7 CFR Part 3550

Table of Contents

Appendix 1

7 CFR PART 3550 - DIRECT SINGLE FAMILY HOUSING LOANS AND GRANTS

Subpart A - General

TABLE OF CONTENTS

Sec. Page

3550.1 Applicability. 11

3550.2 Purpose. 11

3550.3 Civil rights. 11

3550.4 Review and appeals. 12

3550.5 Environmental requirements. 12

(a) Policy. 12

(b) Regulatory references. 12

3550.6 State law or state supplement. 12

3550.7 Demonstration programs. 12

3550.8 Exception authority. 12

3550.9 Conflict of interest. 13

(a) Objective. 13

(b) Applicant or borrower responsibility. 13

(c) RHS employee responsibility. 13

3550.10 Definitions. 13

3550.11 State Director Assessment of Homeowner Education. 22

3550.12 - 3550.49 [Reserved] 24

3550.50 OMB control number. 24

Subpart B - Section 502 Origination

3550.51 Program objectives. 24

3550.52 Loan purposes. 24

(a) Purchases from existing RHS borrowers. 24

(b) Refinancing non-RHS loans. 25

(c) Refinancing RHS debt. 25

(d) Eligible costs. 25

(e) Loan restrictions. 27

Appendix 1 - Page 1

(01-23-03) SPECIAL PN

Revised (05-19-16) PN 486
7 CFR Part 3550

Table of Contents

Sec. Page

3550.53 Eligibility requirements. 27

(a) Income eligibility. 27

(b) Citizenship status. 27

(c) Primary residence. 27

(d) Eligibility of current homeowners. 28

(e) Legal capacity. 28

(f) Suspension or debarment. 28

(g) Repayment ability. 28

(h) Credit qualifications. 29

(i) Homeownership Education. 30

3550.54 Calculation of income and assets. 31

(a) Repayment income. 31

(b) Annual income. 31

(c) Adjusted income. 32

(d) Net family assets. 32

3550.55 Applications. 34

(a) Application submissions. 34

(b) Application processing. 34

(c) Selection for processing. 34

(d) Applicant timeframe. 35

3550.56 Site requirements. 35

(a) Rural areas. 35

(b) Site standards. 36

3550.57 Dwelling requirements. 36

(a) Modest dwelling. 36

(b) New dwellings. 36

(c) Existing dwellings. 36

3550.58 Ownership requirements. 37

(a) Fee-simple ownership. 37

(b) Secure leasehold interest. 37

(c) Life estate interest. 37

(d) Undivided interest. 37

(e) Possessory rights. 37

Appendix 1 - Page 2
7 CFR Part 3550

Table of Contents

Sec. Page

3550.59 Security requirements. 38

(a) Adequate security. 38

(b) Guaranteed payment. 38

3550.60 Escrow account. 38

3550.61 Insurance. 39

(a) Customer responsibility. 39

(b) Amount. 39

(c) Flood insurance. 39

(d) Losses. 39

3550.62 Appraisals. 40

(a) Requirement. 40

(b) Fees. 40

3550.63 Maximum loan limit. 40

(a) Area loan limit. 41

(b) Market value limitation. 42

3550.64 Down payment. 42

3550.65 [Reserved] 42

3550.66 Interest rate. 42

3550.67 Repayment period. 42

3550.68 Payment subsidies. 43

(a) Eligibility for payment subsidy. 43

(b) Determining type of payment subsidy. 43

(c) Calculation of payment assistance. 44

(d) Calculation of interest credit. 46

(e) Annual review. 46

3550.69 Deferred mortgage payments. 46

(a) Eligibility. 46

(b) Amount and terms. 47

(c) Annual review. 47

Appendix 1 - Page 3

(01-23-03) SPECIAL PN

Revised (05-19-16) PN 486
7 CFR Part 3550

Table of Contents

Sec. Page

3550.70 Conditional commitments. 47

(a) Eligibility. 47

(b) Limitations. 48

(c) Conditional period. 48

(d) Conditional commitments involving packaging of applications. 48

(e) Fees. 49

(f) Failure of conditional commitment applicant or dwelling to qualify. 49

(g) Changes in plans, specifications, or commitment price. 49

(h) Builder’s warranty. 49

3550.71 Special requirements for condominiums. 49

3550.72 Community land trusts. 51

3550.73 Manufactured homes. 51

(a) Eligible costs. 51

(b) Loan restrictions. 52

(c) Dealer-contractors. 52

(d) Loan term. 52

(e) Construction and development. 52

(f) Contract requirements. 52

(g) Lien release requirements. 52

(h) Warranty requirements. 53

3550.74 Nonprogram loans. 53

(a) Purpose. 53

(b) Terms. 53

(c) Additional requirements. 54

(d) Reduced restrictions. 54

(e) Waiver of costs. 54

3550.75 Certified loan application packaging process. 54

3550.76 - 3550.99 [Reserved] 58

3550.100 OMB control number. 59

Subpart C - Section 504 Origination and Section 306C 

Water and Waste Disposal Grants

3550.101 Program objectives. 59

Appendix 1 - Page 4
7 CFR Part 3550

Table of Contents

Sec. Page

3550.102 Grant and loan purposes. 59

(a) Grant funds. 59

(b) Loan funds. 59

(c) Eligibility of mobile and manufactured homes. 59

(d) Eligible costs. 60

(e) Restrictions on uses of loan or grant funds. 60

3550.103 Eligibility requirements. 61

(a) Owner-occupant. 61

(b) Age (grant only). 61

(c) Income eligibility. 61

(d) Citizenship status. 61

(e) Need and use of personal resources. 61

(f) Legal capacity. 61

(g) Suspension or debarment. 61

(h) Repayment ability (loans only). 61

(i) Credit qualifications. 62

3550.104 Applications. 63

(a) Application submissions. 63

(b) Application processing. 63

(c) Processing priorities. 63

3550.105 Site requirements. 64

(a) Rural areas. 64

(b) Not subdividable. 64

3550.106 Dwelling requirements. 64

(a) Modest dwelling. 64

(b) Post-repair condition. 64

(c) Construction standards. 64

3550.107 Ownership requirements. 64

(a) Full fee ownership. 64

(b) Secure leasehold interest. 64

(c) Life estate interest. 65

Appendix 1 - Page 5

(01-23-03) SPECIAL PN

Revised (05-19-16) PN 486
7 CFR Part 3550

Table of Contents

Sec. Page

(d) Undivided interest. 65

(e) Possessory rights. 65

(f) Land purchase contract. 65

(g) Alternative evidence of ownership. 65

3550.108 Security requirements (loans only). 66

3550.109 Escrow account (loans only). 66

3550.110 Insurance (loans only). 66

(a) Borrower responsibility. 66

(b) Amount. 67

(c) Flood insurance. 67

(d) Losses. 67

3550.111 Appraisals (loans only). 68

3550.112 Maximum loan and grant. 68

(a) Maximum loan permitted. 68

(b) Maximum loan based upon ability to pay. 68

(c) Maximum grant. 68

3550.113 Rates and terms (loans only). 69

(a) Interest rate. 69

(b) Loan term. 69

3550.114 Repayment agreement (grants only). 69

3550.115 WWD grant program objectives. 69

3550.116 Definitions applicable to WWD grants only. 69

(a) Colonia. 69

(b) Individual. 69

(c) Rural areas. 69

(d) System. 69

(e) WWD. 69

3550.117 WWD grant purposes. 70

3550.118 Grant restrictions. 70

(a) Maximum grants. 70

(b) Limitation on use of grant funds. 70

3550.119 Eligibility requirements. 70

3550.120 - 3550.149 [Reserved] 71

3550.150 OMB control number. 71

Appendix 1 - Page 6
7 CFR Part 3550

Table of Contents

Subpart D - Regular Servicing

Sec. Page

3550.151 Servicing goals. 71

3550.152 Loan payments. 72

(a) Payment terms. 72

(b) Application of payments. 72

(c) Multiple loans. 72

(d) Application of excess payments. 72

3550.153 Fees. 72

3550.154 Inspections. 72

3550.155 Escrow account. 73

3550.156 Borrower obligations. 73

3550.157 Payment subsidy. 73

(a) Borrowers currently receiving payment subsidy. 73

(b) Borrowers not currently receiving payment subsidy. 74

(c) Cancellation of payment subsidy. 74

3550.158 Active military duty. 74

(a) Amount of assistance. 74

(b) Change of active military status. 74

3550.159 Borrower actions requiring RHS approval. 75

(a) Mineral leases. 75

(b) Subordination. 75

(c) Partial release of security. 76

(d) Lease of security property. 77

3550.160 Refinancing with private credit. 77

(a) Objective. 77

(b) Criteria for refinancing with private credit. 77

(c) Notice of requirement to refinance with private credit. 77

(d) Failure to refinance with private credit. 78

(e) Subordination of recapture amount. 78

(f) Application for additional credit. 79

Appendix 1 - Page 7

(01-23-03) SPECIAL PN

Revised (05-19-16) PN 486
7 CFR Part 3550

Table of Contents

Sec. Page

3550.161 Final payment. 79

(a) Payment in full. 79

(b) Release of security instruments. 79

(c) Payoff statements. 79

(d) Suitable forms of payment. 79

(e) Recording costs. 79

3550.162 Recapture. 79

(a) Recapture policy. 79

(b) Amount to be recaptured. 80

(c) Option to defer payment of recapture amounts. 81

(d) Borrower ceases to occupy the property. 81

(e) Assumed loans. 81

3550.163 Transfer of security and assumption of indebtedness. 82

(a) General policy. 82

(b) RHS approval of assumptions. 82

(c) Exception to due-on-sale clauses. 82

(d) Requirements for an assumption. 83

3550.164 Unauthorized assistance. 84

(a) Definition. 84

(b) Unauthorized assistance due to false information. 84

(c) Unauthorized assistance due to inaccurate information. 85

(d) Unauthorized grants. 86

(e) Account servicing. 86

(f) Accounts with no security. 86

3550.165 - 3550.199 [Reserved] 86

3550.200 OMB control number. 86

Subpart E - Special Servicing

3550.201 Purpose of special servicing actions. 86

3550.202 Past due accounts. 87

(a) Late fee. 87

(b) Liquidation. 87

Appendix 1 - Page 8
7 CFR Part 3550

Table of Contents

Sec. Page

3550.203 General servicing actions. 87

3550.204 Payment assistance. 87

3550.205 Delinquency workout agreements. 88

3550.206 Protective advances. 88

(a) Advances for taxes and insurance. 88

(b) Advances for costs other than taxes and insurance. 88

(c) Repayment arrangements. 88

3550.207 Payment moratorium. 89

(a) Borrower eligibility. 89

(b) Review of borrower eligibility. 89

(c) Resumption of scheduled payments. 90

(d) Borrowers unable to resume scheduled payments. 90

3550.208 Reamortization using promissory note interest rate. 90

(a) Permitted uses. 90

(b) Payment term of reamortized loan. 91

3550.209 [Reserved] 91

3550.210 Offsets. 91

(a) IRS offset. 91

(b) Salary offset. 91

(c) Administrative offset. 91

(d) Offset by other federal agencies. 91

3550.211 Liquidation. 91

(a) Policy. 91

(b) Tribal allotted or trust land. 92

(c) Acceleration and foreclosure. 92

(d) Voluntary liquidation. 92

(e) Bankruptcy. 92

(f) Junior lienholder foreclosure. 92

(g) Payment subsidy. 92

(h) Eligibility for special servicing actions. 93

(i) Reporting. 93

3550.212 - 3550.249 [Reserved] 93

3550.250 OMB control number. 93

Appendix 1 - Page 9

(01-23-03) SPECIAL PN

Revised (05-19-16) PN 486
7 CFR Part 3550

Table of Contents

Sec. Page

Subpart F - Post-Servicing Actions

3550.251 Property management and disposition. 93

(a) Policy. 93

(b) Custodial property. 93

(c) REO property. 94

(d) Special purposes. 95

3550.252 Debt settlement policies. 96

(a) Applicability. 96

(b) Judgment. 96

(c) Multiple loans. 96

(d) Cosigners and claims against estates. 96

(e) Reporting. 96

(f) Settlement during legal or investigative action. 97

(g) Offsets. 97

(h) Escrow funds. 97

3550.253 Settlement of a debt by compromise or adjustment. 97

(a) Compromise. 97

(b) Adjustments. 97

(c) Timing of offers. 97

(d) Retention of security property. 97

3550.254 - 3550.299 [Reserved] 98

3550.300 OMB control number. 98

Appendix 1 - Page 10
7 CFR Part 3550

7 CFR PART 3550 - DIRECT SINGLE FAMILY HOUSING LOANS AND GRANTS

Subpart A - General

§ 3550.1 Applicability.

This part sets forth policies for the direct single family housing loan programs operated by 

the Rural Housing Service (RHS) of the U.S. Department of Agriculture (USDA). It addresses 

the requirements of sections 502 and 504 of the Housing Act of 1949, as amended, and 

includes policies regarding both loan and grant origination and servicing. Procedures for 

implementing these regulations can be found in program handbooks, available in any Rural 

Development office. Any provision on the expenditure of funds under this part is contingent 

upon the availability of funds.

§ 3550.2 Purpose.

The purpose of the direct RHS single family housing loan programs is to provide low- and 

very low-income people who will live in rural areas with an opportunity to own adequate but 

modest, decent, safe, and sanitary dwellings and related facilities. The section 502 program 

offers persons who do not currently own adequate housing, and who cannot obtain other credit, 

the opportunity to acquire, build, rehabilitate, improve, or relocate dwellings in rural areas. The 

section 504 program offers loans to very low-income homeowners who cannot obtain other 

credit to repair or rehabilitate their properties. The section 504 program also offers grants to 

homeowners age 62 or older who cannot obtain a loan to correct health and safety hazards or 

to make the unit accessible to household members with disabilities.

