB) in the St. Louis DCIO office will 

create a request package for the implementation of the changes to be placed into both the 

Certification and Production environments.

There are many types of configuration implementation process. Updates to the public eligibility 

website will utilize the CERT\HOLD\PROD request type for Configuration Management 

implementation. This request type indicates changes will be implemented into the Certification 

(CERT) environment first, followed by Production (PROD) in either of the next 2 regularly 

scheduled Production releases. The implementation into the Certification environment can take up 

to one week. Additionally, a one or two week gap between implementation to the Certification and 

Production environment could occur.

Once the changes are placed into the Certification environment, the Enterprise Technologies Branch 

will be responsible for reviewing/confirming the changes in the Certification environment match 

those within the Test environment that was approved. These can be viewed at the following link:

https://eligibility.sc.egov.usda.gov/eligibility/welcomeAction.do

The user’s e-authentication identification will be utilized to access the site.

After review of the Certification environment has been completed and approved, the Production 

implementation will take place. The implementation will be completed during the next available, 

normal Production release (typically the following Wednesday, depending on the length of time it 

takes the requestor to reply to the email notification). If the Certification environment review fails, 

the Enterprise Technologies Branch will acquire the correct file structure from the approved Test 

environment and request the local Configuration Management team re-deploy the correctly 

modified files.

(01-23-03) SPECIAL PN

Revised (12-08-22) PN 572
HB-1-3550

Attachment 5-E 

Page 6 of 6

The Production environment link is as follows: 

https://eligibility.sc.egov.usda.gov/eligibility/welcomeAction.do?pageAction=sfpd

*Extraordinary Circumstances/Special Request Process

In the event that there are extenuating circumstances that require the updates be placed to the 

Production environment more timely than the typical flow, a special request process can be 

utilized. This request must be justified based on Field Office\State Office need. To submit a special 

request for an expedited implementation, the State Director must provide a justification as to the 

circumstances requiring an implementation timeline that requires attention over the typical flow of 

timelines outlined in Type 1, 2 and 3 above. The justification must indicate specific reasons for an 

expedited implementation and must confirm the need is beyond the control of the state and is not 

due to the lack of planning the change or otherwise an error on the part of the state. This 

justification will accompany the transmittal and modifications request.
ATTACHMENT 5-F

HB-1-3550

Attachment 5-F 

Page 1 of 1

ELIGIBILITY SYSTEM MODIFICATION WORKFLOW

(01-23-03) SPECIAL PN

Revised (08-21-13) PN 465