§ 3550.3 Civil rights.

RHS will administer its programs fairly, and in accordance with both the letter and the 

spirit of all equal opportunity and fair housing legislation and applicable executive orders. 

Loans, grants, services, and benefits provided under this part shall not be denied to any person 

based on race, color, national origin, sex, religion, marital status, familial status, age, physical or 

mental disability, receipt of income from public assistance, or because the applicant has, in 

good faith, exercised any right under the Consumer Credit Protection Act (15 U.S.C. 1601 et 

seq.). All activities under this part shall be accomplished in accordance with the Fair Housing 

Act (42 U.S.C. 3601-3620), Executive Order 11246, and Executive Order 11063, as amended 

by Executive Order 12259, as applicable. The civil rights compliance requirements for RHS are 

in 7 CFR part 1901, subpart E. The nondicrimination requirements also originate from the Equal 

Credit Opportunity Act (ECOA), 15 USC 1601 as amended and its Regulation B, 12 CFR 202, 

as amended.

Appendix 1 - Page 11

(01-23-03) SPECIAL PN

Revised (01-06-17) PN 492
7 CFR Part 3550

§ 3550.4 Reviews and appeals.

Whenever RHS makes a decision that is adverse to a participant, RHS will provide the 

participant with written notice of such adverse decision and the participant’s rights to a USDA 

National Appeals Division hearing in accordance with 7 CFR part 11. Any adverse decision, 

whether appealable or non-appealable may be reviewed by the next-level RHS supervisor. 

§ 3550.5 Environmental requirements.

(a) Policy. RHS will consider environmental quality as equal with economic, social, and 

other relevant factors in program development and decision-making processes. RHS will 

take into account potential environmental impacts of proposed projects by working with 

RHS applicants, other federal agencies, Indian tribes, State and local governments, and 

interested citizens and organizations in order to formulate actions that advance the 

program’s goals in a manner that will protect, enhance, and restore environmental quality.

(b) Regulatory references. Processing or servicing actions taken under this part must 

comply with the environmental review requirements in accordance with 7 CFR part 1970,

and 7 CFR part 1924, which addresses lead-based paint.

§ 3550.6 State law or state supplement.

State and local laws and regulations, and the laws of federally recognized Indian tribes, 

may affect RHS implementation of certain provisions of this regulation, for example, with respect 

to the treatment of liens, construction, or environmental policies. Supplemental guidance may 

be issued in the case of any conflict or significant differences.

§ 3550.7 Demonstration programs.

From time to time, RHS may authorize limited demonstration programs. The purpose of 

these demonstration programs is to test new approaches to offering housing under the statutory 

authority granted to the Secretary. Therefore, such demonstration programs may not be 

consistent with some of the provisions contained in this part. However, any program 

requirements that are statutory will remain in effect. Demonstration programs will be clearly 

identified as such.

§ 3550.8 Exception authority.

An RHS official may request, and the Administrator or designee may make, an exception 

to any requirement or provision of this part or address any omission of this part that is consistent 

with the applicable statute if the Administrator determines that application of the requirement or 

provision, or failure to take action in the case of an omission, would adversely affect the 

Government’s interest.

Appendix 1 - Page 12
7 CFR Part 3550

§ 3550.9 Conflict of interest.

(a) Objective. It is the objective of RHS to maintain the highest standards of honesty, 

integrity, and impartiality by employees. To reduce the potential for employee conflict of 

interest, all processing, approval, servicing, or review activity will be conducted in 

accordance with 7 CFR part 1900, subpart D by RHS employees who:

(1) Are not themselves the applicant or borrower;

(2) Are not members of the family or close known relatives of the applicant or 

borrower;

(3) Do not have an immediate working relationship with the applicant or borrower, 

the employee related to the applicant or borrower, or the employee who would 

normally conduct the activity; or

(4) Do not have a business or close personal association with the applicant or 

borrower.

(b) Applicant or borrower responsibility. The applicant or borrower must disclose any 

known relationship or association with an RHS employee when such information is 

requested.

(c) RHS employee responsibility. An RHS employee must disclose any known 

relationship or association with a recipient, regardless of whether the relationship or 

association is known to others. RHS employees or members of their families may not 

purchase a Real Estate Owned (REO) property, security property from a borrower, or 

security property at a foreclosure sale. Loan closing agents who have been involved with 

a particular property, as well as members of their families, are also precluded from 

purchasing such properties.

§ 3550.10 Definitions.

Acceleration. Demand for immediate repayment of the entire balance of a debt if the 

security instruments are breached.

Adjusted income. Used to determine whether an applicant is income-eligible. Adjusted 

income provides for deductions to account for varying household circumstances and 

expenses. See § 3550.54 for a complete description of adjusted income.

Adjustment. An agreement to release a debtor from liability generally upon receipt of an 

initial lump sum representing the maximum amount the debtor can afford to pay and 

periodic additional payments over a period of up to 5 years.

Appendix 1 - Page 13

(01-23-03) SPECIAL PN

Revised (05-19-16) PN 486
7 CFR Part 3550

§ 3550.10 (Con.)

Agency-approved intermediary. An affordable housing nonprofit, public agency, or State 

Housing Finance Agency approved by RHS to perform quality assurance reviews on 

packages prepared by Agency-certified loan application packagers through their qualified 

employers. See § 3550.75 for further details. 

Agency-certified loan application packager. An individual certified by RHS under this 

subpart to package section 502 loan applications while employed (either as an employee 

or as an independent contractor) by a qualified employer. See § 3550.75 for further 

details.

Amortized payment. Equal monthly payments under a fully amortized mortgage loan that 

provides for the scheduled payment of interest and principal over the term of the loan.

Applicant. An adult member of the household who will be responsible for repayment of 

the loan.

Assumption. The procedure whereby the transferee becomes liable for all or part of the 

debt of the transferor. 

Borrower. A recipient who is indebted under the section 502 or 504 programs.

Cancellation. A decision to cease collection activities and release the debtor from 

personal liability for any remaining amounts owed.

Compromise. An agreement to release a debtor from liability upon receipt of a specified 

lump sum that is less than the total amount due.

Conditional commitment. A determination that a proposed dwelling will qualify as a 

program-eligible property. The conditional commitment does not reserve funds, nor does 

it ensure that a program-eligible applicant will be available to buy the dwelling.

Cosigner. An individual or an entity that joins in the execution of a promissory note to 

compensate for any deficiency in the applicant's repayment ability. The cosigner 

becomes jointly liable to comply with the terms of the promissory note in the event of the 

borrower's default, but is not entitled to any interest in the security or borrower rights.

Cross-collateralized loan. A situation in which a single property secures both RHS and 

Farm Service Agency loans.

Custodial property. Borrower-owned real property that serves as security for a loan that 

has been taken into possession by the Agency to protect the Government’s interest.

Daily simple interest. A method of establishing borrower payments based on daily 

interest charged on the outstanding principal balance of the loan. Principal is reduced by 

the amount of payment in excess of the accrued interest.

Appendix 1 - Page 14
7 CFR Part 3550

§ 3550.10 (Con.)

Dealer-contractor. A person, firm, partnership, or corporation in the business of selling 

and servicing manufactured homes and developing sites for manufactured homes. A 

person, firm, partnership, or corporation not capable of providing the complete service is 

not eligible to be a dealer-contractor.

Debt instrument. A collective term encompassing obligating documents for a loan, 

including any applicable promissory note, assumption agreement, or grant agreement.

Deferred mortgage payments. A subsidy available to eligible, very low-income borrowers 

of up to 25 percent of their principal and interest payments at 1 percent for up to 15 years. 

The deferred amounts are subject to recapture on sale or nonoccupancy.

Deficient housing. A dwelling that lacks complete plumbing; lacks adequate heating; is 

dilapidated or structurally unsound; has an overcrowding situation that will be corrected 

with loan funds; or that is otherwise uninhabitable, unsafe, or poses a health or 

environmental threat to the occupant or others.

Elderly family. An elderly family consists of one of the following:

(1) A person who is the head, spouse, or sole member of a family and who is 62 

years of age or older, or who is disabled, and is an applicant or borrower;

(2) Two or more persons who are living together, at least 1 of whom is age 62 or 

older, or disabled, and who is an applicant or borrower; or

(3) In the case of a family where the deceased borrower or spouse was at least 62 

years old or disabled, the surviving household member shall continue to be 

classified as an elderly family for the purpose of determining adjusted income, even 

though the surviving members may not meet the definition of elderly family on their 

own, provided:

(i) They occupied the dwelling with the deceased family member at the time 

of the death;

(ii) If one of the surviving family members is the spouse of the deceased 

family member, the family shall be classified as an elderly family only until the 

remarriage of the surviving spouse; and

(iii) At the time of the death of the deceased family member, the dwelling was 

financed under title V of the Housing Act of 1949, as amended.

Escrow account. An account to which the borrower contributes monthly payments to 

cover the anticipated costs of real estate taxes, hazard and flood insurance premiums, 

and other related costs.

Appendix 1 - Page 15

(01-23-03) SPECIAL PN

Revised (05-19-16) PN 486
7 CFR Part 3550

§ 3550.10 (Con.)

Existing dwelling or unit. A dwelling that has either been previously owner-occupied or 

has been completed for more than 1 year as evidenced by an occupancy permit, 

certificate of occupancy or similar document issued by the local authority.

False information. Information that the recipient knew was incorrect or should have 

known was incorrect that was provided or omitted for the purposes of obtaining 

assistance for which the recipient was not eligible.

Full-time student. A person who carries at least the minimum number of credit hours 

considered to be full-time by college or vocational school in which the person is enrolled.

Hazard. A condition of the property that jeopardizes the health or safety of the occupants 

or members of the community, that does not make it unfit for habitation. (See also the 

definition of major hazard in this section.)

Household. All persons expected to be living in the dwelling, except for live-in aids, foster 

children, and foster adults.

Housing Act of 1949, as amended. The Act which provides the authority for the direct 

single family housing programs. It is codified at 42 U.S.C. 1471, et seq.

HUD. The U.S. Department of Housing and Urban Development.

Inaccurate information. Incorrect information inadvertently provided, used, or omitted 

without the intent to obtain benefits for which the recipient was not eligible.

Indian reservation. All land located within the limits of any Indian reservation under the 

jurisdiction of the United States notwithstanding the issuance of any patent and including 

rights-of-way running through the reservation; trust or restricted land located within the 

boundaries of a former reservation of a federally recognized Indian tribe in the State of 

Oklahoma; or all Indian allotments, the titles to which have not been extinguished, if such 

allotments are subject to the jurisdiction of a federally recognized Indian tribe.

Interest credit. A payment subsidy available to certain eligible section 502 borrowers that 

reduces the effective interest rate of a loan (see § 3550.68(d)). Borrowers receiving 

interest credit will continue to receive it on all current and future loans for as long as they 

remain eligible for and continue to receive a subsidy. Borrowers who cease to be eligible 

for interest credit can never receive interest credit again, but may receive payment 

assistance if they again qualify for a payment subsidy.

Junior lien. A security instrument or a judgment against the security property to which the 

RHS debt instrument is superior.

Legal alien. For the purposes of this part, legal alien refers to any person lawfully 

admitted to the country who meets the criteria in section 214 of the Housing and 

Community Development Act of 1980, 42 U.S.C. 1436a.

Appendix 1 - Page 16
7 CFR Part 3550

§ 3550.10 (Con.)

Leveraged loan. An affordable housing product loan or grant to an Agency borrower 

property, closed simultaneously with an RHS loan. Affordable leveraged loans are 

characterized by long term (not less than 30 years), amortized payments with a note 

interest rate equal to or less than 3 percent.

Live-in aide. A person who lives with an elderly or disabled person and is essential to that 

person’s care and well-being, not obligated for the person’s support, and would not be 

living in the unit except to provide the support services.

Low income. An adjusted income limit developed in consultation with HUD under 42 

U.S.C. 1437a(b)(2)(D).

Major hazard. A condition so severe that it makes the property unfit for habitation. (See 

also the definition of hazard in this section.)

Manufactured home. A structure that is built to Federally Manufactured Home 

Construction and Safety Standards and RHS Thermal Performance Standards. It is 

transportable in 1 or more sections, which in the traveling mode is 10-body feet (3.048 

meters) or more in width, and when erected on site is 400 or more square feet (37.16 

square meters), and which is built on a permanent chassis and designed to be used as a 

dwelling with or without a permanent foundation when connected to the required utilities. 

It is designed and constructed for permanent occupancy by a single family and contains 

permanent eating, cooking, sleeping, and sanitary facilities. The plumbing, heating, and 

electrical systems are contained in the structure. A permanent foundation is required.

Market value. The value of the property as determined by a current appraisal, RHS may 

authorize the use of a Broker’s Price Opinion or similar instrument to determine market 

value in limited servicing situations.

Mobile home. A manufactured unit often referred to as a “trailer,” designed to be used as 

a dwelling, but built prior to the enactment of the Housing and Community Development 

Act of 1980 (Pub. L. 96-399) enacted October 8, 1980.

Moderate income. An adjusted income that does not exceed the moderate income limit 

for the guaranteed single family housing loan program authorized by Section 502(h) of the 

Housing Act of 1949, as amended.

Modest housing. A property that is considered modest for the area, with a market value 

that does not exceed the applicable maximum loan limit as established by RHS in 

accordance with §3550.63. In addition, the property must not be designed for income 

producing activities nor have an in-ground swimming pool.

Appendix 1 - Page 17

(01-23-03) SPECIAL PN

Revised (07-22-19) SPECIAL PN
7 CFR Part 3550

§ 3550.10 (Con.)

Modular or panelized home. Housing, constructed of one or more factory-built sections or 

panels, which, when completed, meets or exceed the requirements of the recognized 

development standards (model building codes) for site built housing, and which is 

designed to be permanently connected to a site-built foundation.

Moratorium. A period of up to 2 years during which scheduled payments are not required, 

but are subject to repayment at a later date.

Mortgage. A form of security instrument or consensual lien on real property including a 

real estate mortgage or a deed of trust.

National average area loan limit. Across the nation, the average area loan limit as 

specified in § 3550.63 (a). The national average is considered when determining the 

maximum packaging fee permitted under the certified loan application packaging process 

under the section 502 program.

Net family assets. The value of assets available to a household that could be used 

towards housing costs. Net family assets are considered in the calculation of annual 

income and are used to determine whether the household must make additional cash 

contributions to improve or purchase the property.

Net recovery value. The market value of the security property minus anticipated 

expenses of liquidation, acquisition, and sale as determined by RHS.

New dwelling or unit. A dwelling that is to be constructed, or a dwelling that is less than 1 

year old as evidenced by an occupancy permit, certificate of occupancy or similar 

document issued by the local authority and has never been occupied.

Nonprogram (NP) interest rate. The interest rate offered by RHS for loans made on NP 

terms.

NP property. Property that does not meet the program eligibility requirements outlined in 

§§ 3550.56 and 3550.57. 

NP terms. Credit terms available from RHS when the applicant or property is not 

program-eligible.

Offset. Deductions to pay a debt owed to RHS from a borrower’s retirement benefits, 

salary, income tax refund, or payments from other federal agencies to the borrower. 

Deductions from retirement benefits and salary generally apply only to current and former 

federal employees.

Participant. For the purpose of reviews and appeals, a participant is any individual or 

entity who has applied for, or whose right to participate in or receive a payment, loan, or 

other benefit is affected by an RHS decision.

Appendix 1 - Page 18
7 CFR Part 3550

§ 3550.10 (Con.)

Payment assistance. A payment subsidy available to eligible section 502 borrowers that 

reduces the effective interest rate of a loan (see § 3550.68(c)). Borrowers eligible for a 

payment subsidy receive payment assistance unless they are currently eligible for and 

receive interest credit. There are two methods of payment assistance. Payment 

Assistance Method 1 is found at §3550.68(c)(2). Payment Assistance Method 2 is found 

at §3550.68(c)(1).

Payment subsidy. A general term for subsidies which reduce the borrower’s scheduled 

payment. It refers to either payment assistance or interest credit.

Person with disability. Any person who has a physical or mental impairment that 

substantially limits one or more major life activities, including functions such as caring for 

one’s self, performing manual tasks, walking, seeing, hearing, speaking, breathing, 

learning and working, has a record of such an impairment, or is regarded as having such 

an impairment.

PITI ratio. The amount paid by the borrower for principal, interest, taxes, and insurance 

(PITI), divided by repayment income.

Principal reduction attributed to subsidy (PRAS). Accelerated principal reduction that can 

occur when a borrower receives a reduced interest rate through a payment subsidy.

Prior lien. A security instrument or a judgment against the security property that is 

superior to the RHS debt instrument.

Program-eligible applicant. Any applicant meeting the eligibility requirements described in 

§3550.53.

Program-eligible property. A property eligible to be financed under this part, as 

determined by the criteria listed in §§3550.56 through 3550.59.

Program terms. Credit terms that are available only to program-eligible applicants for 

program-eligible properties.

Property. The land, dwelling, and related facilities for which the applicant will use RHS 

assistance.

Protective advances. Costs incurred by the Agency to protect the security interest of the 

Government that are charged to the borrower’s account.

Qualified employer. An affordable housing nonprofit organization, public agency, tribal 

housing authority, or State Housing Finance Agency that meets the requirements outlined 

in § 3550.75 (b)(2) and is involved in the certified loan application packaging process 

under the section 502 program.

Appendix 1 - Page 19

(01-23-03) SPECIAL PN

Revised (07-22-19) SPECIAL PN
7 CFR Part 3550

§ 3550.10 (Con.)

Real estate taxes. Taxes and the annual portion of assessments estimated to be due and 

payable on the property, reduced by any available tax exemption.

Recapture amount. An amount of subsidy to be repaid by the borrower upon disposition 

or nonoccupancy of the property.

Recipient. Any applicant, borrower, or grant recipient who applies for or receives 

assistance under the section 502 or 504 programs.

REO. The acronym for “Real Estate Owned.” It refers to property for which RHS holds 

title.

Repayment income. Used to determine whether an applicant has the ability to make 

monthly loan payments. Repayment income includes amounts excluded for the purpose 

of determining adjusted income. See § 3550.54 for a complete description.

RHS. The Rural Housing Service of the U.S. Department of Agriculture, or its successor 

agency, formerly the Rural Housing and Community Development Service (RHCDS), a 

successor agency to the Farmers Home Administration (FmHA).

RHS employee. Any employee of RHS, or any employee of the Rural Development 

mission area who carries out grant or loan origination or servicing functions for the section 

502 or 504 programs.

RHS interest rate. The unsubsidized interest rate offered by RHS for loans made on 

program terms.

Rural area: An area defined in section 520 of the Housing Act of 1949, as amended.

Appendix 1 - Page 20
7 CFR Part 3550

§ 3550.10 (Con.)

Rural Development. A mission area within USDA which includes RHS, Rural Utilities 

Service (RUS), and Rural Business-Cooperative Service (RBS).

Scheduled payment. The monthly or annual installment on a promissory note plus 

escrow (if required), as modified by any payment subsidy agreement, delinquency 

workout agreement, other documented agreements between RHS and the borrower, or

protective advances.

Secured loan. A loan that is collateralized by property so that in the event of a default on 

the loan, the property may be sold to satisfy the debt.

Security property. All the property that serves as collateral for an RHS loan.

Subsidy. Interest credit, payment assistance, or deferred mortgage assistance received 

by a borrower under the section 502 or 504 programs.

Total debt ratio. The amount paid by the borrower for PITI and any recurring monthly 

debt, divided by repayment income.

Unauthorized assistance. Any loan, payment subsidy, deferred mortgage payment, or 

grant for which there was no regulatory authorization or for which the recipient was not 

eligible.

U.S. citizen. An individual who resides as a citizen in any of the 50 States, the District of 

Columbia, the Commonwealth of Puerto Rico, the U.S. Virgin Islands, Guam, American 

Samoa, the Commonwealth of the Northern Marianas, the Federated States of 

Micronesia, the Republic of Palau, or the Republic of the Marshall Islands.

USDA. The United States Department of Agriculture.

Unsecured loan. A loan evidenced only by the borrower’s promissory note.

Appendix 1 - Page 21

(01-23-03) SPECIAL PN

Revised (07-22-19) SPECIAL PN
7 CFR Part 3550

§ 3550.10 (Con.)

Value appreciation. The current market value of the property minus: the balance due 

prior lienholders, the unpaid balance of the RHS debt, unreimbursed closing costs (if 

any), principal reduction, the original equity (if any) of the borrower, and the value added 

by capital improvements.

Very low income. An adjusted income limit developed in consultation with HUD under 42 

U.S.C. 1437a(b)(2)(D)..

Veterans preference. A preference extended to any person applying for a loan or grant 

under this part who served on active duty and has been discharged or released from the 

active forces on conditions other than dishonorable from the United States Army, Navy, 

Air Force, Marine Corps, or Coast Guard. The preference applies to the serviceperson, or 

the family of a deceased serviceperson who died in service before the termination of such 

war or such period or era. The applicable timeframes are:

(1) During the period of April 6, 1917, through March 31, 1921;

(2) During the period of December 7, 1941, through December 31, 1946;

(3) During the period of June 27, 1950, through January 31, 1955;

(4) For a period of more than 180 days, any part of which occurred after January 

31, 1955, but on or before May 7, 1975; or

(5) During the period beginning August 2, 1990, and ending the date prescribed by 

Presidential Proclamation or law.

§ 3550.11 State Director Assessment of Homeowner Education.

(a) State Director’s will make an assessment of the availability of certified homeowner 

education in their respective states and maintain an annually updated listing of providers 

and their reasonable costs. 

(b)The order of preference for homeowner education formats is as follows: 

(1) Classroom; one-on-one counseling; or interactive video conference.

(2) If none of the formats in paragraph (b)(1) of this section is reasonably available; 

as determined under §3550.53, then the applicant may use interactive home-study 

or interactive telephone counseling of at least four hours duration.

Appendix 1 - Page 22
7 CFR Part 3550

§ 3550.11 (b) (Con.)

(3) If none of the formats in paragraphs (b)(1) and (b)(2) of this section is 

reasonably available as determined under § 3550.53, then the applicant may use 

on-line counseling to meet the homeownership education requirement.

(c) Homeownership education must include a letter or certificate of completion and be 

provided by homeownership education counselors that are certified by any of the 

following:

 (1) The Department of Housing and Urban Development (HUD); 

(2) NeighborWorks America (NWA); 

(3) The National Federation of Housing Counselors (NFHC) ; 

(4) National American Indian Housing Council (NAIHC); or 

(5) The State Housing Finance Agency or other qualified organization approved by 

the State Director.

(d) The provider will issue a letter or certificate of completion to document that the 

borrower has satisfactory knowledge of these minimum topics: 

(1) Preparing for homeownership (evaluate readiness to go from rental to 

homeownership),

(2) Budgeting (pre and post-purchase),

(3) Credit counseling,

(4) Shopping for a home,

(5) Lender differences (predatory lending),

(6) Obtaining a mortgage (mortgage process, different types of mortgages),

(7) Loan closing (closing process, documentation, closing costs),

(8) Post-occupancy counseling (delinquency and foreclosure prevention),

(9) Life as a homeowner (homeowner warranties, maintenance and repairs).

Appendix 1 - Page 23

(01-23-03) SPECIAL PN

Revised (01-15-15) PN 473
7 CFR Part 3550

§ 3550.11 (Con.)

(e) The provider may tailor the homeownership education training to the needs of the 

borrower to ensure satisfactory knowledge of the topics listed in paragraph (d) of this 

section.

§§ 3550.12 - 3550.49 [Reserved]

§ 3550.50 OMB control number.

The information collection requirements contained in this regulation have been approved 

by the Office of Management and Budget (OMB) and have been assigned OMB control number 

0575-0172. Public reporting burden for this collection of information is estimated to vary from 5 

minutes to 3 hours per response, with an average of 1 1/2 hours per response, including time 

for reviewing instructions, searching existing data sources, gathering and maintaining the data 

needed, and completing and reviewing the collection of information. You are not required to 

respond to this collection of information unless it displays a currently valid OMB control number.

Subpart B - Section 502 Origination

§ 3550.51 Program objectives.

Section 502 of the Housing Act of 1949, as amended authorizes the Rural Housing 

Service (RHS) to provide financing to help low- and very low-income persons who cannot obtain 

credit from other sources obtain adequate housing in rural areas. Resources for the section 502 

program are limited, and therefore, applicants are required to use section 502 funds in 

conjunction with funding or financing from other sources, if feasible. Sections 3550.52 through 

3550.73 set forth the requirements for originating loans on program terms. Section 3550.74 

describes the differences for originating loans on nonprogram (NP) terms.

§ 3550.52 Loan purposes.

Section 502 funds may be used to buy, build, rehabilitate, improve, or relocate an eligible 

dwelling and provide related facilities for use by the borrower as a permanent residence. In 

limited circumstances section 502 funds may be used to refinance existing debt.

(a) Purchases from existing RHS borrowers. To purchase a property currently financed 

by an RHS loan, the new borrower must assume the existing RHS indebtedness. Section 

502 funds may be used to provide additional financing or make repairs. Loan funds also 

may be used to permit a remaining borrower to purchase the equity of a departing coborrower.

Appendix 1 - Page 24
7 CFR Part 3550

§ 3550.52 (Con.)

(b) Refinancing non-RHS loans. Debt from an existing non-RHS loan may be refinanced 

if the existing debt is secured by a lien against the property, RHS will have a first lien 

position on the security property after refinancing, and:

(1) In the case of loans for existing dwellings, if:

(i) Due to circumstances beyond the applicant's control, the applicant is in 

danger of losing the property, the debt is over $5,000 and the debt was 

incurred for eligible program purposes prior to loan application or was a

protective advance made by the mortgagee for items covered by the loan to 

be refinanced, including accrued interest, insurance premiums, real estate tax 

advances, or preliminary foreclosure costs; or

(ii) If a loan of $5,000 or more is necessary for repairs to correct major 

deficiencies and make the dwelling decent, safe and sanitary and refinancing 

is necessary for the borrower to show repayment ability, regardless of the 

delinquency.

(2) In the case of loans for a building site without a dwelling, if:

(i) The debt to be refinanced was incurred for the sole purpose of purchasing 

the site,

(ii) The applicant is unable to acquire adequate housing without refinancing, 

and

(iii)The RHS loan will include funds to construct an appropriate dwelling on 

the site for the applicant's use.

(3) Debts incurred after the date of RHS loan application but before closing may be 

refinanced if the costs are incurred for eligible loan purposes and any construction 

work conforms to the standards specified in this part.

(c) Refinancing RHS debt. Under limited circumstances, an existing RHS loan may be 

refinanced in accordance with § 3550.204 to allow the borrower to receive payment 

assistance.

(d) Eligible costs. Improvements financed with loan funds must be on land which, after 

closing, is part of the security property. In addition to acquisition, construction, repairs, or 

the cost of relocating a dwelling, loan funds may be used to pay for:

(1) Reasonable expenses related to obtaining the loan, including legal, 

architectural and engineering, technical, title clearance, and loan closing fees; 

and appraisal, surveying, environmental, tax monitoring, and other technical 

services; and personal liability insurance fees for Mutual Self-Help borrowers.

Appendix 1 - Page 25

(01-23-03) SPECIAL PN

Revised (05-19-16) PN 486
7 CFR Part 3550

§ 3550.52 (d) (Con.)

(2) The cost of providing special design features or equipment when necessary 

because of a physical disability of the applicant or a member of the household.

(3) Reasonable connection fees, assessments, or the pro rata installment costs for 

utilities such as water, sewer, electricity, and gas for which the borrower is liable 

and which are not paid from other funds.

(4) Reasonable and customary lender charges and fees if the RHS loan is being 

made in combination with a leveraged loan.

(5) Real estate taxes that are due and payable on the property at the time of 

closing and for the establishment of escrow accounts for real estate taxes, hazard 

and flood insurance premiums, and related costs.

(6) Packaging fees resulting from the certified loan application packaging process 

outlined in § 3550.75. The fee may not exceed two percent of the national average 

area loan limit as determined by the Agency and may be limited further at the 

Agency’s discretion. Nominal packaging fees not resulting from the certified loan 

application process are an eligible cost provided the fee is no more than $350; the 

loan application packager is a nonprofit, tax exempt partner that received an 

exception to all or part of the requirements outlined in § 3550.75 from the applicable 

Rural Development State Director; and the packager gathers and submits the 

information needed for the Agency to determine if the applicant is preliminarily 

eligible along with a fully completed and signed uniform residential loan application.

 

(7) Purchasing and installing essential equipment in the dwelling, including ranges, 

refrigerators, washers or dryers, if these items are normally sold with dwellings in 

the area and if the purchase of these items is not the primary purpose of the loans.

(8) Purchasing and installing approved energy savings measures and approved 

furnaces and space heaters that use fuel that is commonly used, economical, and 

dependably available.

(9) Providing site preparation, including grading, foundation plantings, seeding or 

sodding, trees, walks, yard fences, and driveways to a building site.

(10) Reasonable fees for homeownership education as determined by the State 

Director under §3550.11 of this subpart. Such fees may be added to the loan 

amount in excess of the area loan limit and appraised value of the house.

Appendix 1 - Page 26
7 CFR Part 3550

§ 3550.52 (Con.)

(e) Loan restrictions. Loan funds may not be used to:

(1) Purchase an existing manufactured home, or for any other purposes prohibited 

in § 3550.73(b).

(2) Purchase or improve income-producing land or buildings to be used principally 

for income-producing purposes.

(2) Pay fees, commissions, or charges to for-profit entities related to loan 

packaging or referral of prospective applicants to RHS.

§ 3550.53 Eligibility requirements.

(a) Income eligibility. At the time of loan approval, the household’s adjusted income must 

not exceed the applicable low-income limit for the area, and at closing, must not exceed 

the applicable moderate-income limit for the area (see § 3550.54). 

(b) Citizenship status. The applicant must be a United States citizen or a noncitizen who 

qualifies as a legal alien as defined in § 3550.10.

(c) Primary residence. Applicants must agree to and have the ability to occupy the 

dwelling on a permanent basis.

(1) Because of the probability of transfer, loans will not be approved for military 

personnel on active duty unless the applicant will be discharged within a reasonable 

period of time.

(2) Because of the probability of moves after graduation, loans will not be approved 

for a full-time student unless the applicant intends to make the home a permanent 

residence and there are reasonable prospects that employment will be available in 

the area after graduation.

(3) If the home is being constructed or renovated an adult member of the 

household must be available to make inspections and authorize progress payments 

as the dwelling is being constructed.

Appendix 1 – Page 27

(01-23-03) SPECIAL PN

Revised (07-22-19) SPECIAL PN
7 CFR Part 3550

§ 3550.53 (Con.)

(d) Eligibility of current homeowners. Current homeowners are not eligible for initial loans 

except as follows:

(1) Current homeowners may receive RHS loan funds to:

(i) refinance an existing loan under the conditions outlined in § 3550.52(b);

(ii) purchase a new dwelling if the current dwelling is deficient housing as 

defined in § 3550.10; or

(iii) make necessary repairs to the property which is financed with an 

affordable non-RHS loan.

(2) Current homeowners with an RHS loan may receive a subsequent loan.

(e) Legal capacity. Applicants must have the legal capacity to incur the loan obligation, 

or have a court appointed guardian or conservator who is empowered to obligate the 

applicant in real estate matters.

(f) Suspension or debarment. Applications from applicants who have been suspended or 

debarred from participation in federal programs will be handled in accordance with 2 CFR 

parts 180 and 417.

(g) Repayment ability. Repayment ability means applicants must demonstrate adequate 

and dependably available income. The determination of income dependability will include 

consideration of the applicant’s past history of annual income.

(1) A very low-income applicant is considered to have repayment ability when the 

monthly amount required for payment of principal, interest, taxes, and insurance 

(PITI) does not exceed 29 percent of the applicant's repayment income, and the 

monthly amount required to pay PITI plus recurring monthly debts does not exceed 

41 percent of the applicant's repayment income.

(2) A low-income applicant is considered to have repayment ability when the 

monthly amount required for payment of PITI does not exceed 33 percent of the 

applicant's repayment income, and the monthly amount required to pay PITI plus 

recurring monthly debts does not exceed 41 percent of repayment income.

Appendix 1 - Page 28
7 CFR Part 3550

§ 3550.53 (g) (Con.)

(3) Repayment ratios may exceed the percentages specified in paragraphs (h)(1) 

and (h)(2) of this section if the applicant has demonstrated an ability to meet higher 

debt obligations, or if RHS determines, based on other compensating factors, that 

the household has a higher repayment ability.

(4) If an applicant does not meet the repayment ability requirements, the applicant 

can have another party join the application as a cosigner.

(5) If an applicant does not meet the repayment ability requirements, the applicant 

can have other household members join the application.

(h) Credit qualifications. Applicants must be unable to secure the necessary credit from 

other sources on terms and conditions that the applicant could reasonably be expected to 

fulfill. Applicants must have a credit history that indicates reasonable ability and 

willingness to meet debt obligations. An applicant with an outstanding judgment obtained 

by the United States in a federal court, other than the United States Tax Court, is not 

eligible for a loan or grant from RHS.

(1) Indicators of unacceptable credit include:

(i) Payments on any account where the amount of the delinquency exceeded 

one installment for more than 30 days within the last 12 months.

(ii) Payments on any account which was delinquent for more than 30 days on 

two or more occasions within a 12-month period.

(iii) A foreclosure which has been completed within the last 36 months.

(iv) An outstanding Internal Revenue Service tax lien or any other 

outstanding tax liens with no satisfactory arrangement for payment.

(v) A court-created or court-affirmed obligation or judgment caused by 

nonpayment that is currently outstanding or has been outstanding within the 

last 12 months, except for those excluded in paragraph (h)(2) of this section.

Appendix 1 - Page 29

(01-23-03) SPECIAL PN

Revised (01-15-15) PN 473
7 CFR Part 3550

§ 3550.53 (h) (Con.)

(vi) Two or more rent payments paid 30 or more days late within the last 2 

years. If the applicant has experienced no other credit problems in the past 2 

years, only 1 year of rent history will be evaluated. Rent payment history 

requirements may be waived if the RHS loan will reduce shelter costs 

significantly and contribute to an improved repayment ability.

(vii) Outstanding collection accounts with a record of irregular payment with 

no satisfactory arrangements for repayment, or collection accounts that were 

paid in full within the last 6 months.

(viii) Non-agency debts written off within the last 36 months unless paid in full 

at least 12 months ago.

(ix) Agency debts that were debt settled within the last 36 months or are 

being considered for debt settlement.

(x) Delinquency on a federal debt.

(2) The following will not be considered indicators of unacceptable credit:

(i) A bankruptcy in which debts were discharged more than 36 months prior 

to the date of application or where an applicant successfully completed a

bankruptcy debt restructuring plan and has demonstrated a willingness to 

meet obligations when due for the 12 months prior to the date of application.

(ii) A judgment satisfied more than 12 months before the date of application.

(3) When an application is rejected because of unacceptable credit, the applicant 

will be informed of the reason and source of information.

(i) Homeownership education. Applicants who are first-time homebuyers must agree to 

provide documentation, in the form of a completion certificate or letter from the provider, 

that a homeownership education course from a certified provider under § 3550.11 has 

been successfully completed as defined by the provider prior to loan closing. Requests 

for exceptions to the homeowner education requirement will be reviewed and granted on 

an individual case-by-case basis. The State Director may grant an exception the 

homeownership education requirement for individuals in geographic areas within the 

State where the State Director verifies that certified homeownership education is not 

reasonably available in the local area in any of the formats listed in § 3550.11(b). 

Whether such homeownership education is reasonably available will be determined 

based on factors including, but not limited to: distance, travel time, geographic obstacles, 

and cost. On a case-by-case basis, the State Director also may grant an exception, 

provided the applicant borrower documents a special need, such as a disability, that 

would unduly impede completing a homeownership course in a reasonably available 

format.

Appendix 1 - Page 30
7 CFR Part 3550

§ 3550.54 Calculation of income and assets.

(a) Repayment income. Repayment income is the annual amount of income from all 

sources that are expected to be received by those household members who are parties to 

the promissory note, except for any student financial aid received by these household 

members for tuition, fees, books, equipment, materials, and transportation. Repayment 

income is used to determine the household’s ability to repay a loan.

(b) Annual income. Annual income is the income of all household members from all 

sources except those listed in (b)(1) through (b)(12) of this section:

(1) earned income of persons under the age of 18 unless they are a borrower or a 

spouse of a member of the household,

(2) payments received for the care of foster children or foster adults,

(3) amounts granted for or in reimbursement of the cost of medical expenses,

(4) earnings of each full-time student 18 years of age or older, except the head of 

household or spouse, that are in excess of any amount determined pursuant to 

section 501(b)(5) of the Housing Act of 1949, as amended,

(5) temporary, nonrecurring, or sporadic income (including gifts),

(6) lump sum additions to family assets such as inheritances; capital gains; 

insurance payments under health, accident, or worker’s compensation policies; 

settlements for personal or property losses; and deferred periodic payments of 

supplemental security income and Social Security benefits received in a lump sum,

(7) any earned income tax credit,

(8) adoption assistance in excess of any amount determined pursuant to section 

501(b)(5) of the Housing Act of 1949, as amended,

(9) amounts received by the family in the form of refunds or rebates under State or 

local law for property taxes paid on the dwelling,

(10) amounts paid by a State agency to a family with a developmentally disabled 

family member living at home to offset the cost of services and equipment needed 

to keep the developmentally disabled family member at home, 

(11) the full amount of any student financial aid, and

(12) any other revenue exempted by a Federal statue; a list of which is available 

from any Rural Development office.

Appendix 1 - Page 31

(01-23-03) SPECIAL PN

Revised (07-22-19) SPECIAL PN
7 CFR Part 3550

§ 3550.54 (Con.)

(c) Adjusted income. Adjusted income is used to determine program eligibility for 

section 502 and 504 and the amount of payment subsidy for which the household 

qualifies under section 502. Adjusted income is annual income as defined in paragraph 

(b) of this section less any of the following deductions for which the household is eligible.

(1) For each household member, except the head of household or spouse, who is 

under 18 years of age, 18 years of age or older with a disability, or a full-time 

student, the amount determined pursuant to section 501(b)(5) of the Housing Act of 

1949, as amended.

(2) A deduction of reasonable expenses for the care of minor 12 years of age or 

under that:

(i) enable a family member to work or to further a member’s education, 

(ii) are not reimbursed or paid by another source, and 

(iii) in the case of expenses to enable a family member to work do not 

exceed the amount of income earned by the family member enabled to work.

(3) Expenses related to the care of household members with disabilities that: 

(i) enable a family member to work, 

(ii) are not reimbursed from insurance or another source, and 

(iii) are in excess of three percent of the household’s annual income.

(4) For any elderly family, a deduction in the amount determined pursuant to 

section 501(b)(5) of the Housing Act of 1949, as amended.

(5) For elderly households only, a deduction for household medical expenses that 

are not reimbursed from insurance or another source and which in combination with 

any expenses related to the care of household members with disabilities described 

in paragraph (c)(3) of this section, are in excess of three percent of the household’s 

annual income.

(d) Net family assets. Income from net family assets must be included in the calculation 

of annual income. Net family assets also are considered in determining whether a down 

payment is required.

Appendix 1 - Page 32
7 CFR Part 3550

§ 3550.54(d)(Con.)

(1) Net family assets include, but are not limited to: 

(i) equity in real property or other capital investments, other than the dwelling 

or site, 

(ii) cash on hand and funds in savings or checking accounts, 

(iii) amounts in trust accounts that are available to the household, 

(iv) stocks, bonds, and other forms of capital investments that are accessible 

without retiring or terminating employment,

(v) lump sum receipts such as lottery winnings, capital gains, inheritances, 

and 

(vi) personal property held as an investment.

(2) Net family assets do not include: 

(i) interest in American Indian restricted land, 

(ii) cash on hand which will be used to reduce the amount of the loan, 

(iii) the value of necessary items of personal property, 

(iv) assets that are part of the business, trade, or farming operation of any 

member of the household who is actively engaged in such operation,

(v) amounts in voluntary retirement plans such as individual retirement 

accounts (IRAs), 401(k) plans, and Keogh accounts (except at the time 

interest assistance is initially granted);

(vi) the value of an irrevocable trust fund or any other trust over which no 

member of the household has control;

(vii) cash value of life insurance policies;

(viii) the value of tax advantaged college savings plans (529 plan, Coverdell 

Educations Savings Account, etc.);

(ix) the value of tax advantaged health or medical savings or spending 

accounts; and 

(x) other amounts deemed by the Agency not to constitute net family assets.

Appendix 1 - Page 33

(01-23-03) SPECIAL PN

Revised (07-22-19) SPECIAL PN 
7 CFR Part 3550

§ 3550.55 Applications.

(a) Application submissions. All persons applying for RHS loans must file a complete 

written application in a format specified by RHS. Applications will be accepted even when 

funds are not available.

(b) Application processing.

(1) Incomplete applications will be returned to the applicant specifying in writing the 

additional information that is needed to make the application complete.

(2) An applicant may voluntarily withdraw an application at any time.

(3) RHS may periodically request in writing that applicants reconfirm their interest 

in obtaining a loan. RHS may withdraw the application of any applicant who does 

not respond within the specified timeframe.

(4) Applicants who are eligible will be notified in writing. If additional information 

becomes available that indicates that the original eligibility determination may have

been incorrect, or that circumstances have changed, RHS may reconsider the 

application and the applicant may be required to submit additional information.

(5) Applicants who are ineligible will be notified in writing and provided with the 

specific reasons for the rejection.

(c) Selection for processing. When funding is not sufficient to serve all program-eligible 

applicants, applications will be selected for processing using the funding priorities 

specified in this paragraph. Within priority categories, applications will be processed in 

the order that the completed applications are received. In the case of applications with 

equivalent priority status that are received on the same day, preference will be extended 

to applicants qualifying for a veterans preference. After selection for processing, loans 

are funded on a first-come, first-served basis.

Appendix 1 - Page 34
7 CFR Part 3550

§ 3550.55 (c) (Con.)

(1) First priority will be given to existing customers who request subsequent loans 

to correct health and safety hazards.

(2) Second priority will be given to loans related to the sale of an REO property or 

the transfer of an existing RHS financed property.

(3) Third priority will be given to applicants facing housing related hardships 

including applicants who have been living in deficient housing for more than 6 

months, current homeowners in danger of losing a property through foreclosure, 

and other circumstances determined by RHS on a case-by-case basis to constitute 

a hardship.

(4) Fourth priority will be given to applicants seeking, loans for the construction of 

dwellings in an RHS-approved Mutual Self-Help project or loans that will leverage 

funding or financing from other sources. 

(5) Applications from applicants who do not qualify for priority consideration in 

paragraphs (c)(1), (2), (3), or (4) of this section will be selected for processing after 

all applications with priority status have been processed. The Administrator may 

temporarily reclassify applications received through the certified loan application 

packaging process as fourth priority when determined appropriate.

(d) Applicant timeframe. RHS will specify a reasonable timeframe within which eligible 

applicants selected for processing must provide the information needed to underwrite the 

loan.

§ 3550.56 Site requirements.

(a) Rural areas. Loans may be made only in rural areas designated by RHS. If an area 

designation is changed to non-rural:

(1) New conditional commitments will be made and existing conditional 

commitments will be honored only in conjunction with an applicant for a section 502 

loan who applied for assistance before the area designation changed.

Appendix 1 - Page 35

(01-23-03) SPECIAL PN

Revised (05-19-16) PN 486
7 CFR Part 3550

§ 3550.56 (a)(Con.)

(2) REO property sales and transfers with assumption may be processed.

(3) Subsequent loans may be made either in conjunction with a transfer with 

assumption of an RHS loan or to repair properties that have RHS loans.

(b) Site standards. Sites must be developed in accordance with 7 CFR part 1924, 

subpart C and any applicable standards imposed by a State or local government.

(1) The site must not be large enough to subdivide into more than one site under 

existing local zoning ordinances,

(2) The site must not include farm service buildings, though small outbuildings such 

as a storage shed may be included, and

(3) The value of the site must not exceed 30 percent of the “as improved” market 

value of the property. The State Director may waive the 30 percent requirement in 

high cost areas where other lenders permit a higher percentage.

§ 3550.57 Dwelling requirements.

(a) Modest dwelling. The property must be one that is considered modest for the area, 

must not be designed for income providing purposes, must not have an in-ground 

swimming pool or have a market value in excess of the applicable maximum loan limit, in 

accordance with §3550.63, unless RHS authorizes an exception under this paragraph. 

An exception may be granted on a case-by-case basis to accommodate the specific 

needs of an applicant, such as to serve exceptionally large households or to provide 

reasonable accommodation for a household member with a disability. Any additional loan 

amount approved must not exceed the amount required to address the specific need.

(b) New dwellings. Construction must meet the requirements in 7 CFR part 1924, 

subpart A.

(c) Existing dwellings. Existing dwellings must be structurally sound; functionally 

adequate; in good repair, or to be placed in good repair with loan funds; have adequate 

electrical, heating, plumbing, water, and wastewater disposal systems; and be free of 

termites and other wood damaging pests and organisms.

Appendix 1 - Page 36
7 CFR Part 3550

§ 3550.58 Ownership requirements.

After the loan is closed, the borrower must have an acceptable interest in the property as 

evidenced by one of the following.

(a) Fee-simple ownership. Acceptable fee-simple ownership is evidenced by a fully 

marketable title with a deed vesting a fee-simple interest in the property to the borrower.

(b) Secure leasehold interest. A written lease is required. To be acceptable, a leasehold 

interest must have an unexpired term that is at least 150 percent of the term of the 

mortgage, unless the loan is guaranteed, in which case the unexpired term of the lease 

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

less than 25 years.

(c) Life estate interest. To be acceptable a life estate interest must provide the borrower 

with rights of present possession, control, and beneficial use of the property. Generally, 

persons with any remainder interests must be signatories to the mortgage. All of the 

remainder interests need not be included in the mortgage to the extent that one or more 

of the persons holding remainder interests are not legally competent (and there is no 

representative who can legally consent to the mortgage), cannot be located, or if the 

remainder interests are divided among such a large number of people that it is not 

practical to obtain the signatures of all of the remainder interests. In such cases, the loan 

may not exceed the value of the property interests owned by the persons executing the 

mortgage.

(d) Undivided interest. All legally competent co-owners will be required to sign the 

mortgage. When one or more of the co-owners are not legally competent (and there is no 

representative who can legally consent to the mortgage), cannot be located, or the 

ownership interests are divided among so large a number of co-owners that it is not 

practical for all of their interests to be mortgaged, their interests not exceeding 50 percent 

may be excluded from the security requirements. In such cases, the loan may not exceed 

the value of the property interests owned by the persons executing the mortgage.

(e) Possessory rights. Acceptable forms of ownership include possessory rights on an 

American Indian reservation or State-owned land and the interest of an American Indian 

in land held in severalty under trust patents or deeds containing restrictions against 

alienation, provided that land in trust or restricted status will remain in trust or restricted 

status.

Appendix 1 - Page 37

(01-23-03) SPECIAL PN

Revised (01-15-15) PN 473
7 CFR Part 3550

§ 3550.59 Security requirements.

Before approving any loan, RHS will impose requirements to secure its interests.

(a) Adequate security. A loan will be considered adequately secured only when all of the 

following requirements are met:

(1) RHS obtains at closing a mortgage on all ownership interests in the security 

property or the requirements of § 3550.58 are satisfied.

(2) No liens prior to the RHS mortgage exist at the time of closing and no junior 

liens are likely to be taken immediately subsequent to or at the time of closing, 

unless the other liens are taken as part of a leveraging strategy or the RHS loan is 

essential for repairs and the senior lien secures an affordable non-RHS loan. Liens 

junior to the RHS lien may be allowed at loan closing if the junior lien will not 

interfere with the purpose or repayment of the RHS loan. When the junior lien 

involves a grant or a forgivable affordable housing product, the total debt may 

exceed the market value by the amount of the forgivable loan or grant up to 5 

percent.

(3) The provisions of 7 CFR part 1927, subpart B regarding title clearance and the 

use of legal services have been followed.

(4) Existing and proposed property improvements are totally on the site and do not 

encroach on adjoining property.

(b) Guaranteed payment. Mortgage insurance guaranteeing payment from a 

Government agency or Indian tribe is adequate security.

§ 3550.60 Escrow account.

RHS may require that customers deposit into an escrow account amounts necessary to 

ensure that the account will contain sufficient funds to pay real estate taxes, hazard and flood 

insurance premiums, and other related costs when they are due in accordance with the Real 

Estate Settlement and Procedures Act (RESPA) of 1974 (12 U.S.C. 2601, et seq.) and section 

501(e) of the Housing Act of 1949, as amended.

Appendix 1 - Page 38
7 CFR Part 3550

§ 3550.61 Insurance.

(a) Borrower responsibility. Any borrower with a secured indebtedness in excess of 

$15,000 at the time of loan approval must furnish and continually maintain hazard 

insurance on the security property, with companies, in amounts, and on terms and 

conditions acceptable to RHS including a “loss payable clause” payable to RHS to protect 

the Government’s interest.

(b) Amount. The borrower is required to insure the dwelling and any other essential 

buildings in an amount equal to the insurable value of the dwelling and other essential 

buildings. However, in cases where the borrower’s outstanding secured indebtedness is 

less than the insurable value of the dwelling and other essential buildings, the borrower 

may elect a lower coverage provided it is not less than the outstanding secured 

indebtedness. If the borrower fails, or is unable, to insure the secured property, RHS will 

force place insurance and charge the cost to the borrower’s account. Force place 

insurance only provides insurance coverage to the Agency and does not provide any 

direct coverage or benefit to the borrower. The amount of the lender-placed coverage 

generally will be the property’s last known insured value.

(c) Flood insurance. Flood insurance must be obtained and maintained for the life of the 

loan for all property located in a Special Flood Hazard Area (SFHA) as determined by the 

Federal Emergency Management Agency (FEMA). RHS actions will be consistent with 7 

CFR part 1806, subpart B which addressed flood insurance requirements. If flood 

insurance through FEMA’s National Flood Insurance Program is not available in an 

SFHA, the property is not eligible for federal financial assistance.

(d) Losses.

(1) Loss deductible clauses for required insurance coverage may not exceed the 

generally accepted minimums based on current industry standards and local market

conditions.

(2) Customers must immediately notify RHS of any loss or damage to insured 

property and collect the amount of the loss from the insurance company.

(3) Depending on the amount of the loss, RHS may require that loss payments be 

supervised. All repairs and replacements done by or under the direction of the 

borrower, or by contract, will be planned, performed, inspected, and paid for in 

accordance with 7 CFR part 1924, subpart A.

(4) When insurance funds remain after all repairs, replacements, and other 

authorized disbursements have been made, the funds will be applied in the 

following order:

(i) Prior liens, including delinquent property taxes.

(ii) Past-due amounts.

Appendix 1 - Page 39

(01-23-03) SPECIAL PN

Revised (01-15-15) PN 473
7 CFR Part 3550

§ 3550.61 (d) (Con.)

(iii) Protective advances due.

(iv) Released to the customer if the RHS debt is adequately secured.

(5) If a loss occurs when insurance is not in force, the borrower is responsible for 

making the needed repairs or replacements and ensuring that the insurance is 

reinstated on the property.

(6) If the borrower is not financially able to make the repairs, RHS may take one of 

the following actions:

(i) Make a subsequent loan for repairs.

(ii) Subordinate the RHS lien to permit the borrower to obtain funds for 

needed repairs from another source.

(iii) Permit the borrower to obtain funds secured by a junior lien from another 

source.

(iv) Make a protective advance to protect the Government's interest.

(v) Accelerate the account.

§ 3550.62 Appraisals.

(a) Requirement. An appraisal is required when the debt to be secured exceeds $15,000 

or whenever RHS determines that it is necessary to establish the adequacy of the 

security. Appraisals must be made in accordance with the Uniform Standards of 

Professional Appraisal Practices. When other real estate is taken as additional security, it 

will be appraised if it represents a substantial portion of the security for the loan.

(b) Fees. RHS will charge a fee for each loan application that requires an appraisal, 

except the appraisal fee is not required on appraisals done for subsequent loans needed 

to make minimal, essential repairs or in cases where another party provides an appraisal 

which is acceptable to RHS. Fees collected in connection with a dwelling constructed 

under an approved conditional commitment will be paid to the contractor at closing to 

offset the cost of the real estate appraisal that is included in the conditional commitment 

fee.

§ 3550.63 Maximum loan limit.

Total secured indebtedness must not exceed the area loan limit or market value 

limitations specified in paragraphs (a) or (b) of this section, whichever is lower. Any loan 

amount for the RHS appraisal, tax monitoring fee, and the charge to establish an escrow 

account for taxes and insurance will not be subject to the limitations specified below. This 

section does not apply to loans on NP terms.

Appendix 1 - Page 40
7 CFR Part 3550

§ 3550.63 (Con.)

(a) Area loan limit. (1) The area loan limit is the maximum value of the property RHS will 

finance in a given locality. This limit is based on a percentage(s) of the applicable local 

HUD section 203(b) limit. The percentage(s) will be determined by the Agency and 

published in the program handbook. The area loan limits will be reviewed at least 

annually and posted to the Agency website.

(2) The maximum loan limit calculated under paragraph (a)(1) will be reduced in the 

following situations:

 (i) When the applicant owns the site or is purchasing the site at a sales price

 below market value, the market value of the lot will be deducted from the

 maximum loan limit, and

 (ii) When an applicant is receiving a housing grant or other form of affordable

 housing assistance for purposes other than closing costs, the amount(s) of such

 grants and affordable housing assistance will be deducted from the maximum

 loan limit.

(3) The maximum loan limit for self-help housing will be calculated by adding the total of 

the market value of the lot (including reasonable and typical costs of site development), 

the cost of construction, and the value of sweat equity. The total of these three factors 

cannot exceed the limit established in paragraph (a)(1) of this section.

Appendix 1 - Page 41

(01-23-03) SPECIAL PN

Revised (07-22-19) SPECIAL PN
7 CFR Part 3550

§ 3550.63 (Con.)

(b) Market value limitation.

(1) The market value limitation is 100 percent of market value for existing housing 

and for new dwellings for which RHS will receive adequate documentation of 

construction quality and the source of such documentation is acceptable to RHS.

(2) The market value limitation is 90 percent of market value for new dwellings for 

which adequate documentation of construction quality is not available.

(3) The market value limitation can be increased by:

(i) Up to one percent, if RHS makes a subsequent loan for closing costs only, 

in conjunction with the sale of an REO property or an assumption.

(ii) The amount necessary to make a subsequent loan for repairs necessary 

to protect the Government’s interest, and reasonable closing costs.

(iii) The amount necessary to refinance an existing borrower’s RHS loans, 

plus closing costs associated with the new loan.

§ 3550.64 Down payment.

Elderly families must use any net family assets in excess of $20,000 towards a down 

payment on the property. Non-elderly families must use net family assets in excess of $15,000 

towards a down payment on the property. Applicants may contribute assets in addition to the 

required down payment to further reduce the amount to be financed.

§ 3550.65 [Reserved]

§ 3550.66 Interest rate.

Loans will be written using the applicable RHS interest rate in effect at loan approval or 

loan closing, whichever is lower. Information about current interest rates is available in any 

Rural Development office.

§ 3550.67 Repayment period.

Loans will be scheduled for repayment over a period that does not exceed the expected 

useful life of the property as a dwelling. The loan repayment period will not exceed:

(a) Thirty-three years in all cases except as noted in paragraphs (b), (c), and (d) of this 

section.

Appendix 1 - Page 42
7 CFR Part 3550

§ 3550.67 (Con.)

(b) Thirty-eight years:

(1) For initial loans, or subsequent loans made in conjunction with an assumption, 

if the applicant’s adjusted income does not exceed 60 percent of the area adjusted 

median income and the longer term is necessary to show repayment ability.

(2) For subsequent loans not made in conjunction with an assumption if the 

applicant’s initial loan was for a period of 38 years, the applicant’s adjusted income 

at the time the subsequent loan is approved does not exceed 60 percent of area 

adjusted median income, and the longer terms is necessary to show repayment 

ability.

(c) Ten years for loans not exceeding $2,500.

(d) Thirty years for manufactured homes.

§ 3550.68 Payment subsidies.

RHS administers three types of payment subsidies: interest credit, payment assistance 

method 1 and payment assistance method 2. Payment subsidies are subject to recapture when 

the borrower transfers title or ceases to occupy the property.

(a) Eligibility for payment subsidy.

(1) Applicants or borrowers who receive loans on program terms are eligible to 

receive payment subsidy if they personally occupy the property and have adjusted 

income at or below the applicable moderate-income limit.

(2) Payment subsidy may be granted for initial loans or subsequent loans made in 

conjunction with an assumption only if the term of the loan is at least 25 years or 

more.

(3) Payment subsidy may be granted for subsequent loans not made in conjunction 

with an assumption if the initial loan was for a term of 25 years or more.

(b) Determining type of payment subsidy. 

(1) A borrower currently receiving interest credit will continue to receive it for the 

initial loan and for any subsequent loan for as long as the borrower is eligible for

and remains on interest credit. 

(2) If a borrower receiving payment assistance using payment assistance method 1 

receives a subsequent loan, payment assistance method 2 will be used to calculate 

the subsidy for the initial loan and subsequent loan. .

Appendix 1 - Page 43

(01-23-03) SPECIAL PN

Revised (07-22-19) SPECIAL PN
7 CFR Part 3550

§ 3550.68 (Con.)

(3) A borrower who has never received payment subsidy, or who has stopped 

receiving interest credit or payment assistance method 1, and at a later date again 

qualifies for a payment subsidy, will receive payment assistance method 2.

(4) A borrower may not opt to change payment assistance methods.

(c) Calculation of payment assistance. Regardless of the method used, payment 

assistance may not exceed the amount necessary if the loan were amortized at an 

interest rate of 1 percent.

(1) Payment Assistance Method 2. The amount of payment assistance granted is 

the lesser of the difference between:

(i) The annualized promissory note installments for the combined RHS loan 

and eligible leveraged loans plus the cost of taxes and insurance less 24 

percent of the borrower’s adjusted income, or 

(ii) The annualized promissory note installments for the RHS loan less the 

amount the borrower would pay if the loan were amortized at an interest rate 

of 1 percent.

(2) Payment Assistance Method 1. The amount of payment assistance granted is 

the difference between the installment due on the promissory note and the greater 

of the payment amortized at the equivalent interest rate or the payment calculated 

based on the required floor payment. In leveraging situations, the equivalent 

interest rate will be used.

(i) The floor payment, which is defined as a minimum percentage of adjusted 

income that the borrower must pay for PITI: 22 percent for very low-income 

borrowers, 24 percent for low-income borrowers with adjusted income below 

65 percent of area adjusted median, and 26 percent for low-income 

borrowers with adjusted incomes between 65 and 80 percent of area 

adjusted median; or 

(ii) The annualized note rate installment and the payment at the equivalent 

interest rate, which is determined by a comparison of the borrower’s adjusted 

income to the adjusted median income for the area in which the security 

property is located. The following chart is used to determine the equivalent 

interest rate.

Appendix 1 - Page 44
7 CFR Part 3550

§ 3550.68 (c)(2) (Con.)

PERCENTAGE OF MEDIAN INCOME AND THE EQUIVALENT INTEREST RATE

When the applicant’s adjusted income is:

Equal to

 or more than:

BUT

 less than:

THEN the equivalent 

interest rate is*

00 %

50.01 %

55 %

60 %

65 %

70 %

75 %

80.01 %

90 %

100 %

110 %

50.01 of adjusted median income

55 of adjusted median income 

60 of adjusted median income

65 of adjusted median income

70 of adjusted median income

75 of adjusted median income

80.01 of adjusted median income

90 of adjusted median income

100 of adjusted median income

110 % of adjusted median income

or more than adjusted median income

1 % 

2 % 

3 % 

4 % 

5 % 

6 % 

6.5% 

7.5 %

8.5 %

9 %

9.5 %

* Or note rate, whichever is less; in no case will the equivalent interest rate be less than 

one percent.

Appendix 1 - Page 45

(01-23-03) SPECIAL PN

Revised (01-15-15) PN 473
7 CFR Part 3550

§ 3550.68 (Con.)

(d) Calculation of interest credit. The amount of interest credit granted is the difference 

between the sum of the annual installments due at the promissory note interest rate and 

the greater of:

(1) Twenty percent of the borrower's adjusted income less the cost of real estate 

taxes and insurance, or

(2) The amount the borrower would pay if the loan were amortized at an interest 

rate of one percent.

(e) Annual review. The borrower’s income will be reviewed annually to determine 

whether the borrower is eligible for continued payment subsidy. The borrower must notify 

RHS whenever an adult member of the household changes or obtains employment, there 

is a change in household composition, or if income increases by at least 10 percent so 

that RHS can determine whether a review of the borrower’s circumstances is required.

§ 3550.69 Deferred mortgage payments.

For qualified borrowers, RHS may defer up to 25 percent of the monthly principal and 

interest payment at 1 percent for up to 15 years. This assistance may be granted only at initial 

loan closing and is reviewed annually. Deferred mortgage payments are subject to recapture 

when the borrower transfers title or ceases to occupy the property.

(a) Eligibility. In order to qualify for deferred mortgage payments, all of the following must 

be true:

(1) The applicant’s adjusted income at the time of initial loan approval does not 

exceed the applicable very low-income limits.

(2) The loan term is 38 years, or 30 years for a manufactured home.

(3) The applicant’s payments for principal and interest, calculated at a one percent 

interest rate for the maximum allowable term, plus estimated costs for taxes and 

insurance exceeds:

(i) For applicants receiving payment assistance, 29 percent of the applicant’s 

repayment income by more than $10 per month, or

(ii) For applicants receiving interest credit, 20 percent of adjusted income by 

more than $10 per month.

Appendix 1 - Page 46
7 CFR Part 3550

§ 3550.69 (Con.)

(b) Amount and terms.

(1) The amount of the mortgage payment to be deferred will be the difference 

between the applicant’s payment for principal and interest, calculated at one 

percent interest for the maximum allowable term, plus estimated costs for taxes and 

insurance and:

(i) For applicants receiving payment assistance, 29 percent of the applicant’s 

repayment income.

(ii) For applicants receiving interest credit, 20 percent of adjusted income.

(2) Deferred mortgage payment agreements will be effective for a 12-month period.

(3) Deferred mortgage assistance may be continued for up to 15 years after loan 

closing. Once a borrower becomes ineligible for deferred mortgage assistance, the 

borrower can never again receive deferred mortgage assistance. 

(c) Annual review. The borrower’s income, taxes, and insurance will be reviewed 

annually to determine eligibility for continued deferred mortgage assistance. The 

borrower must notify RHS whenever an adult member of the household changes or 

obtains employment or if income increases by at least 10 percent so that RHS can 

determine whether a review of the borrower’s circumstances is required.

§ 3550.70 Conditional commitments.

A conditional commitment is a determination by RHS that a dwelling offered for sale will 

be acceptable for purchase by a qualified RHS loan applicant if it is built or rehabilitated in 

accordance with RHS-approved plans, specifications, and regulations and priced within the 

lesser of the property’s appraised value or the applicable maximum loan limit. The conditional 

commitment does not reserve funds, does not guarantee funding, and does not ensure that an 

eligible loan applicant will be available to buy the dwelling.

(a) Eligibility. To be eligible to request a conditional commitment, the builder, dealercontractor, or seller must:

(1) Have an adequate ownership interest in the property, as defined in § 3550.58, 

prior to the beginning of any planned construction;

Appendix 1 - Page 47

(01-23-03) SPECIAL PN

Revised (01-15-15) PN 473
7 CFR Part 3550

§ 3550.70 (a) (Con.)

(2) Have the experience and ability to complete any proposed work in a competent 

and professional manner;

(3) Have the legal capacity to enter into the required agreements;

(4) Be financially responsible and have the ability to finance or obtain financing for 

any proposed construction or rehabilitation; and

(5) Comply with the requirements of 7 CFR part 1901, subpart E and all applicable 

laws, regulations, and Executive Orders relating to equal opportunity. Anyone who 

receives 5 or more conditional commitments during a 12-month period must obtain 

RHS approval of an affirmative marketing plan.

(b) Limitations. Conditional commitments for new or substantially rehabilitated dwellings 

will not be issued after construction has started. RHS may limit the total number of 

conditional commitments issued in any locality based on market demand. 

(c) Commitment period. A conditional commitment will be valid for 12 months from the 

date of issuance. The commitment may be extended for up to an additional 6 months if 

there are unexpected delays in construction caused by such factors as bad weather, 

materials shortages, or marketing difficulties. Conditional commitments may be canceled 

if construction does not begin within 60 days after the commitment is issued.

(d) Conditional commitments involving packaging of applications. A conditional 

commitment may be made to a seller, builder, or dealer-contractor who packages an RHS 

loan application for a prospective purchaser. In cases where the dwelling is to be 

constructed for sale to a specific eligible applicant, all of the following conditions must be 

met:

(1) The conditional commitment will not be approved until the applicant’s loan has 

been approved;

(2) Construction will not begin until loan funds are obligated for the loan. 

Exceptions may be made when it appears likely that funding will be forth comining 

and as loan as the RHS lien priority is not jeopardized. The sales agreement must 

indicate that the loan has been approved but not funded and must provide that if the 

loan is not closed within 90 days of the date of approval, the contractor may 

terminate the sales agreement and sell the property to another party. If the sales 

agreement is terminated, the conditional commitment will be honored for another 

eligible loan applicant for the remaining period of the commitment; and

(3) The RHS loan will be closed only after the dwelling is constructed or the 

required rehabilitation completed and final inspection has been made. 

Appendix 1 - Page 48
7 CFR Part 3550

§ 3550.70 (Con.)

(e) Fees. An application for a conditional commitment must include payment of the 

conditional commitment fee. The fee will be refunded if for any reason preliminary 

inspection of the property or investigation of the conditional commitment applicant 

indicates that a conditional commitment will not be issued. Application fees will not be 

refunded for any property on which the required appraisal has been made.

(f) Failure of conditional commitment applicant or dwelling to qualify. The conditional 

commitment applicant will be informed if the conditional commitment is denied. 

Conditional commitments will be canceled if the property does not meet program 

requirements.

(g) Changes in plans, specifications, or commitment price. The holder of the conditional 

commitment must request approval for changes in plans, specifications, and commitment 

price. RHS may approve the changes if the following requirements are met:

(1) The property price does not exceed the maximum loan limit and increases in 

costs are due to factors beyond the control of the commitment holder, and

(2) The requested changes are justifiable and appropriate.

(h) Builder's warranty. The builder or seller, as appropriate, must execute either an RHSapproved "Builder's Warranty," or provide a 10-year insured warranty when construction 

is completed or the loan is closed.

§ 3550.71 Special requirements for condominiums.

RHS loans may be made for condominium units under the following conditions:

(a) The unit is in a project approved or accepted by U.S. Department of Housing and 

Urban Development (HUD), the Federal National Mortgage Association (Fannie Mae), or 

the Federal Home Loan Mortgage Corporation (Freddie Mac).

(b) The condominium project complies with the requirements of the condominium 

enabling statute and all other applicable laws. Any right of first refusal in the 

condominium documents will not impair the rights of RHS to:

(1) Foreclose or take title to a condominium unit pursuant to the remedies in the 

mortgage;

(2) Accept a deed in lieu of foreclosure in the event of default by a mortgagor; and

(3) Sell or lease a unit acquired by RHS.

Appendix 1 - Page 49

(01-23-03) SPECIAL PN

Revised (01-15-15) PN 473
7 CFR Part 3550

§ 3550.71 (Con.)

(c) If RHS obtains title to a condominium unit pursuant to the remedies in its mortgage or 

through foreclosure, RHS will not be liable for more than 6 months of the unit’s unpaid 

regularly budgeted dues or charges accrued before acquisition of the title to the unit by 

RHS. The homeowners association’s lien priority may include costs of collecting unpaid 

dues.

(d) In case of condemnation or substantial loss to the units or common elements of the 

condominium project, unless at least two-thirds of the first mortgagees or unit owners of 

the individual condominium units have given their consent, the homeowners association 

may not:

(1) By act or omission seek to abandon or terminate the condominium project;

(2) Change the pro rata interest or obligations of any condominium unit in order to 

levy assessments or charges, allocate distribution of hazard insurance proceeds or 

condemnation awards, or determine the pro rata share of ownership of each 

condominium unit in the common elements;

(3) Partition or subdivide any condominium unit;

(4) Seek to abandon, partition, subdivide, encumber, sell, or transfer the common 

elements by act or omission (the granting of easements for public utilities or other 

public purposes consistent with the intended use of the common elements by the 

condominium project is not a transfer within the meaning of this clause); or

(5) Use hazard insurance proceeds for losses to any condominium property 

(whether units or common elements) for other than the repair, replacement, or 

reconstruction of the condominium property.

(e) All taxes, assessments, and charges that may become liens prior to the first mortgage 

under local law relate only to the individual condominium units and not to the 

condominium project as a whole.

(f) No provision of the condominium documents gives a condominium unit owner or any 

other party priority over any rights of RHS as first or second mortgagee of the 

condominium unit pursuant to its mortgage in the case of a payment to the unit owner of 

insurance proceeds or condemnation awards for losses to or taking of condominium units 

or common elements.

(g) If the condominium project is on a leasehold the underlying lease provides adequate 

security of tenure as described in § 3550.58(b).

Appendix 1 - Page 50
7 CFR Part 3550

§ 3550.71 (Con.)

(h) At least 70 percent of the units have been sold. Multiple purchases of condominium 

units by one owner are counted as one sale when determining if the sales requirement 

has been met.

(i) No more than 15 percent of the unit owners are more than 1 month delinquent in 

payment of homeowners association dues or assessments at the time the RHS loan is 

closed.

§ 3550.72 Community land trusts.

Eligible dwellings located on land owned by a community land trust may be financed if:

(a) The loan meets all the requirements of this subpart, and

(b) Any restrictions, imposed by the community land trust on the property or applicant 

are:

(1) Reviewed and accepted by RHS before loan closing, and

(2) Automatically and permanently terminated upon foreclosure or acceptance by 

RHS of a deed in lieu of foreclosure.

§ 3550.73 Manufactured homes.

With the exception of the restrictions and additional requirements contained in this 

section, section 502 loans on manufactured homes are subject to the same conditions as all 

other section 502 loans.

(a) Eligible costs. In addition to the eligible costs described in § 3550.52(d), RHS may 

finance the following activities related to manufactured homes when a real estate 

mortgage covers both the unit and the site:

(1) Purchase of an eligible unit, transportation, and set-up costs, and purchase of 

an eligible site if not already owned by the applicant.

(2) Site development work in accordance with 7 CFR part 1924, subpart A.

(3) Subsequent loans in conjunction with an assumption or sale of an REO 

property, or

(4) Subsequent loans for repairs of units financed under section 502.

Appendix 1 - Page 51

(01-23-03) SPECIAL PN

Revised (01-15-15) PN 473
7 CFR Part 3550

§3550.73 (Con.)

(b) Loan restrictions. In addition to the loan restrictions described in § 3550.52(e), RHS 

may not use loan funds to finance:

(1) An existing unit and site unless it is already financed with a section 502 loan or 

is an RHS REO property.

(2) The purchase of a site without also financing the unit.

(3) Alteration or remodeling of the unit when the initial loan is made.

(4) Furniture, including movable articles of personal property such as drapes, beds, 

bedding, chairs, sofas, divans, lamps, tables, televisions, radios, stereo sets, and 

other similar items of personal property. Furniture does not include wall-to-wall 

carpeting, refrigerators, ovens, ranges, washing machines, clothes dryers, heating 

or cooling equipment, or other similar items.

(c) Dealer-contractors. No loans will be made on a manufactured home sold by any 

entity that is not an approved dealer-contractor that will provide complete sales, service, 

and site development services.

(d) Loan term. The maximum term of a loan on a manufactured home is 30 years.

(e) Construction and development. Unit construction, site development and set-up must 

conform to the Federal Manufactured Home Construction and Safety Standards 

(FMHCSS) and 7 CFR part 1924, subpart A. Development under the Mutual Self-Help 

and borrower construction methods is not permitted for manufactured homes.

(f) Contract requirements. The dealer-contractor must sign a construction contract, as 

specified in 7 CFR § 1924.6 which will cover both the unit and site development work. 

The use of multi-contracts is prohibited. A dealer-contractor may use subcontractors if 

the dealer-contractor is solely responsible for all work under the contract. Payment for all 

work will be in accordance with 7 CFR part 1924, subpart A, except no payment will be 

made for materials or property stored on site (e.g., payment for a unit will be made only 

after it is permanently attached to the foundation).

(g) Lien release requirements. All persons furnishing materials or labor in connection 

with the contract except the manufacturer of the unit must sign a Release by Claimants 

document, as specified in 7 CFR part 1924, subpart A. The manufacturer of the unit must 

furnish an executed manufacturer's certificate of origin to verify that the unit is free and 

clear of all legal encumbrances.

Appendix 1 - Page 52
7 CFR Part 3550

§ 3550.73 (Con.)

(h) Warranty requirements. The dealer-contractor must provide a warranty in accordance 

with the provisions of 7 CFR § 1924.12. The warranty must identify the unit by serial 

number. The dealer-contractor must certify that the unit substantially complies with the 

plans and specifications and the manufactured home has sustained no hidden damage 

during transportation and, if manufactured in separate sections, that the sections were 

properly joined and sealed according to the manufacturer's specifications. The dealercontractor will also furnish the applicant with a copy of all manufacturer's warranties.

§ 3550.74 Nonprogram loans.

NP terms may be extended to applicants who do not qualify for program credit, or for 

properties that do not qualify as program properties, when it is in the best interest of the

Government. NP loans are originated and serviced according to the requirements for program 

loans except as indicated in this section.

(a) Purpose. NP terms may be offered to expedite:

(1) Sale of an REO property.

(2) Assumption of an existing program loan on new rates and terms. If additional 

funds are required to purchase the property, the applicant must obtain them from 

another source.

(3) Conversion of a program loan that has received unauthorized assistance.

(4) Continuation of a loan on a portion of a security property when the remainder is 

being transferred and the RHS debt is not paid in full.

(b) Terms.

(1) Rate and term:

(i) For an applicant who intends to occupy the property, the term will not 

exceed 30 years.

(ii) For other applicants, the term will not exceed 10 years. If more favorable 

terms are necessary to facilitate the sale, the loan may be amortized over a 

period of up to 20 years with payment in full due not later than 10 years from 

the date of closing.

Appendix 1 - Page 53

(01-23-03) SPECIAL PN

Revised (01-15-15) PN 473
7 CFR Part 3550

§ 3550.74 (b)(1) (Con.)

(iii) An applicant with a NP loan under paragraph (b)(1)(i) of this section who 

wishes to retain the property and purchase a new property with RHS credit

must purchase the second property according to the terms of paragraph 

(b)(1)(ii) of this section, even if the new property will serve as the applicant’s 

principal residence.

(2) NP loans are written at the NP interest rate in effect at the time of loan 

approval.

(3) NP borrowers are not eligible for payment assistance or a moratorium.

(c) Additional requirements.

(1) NP applicants other than public bodies and nonprofit organizations must pay a 

nonrefundable application fee.

(2) NP applicants must make a down payment based upon the purchase price and

whether the applicant intends to personally occupy the property or use it for other 

purposes. 

(3) NP applicants cannot finance loan closing costs or escrow, tax service, or 

appraisal fees.

(d) Reduced restrictions.

(1) NP applicants need not be unable to obtain other credit in order to receive a NP 

loan and are not required to refinance with private credit when they are able to do 

so.

(2) NP applicants are not required to occupy the property.

(3) NP applicants are not subject to leasing restrictions.

(e) Waiver of costs. When the purpose of the loan is the conversion of a program loan 

that has received unauthorized assistance or continuation of a loan on a portion of a 

security property when the remainder is being transferred, the application fee, appraisal 

fee, and down payment may be waived.

§ 3550.75 Certified loan application packaging process.

Persons interested in applying for a section 502 loan may, but are not required to, submit

an application through the certified loan application packaging process. 

(a) General. The certified loan application packaging process involves individuals who 

have been designated as an Agency-certified loan application packager, their qualified

employers, and, if required by the State Director, Agency-approved intermediaries. 

Appendix 1 - Page 54
7 CFR Part 3550

§ 3550.75 (Con.)

(b) Process requirements. To package section 502 loan applications under this 

process, each of the following conditions must be met: 

(1) Agency-certified loan application packager. An individual who wishes to 

acquire RHS certification as a loan application packager must meet all of the 

following conditions: 

(i) Have at least one year of affordable housing loan origination and/or

affordable housing counseling experience;

(ii) Be employed (either as an employee or as an independent contractor) by 

a qualified employer as outlined in paragraph (b)(2) of this section; 

(iii) Complete an Agency-approved loan application packaging course and 

successfully pass the corresponding test as specified in paragraph (c) of this 

section; and

(iv) Submit applications to the Agency via an intermediary if determined 

necessary by a State Director.

(2) Qualified employer. Individuals who have been designated as an Agencycertified loan application packager must be employed (either as an employee 

or as an independent contractor) by a qualified employer. To be considered a 

qualified employer, the packager’s employer must meet each of the conditions 

specified in paragraphs (b)(2)(i) through (v) of this section. Tribal housing 

authorities and the States’ Housing Finance Agencies are eligible and are 

exempt from the conditions specified in paragraphs (b)(2)(i) through (ii) of this 

section. 

(i) Be a nonprofit organization or public agency in good standing in the 

State(s) of its operation. 

(ii) Be tax exempt under the Internal Revenue Code and be engaged in 

affordable housing per their regulations, articles of incorporation, or bylaws.

(iii) Notify the Agency and the applicant if they or their Agency-certified 

packager(s) are the developer, builder, seller of, or have any other such 

financial interest in the property for which the application package is 

submitted. The Agency may disallow a particular qualified employer and/or 

Agency-certified packager from receiving part or all of a packaging fee if the 

Agency determines that the financial interest is improper or the qualified 

employer or Agency-certified packager has a history of improperly using its 

position when there has been a financial interest in the property. 

Appendix 1 - Page 55

(01-23-03) SPECIAL PN

Revised (05-19-16) PN 486
7 CFR Part 3550

§ 3550.75 (b)(2) (Con.)

(iv) Prepare an affirmative fair housing marketing plan for Agency approval 

as outlined in RD Instruction 1901-E (or in any superseding guidance 

provided in the impending RD Instruction 1940-D).

(v) Submit applications to the Agency via an intermediary if determined 

necessary by a State Director.

(3) Agency-approved intermediaries. To become an Agency-approved 

intermediary, an interested party must apply and demonstrate to the Agency’s 

satisfaction that they meet each of the conditions specified below. The States’ 

Housing Finance Agencies, however, are exempt from the conditions specified 

in paragraphs (b)(3)(i) through (v). After the initial application process, the 

Agency may require intermediaries to periodically demonstrate that they still 

meet the following criteria.

(i) Be a Section 501 (c)(3) nonprofit organization or public agency in good 

standing in the State(s) of its operation with the capacity to serve multiple 

qualified employers and their Agency-certified loan application packagers 

throughout an entire State or preferably throughout entire States and with the 

capacity to perform quality assurance reviews on a large volume of packaged 

loan applications within an acceptable period of time as determined by the 

Agency;

(ii) Be engaged in affordable housing in accordance with their regulations, 

articles of incorporation, or bylaws;

(iii) Be financially viable and demonstrate positive operating performance as 

evidenced by an independent audit paid for by the applicant seeking to be an 

intermediary; 

(iv) Have at least five years of verifiable experience with the Agency’s direct 

single family housing loan programs;

(v) Demonstrate that their quality assurance staff has experience with 

packaging, originating, or underwriting affordable housing loans. 

(vi) Develop and implement quality control procedures designed to prevent 

submission of incomplete or ineligible application packages to the Agency;

Appendix 1 - Page 56
7 CFR Part 3550

§ 3550.75 (b)(3) (Con.)

(vii) Ensure that their quality assurance staff complete an Agency-approved 

loan application packaging course and successfully pass the corresponding 

test; 

(viii) Not be the developer, builder, seller of, or have any other such financial 

interest in the property for which the application package is submitted; and

(ix) Provide supplemental training, technical assistance, and support to 

certified loan application packagers and qualified employers to promote 

quality standards and accountability; and to address areas for improvement 

and any changes in program guidance.

(c) Loan application packaging courses. Prospective loan application packagers must 

successfully complete an Agency-approved course that covers the material identified in 

paragraph (c)(1) of this section. Prospective intermediaries must also successfully 

complete an Agency-approved course as specified in paragraph (c)(2) of this section.

(1) Loan application packagers. At a minimum, the certification course for individuals 

who wish to become Agency-certified loan application packagers will provide: 

(i) An in-depth review of the section 502 direct single family housing loan program 

and the regulations and laws that govern the program (including civil rights lending 

laws such as the Equal Credit Opportunity Act, Fair Housing Act, and Section 504 

of the Rehabilitation Act of 1973); 

(ii) A detailed discussion on the program’s application process and 

borrower/property eligibility requirements; 

(iii) An examination of the Agency’s loan underwriting process which includes the 

use of payment subsidies; and 

(iv) The roles and responsibilities of a loan application packager and the Agency 

staff. 

(2) Intermediaries. The required course for an intermediary’s quality assurance staff will 

cover the components described in paragraph (c)(1) of this section and other information 

relevant to undertaking quality assurance, technical assistance, and training functions in 

support of the qualified employers and their Agency-certified loan application packagers.

Appendix 1 - Page 57

(01-23-03) SPECIAL PN

Revised (05-19-16) PN 486

7 CFR Part 3550
§ 3550.75 (c) (Con.)

(3) Non-Agency trainers. Prior to offering the required course to packagers and 

intermediaries, non-Agency trainers must obtain approval from designated Agency staff. 

Non-Agency trainers, who will generally be limited to housing nonprofit organizations but 

may in rare cases include public bodies such as public universities, must provide proof 

of relevant experience and resources for delivery; present evidence that their individual 

trainers are competent and knowledgeable on all subject areas; submit course materials 

for Agency review; agree to maintain attendance records, test results, and updated 

course materials; and bear the cost of providing the training though a reasonable tuition 

fee may be charged the course participants. The course content, schedule, and tuition 

must be approved by RHS and a designated Agency staff member will typically 

participate in each training session to ensure accuracy of the program information and to 

serve as a program resource. A list of eligible non-Agency trainers, which is subject to 

change based on non-Agency trainers’ performance, will be published by the Agency.

(d) Confidentiality. The Agency-certified loan application packager, qualified employer, Agencyapproved intermediary and their agents must safeguard each applicant’s personal and financial 

information.

(e) Retaining designation. The Agency will meet with the Agency-certified loan application 

packager, their qualified employer, and Agency-approved intermediary (if applicable) at least 

annually to maintain open lines of communication; discuss their packaging activities; identify 

and resolve deficiencies in the packaging process; and stipulate any training requirements for 

retaining designation (including but not limited to civil rights refresher training).

(f) Revocation. The designation as an Agency-certified loan application packager or Agencyapproved intermediary is subject to revocation by the Agency under any of the following 

conditions:

(1) The rate of submitted packaged loan applications that receive RHS approval is below 

the acceptable limit as determined by the Agency; 

(2) The rate of submitted packaged loan applications from very low-income applicants is 

below the acceptable level as determined by the Agency; 

(3) Violation of applicable regulations, statutes and other guidance; or 

(4) No viable packaged loan applications are submitted to the Agency in any consecutive 

12-month period. 

§§ 3550.76 - 3550.99 [Reserved]

Appendix 1 - Page 58
7 CFR Part 3550

§ 3550.100 OMB control number. 

The information collection requirements contained in this regulation have been approved 

by the Office of Management and Budget (OMB) and have been assigned OMB control number 

0575-0172. Public reporting burden for this collection of information is estimated to vary from 5 

minutes to 3 hours per response, with an average of 1 1/2 hours per response, including time 

for reviewing instructions, searching existing data sources, gathering and maintaining the data 

needed, and completing and reviewing the collection of information. You are not required to 

respond to this collection of information unless it displays a currently valid OMB control number.

Subpart C - Section 504 Origination and Section 306C Water and Waste Disposal Grants

§ 3550.101 Program objectives.

This subpart sets forth policies for administering loans and grants under section 504(a) of 

title V of the Housing Act of 1949, as amended. Section 504 loans and grants are intended to 

help very low-income owner-occupants in rural areas repair their properties. This subpart also 

covers Water and Waste Disposal grants to individuals authorized by Section 306C(b) of the 

Consolidated Farm and Rural Development Act, (7 U.S.C. 1926c).

§ 3550.102 Grant and loan purposes.

(a) Grant funds. Grant funds may be used only to pay costs for repairs and 

improvements that will remove identified health and safety hazards or to repair or remodel 

dwellings to make them accessible and useable for household members with disabilities. 

Unused grant funds must be returned to the Rural Housing Service (RHS).

(b) Loan funds. Loan funds may be used to make general repairs and improvements to 

properties or to remove health and safety hazards, as long as the dwelling remains 

modest in size and design.

(c) Eligibility of mobile and manufactured homes. Repairs necessary to remove health 

and safety hazards may be made to mobile or manufactured homes provided:

(1) The applicant owns the home and site and has occupied the home prior to filing 

an application with RHS, and

(2) The mobile or manufactured home is on a permanent foundation or will be put 

on a permanent foundation with section 504 funds.

Appendix 1 - Page 59

(01-23-03) SPECIAL PN

Revised (05-19-16) PN 486
7 CFR Part 3550

§ 3550.102 (Con.)

(d) Eligible costs. In addition to construction costs to make necessary repairs and 

improvements, loan and grant funds may be used for:

(1) Reasonable expenses related to obtaining the loan or grant, including legal, 

architectural and engineering, title clearance, and loan closing fees; and appraisal, 

surveying, environmental, tax monitoring, and other technical services.

(2) The cost of providing special design features or equipment when necessary 

because of a physical disability of the applicant or a member of the household.

(3) Reasonable connection fees, assessments, or the pro rata installation costs for 

utilities such as water, sewer, electricity, and gas for which the borrower is liable 

and which are not paid from other funds.

(4) Real estate taxes that are due and payable on the property at the time of 

closing and for the establishment of escrow accounts for real estate taxes, hazard 

and flood insurance premiums, and related costs.

(5) Fees to public and private nonprofit organizations that are tax exempt under the 

Internal Revenue Code for the development and packaging of applications.

(e) Restrictions on uses of loan or grant funds. Section 504 funds may not be used to:

(1) Assist in the construction of a new dwelling.

(2) Make repairs to a dwelling in such poor condition that when the repairs are 

completed, the dwelling will continue to have major hazards.

(3) Move a mobile home or manufactured home from one site to another.

(4) Pay for off-site improvements except for the necessary installation and 

assessment costs for utilities.

(5) Refinance any debt or obligation of the applicant incurred before the date of 

application, except for the installation and assessment costs of utilities.

(6) Pay fees, commission, or charges to for-profit entities related to loan packaging 

or referral of prospective applicants to RHS.

Appendix 1 - Page 60
7 CFR Part 3550

§ 3550.103 Eligibility requirements.

To be eligible, applicants must meet the following requirements:

(a) Owner-occupant. Applicants must own, as described in § 3550.107, and occupy the 

dwelling.

(b) Age (grant only). To be eligible for grant assistance, an applicant must be 62 years of 

age or older at the time of application.

(c) Income eligibility. At the time of loan or grant approval, the household’s adjusted 

income must not exceed the applicable very low-income limit. Section 3550.54 provides 

a detailed discussion of the calculation of adjusted income.

(d) Citizenship status. The applicant must be a U.S. citizen or a non-citizen who qualifies 

as a legal alien, as defined in § 3550.10.

(e) Need and use of personal resources. Applicants must be unable to obtain financial 

assistance at reasonable terms and conditions from non-RHS credit or grant sources and 

lack the personal resources to meet their needs. In cases where the household is 

experiencing medical expenses in excess of three percent of the household’s income, this 

requirement may be waived or modified. Elderly families must use any net family assets 

in excess of $20,000 to reduce their section 504 request. Non-elderly families must use 

any net family assets in excess of $15,000 to reduce their section 504 request. 

Applicants may contribute assets in excess of the aforementioned amounts to further 

reduce their request for assistance. The definition of assets for this purpose is net family 

assets as described in § 3550.54 of subpart B of this part, less the value of the dwelling 

and a minimum adequate site.

(f) Legal capacity. The applicant must have the legal capacity to incur the loan obligation 

or have a court appointed guardian or conservator who is empowered to obligate the 

applicant in real estate matters.

(g) Suspension or debarment. Applications from applicants who have been suspended 

or debarred from participation in federal programs will be handled in accordance with 

FmHA Instruction 1940-M (available in any Rural Development office).

(h) Repayment ability (loans only). Applicants must demonstrate adequate repayment 

ability as supported by a budget.

(1) If an applicant does not meet the repayment ability requirements, the applicant 

can have another party join the application as a cosigner.

(2) If an applicant does not meet the repayment ability requirements, the applicant 

can have other household members join the application.

Appendix 1 - Page 61

(01-23-03) SPECIAL PN

Revised (05-19-16) PN 486
7 CFR Part 3550

§ 3550.103 (Con.)

(i) Credit qualifications. Applicants must be unable to secure the necessary credit from 

other sources under terms and conditions that the applicant could reasonably be 

expected to fulfill. Loan applicants must have a credit history that indicates reasonable 

ability and willingness to meet debt obligations. An applicant with an outstanding 

judgment obtained by the United States in a federal court, other than the United States 

Tax Court is not eligible for a loan or grant from RHS.

(1) Indicators of unacceptable credit include:

(i) Payments on any account where the amount of the delinquency exceeded 

one installment for more than 30 days within the last 12 months.

(ii) Payments on any account which was delinquent for more than 30 days on 

two or more occasions within a 12-month period.

(iii) Loss of security due to a foreclosure if the foreclosure has been 

completed within the last 36 months.

(iv) An outstanding Internal Revenue Service tax lien or any other 

outstanding tax liens with no satisfactory arrangement for payment.

(v) A court-created or court-affirmed obligation or judgment caused by 

nonpayment that is currently outstanding or has been outstanding within the 

last 12 months, except for those excluded by paragraphs (i)(2)(i) and (i)(2)(ii) 

of this section.

(vi) Outstanding collection accounts with a record of irregular payment with 

no satisfactory arrangements for repayment, or collection accounts that were 

paid in full within the last 6 months.

(vii) Non-agency debts written off within the last 36 months or paid in full at 

least 12 months ago.

(viii) Agency debts that were debt settled within the last 36 months or are 

being considered for debt settlement.

(ix) Delinquency on a federal debt.

(2) The following will not be considered indicators of unacceptable credit:

(i) A bankruptcy in which debts were discharged more than 36 months prior 

to the date of application or where an applicant successfully completed a 

bankruptcy debt restructuring plan and has demonstrated a willingness to 

meet obligations when due for the 12 months prior to the date of application.

Appendix 1 - Page 62
7 CFR Part 3550

§ 3550.103 (i)(2) (Con.)

(ii) A non-foreclosure judgment satisfied more than 12 months before the 

date of application.

(3) When an application is rejected because of unacceptable credit, the applicant 

will be informed of the reason and source of information.

§ 3550.104 Applications.

(a) Application submissions. All persons applying for section 504 loans or grants must 

file a complete written application in a format specified by RHS. Applications will be 

accepted even when funds are not available.

(b) Application processing.

(1) Incomplete applications will be returned to the applicant specifying in writing the 

additional information that is needed to make the application complete.

(2) An applicant may voluntarily withdraw an application at any time.

(3) RHS may periodically request in writing that applicants reconfirm their interest 

in obtaining a loan or grant. RHS may withdraw the application of any applicant 

who does not respond within the specified timeframe.

(4) Applicants who are eligible will be notified in writing. If additional information 

becomes available that indicates that the original eligibility determination may have 

been in error or that circumstances have changed, RHS may reconsider the 

application and the applicant may be required to submit additional information.

(5) Applicants who are ineligible will be notified in writing and provided with the 

specific reasons for the rejection. 

(c) Processing priorities. When funding is not sufficient to serve all eligible applicants, 

applications for assistance to remove health and safety hazards will receive priority for 

funding. In the case of applications with equivalent priority status that are received on the 

same day, preference will be extended to applicants qualifying for a veterans preference. 

After selection for processing, requests for assistance are funded on a first-come, firstserved basis.

Appendix 1 - Page 63

(01-23-03) SPECIAL PN

Revised (05-19-16) PN 486
7 CFR Part 3550

§ 3550.105 Site requirements.

(a) Rural areas. Loans may be made only in rural areas designated by RHS. If an area 

designation is changed to nonrural an existing RHS borrower may receive 504 

assistance.

(b) Not subdividable. The site must not be large enough to subdivide into more than one 

site under existing local zoning ordinances.

§ 3550.106 Dwelling requirements.

(a) Modest dwelling. The property must be one that is considered modest for the area, 

must not be designed for income producing purposes, have an in-ground swimming pool, 

or have a market value in excess of the applicable maximum loan limit, in accordance 

with § 3550.63. 

(b) Post-repair condition. Dwellings repaired with section 504 funds need not be brought 

to the agency development standards of 7 CFR part 1924, subpart A, nor must all existing 

hazards be removed. However, the dwelling may not continue to have major health or 

safety hazards.

(c) Construction standards. All work must be completed in accordance with local 

construction codes and standards. When potentially hazardous equipment or materials 

are being installed, all materials and installations must be in accordance with the

applicable standards in 7 CFR part 1924, subpart A.

§ 3550.107 Ownership requirements.

The applicant must have an acceptable ownership interest in the property as evidenced 

by one of the following:

(a) Full fee ownership. Acceptable full fee ownership is evidenced by a fully marketable 

title with a deed vesting a fee interest in the property to the applicant.

(b) Secure leasehold interest. A written lease is required. For loans, the unexpired 

portion of the lease must not be less than 2 years beyond the term of the promissory 

note. For grants, the remaining lease period must be at least 5 years. A leasehold for 

mutual help housing financed by U.S. Department of Housing and Urban Development 

(HUD) on Indian lands requires no minimum lease period and constitutes acceptable 

ownership.

Appendix 1 - Page 64
7 CFR Part 3550

§ 3550.107 (Con.)

(c) Life estate interest. To be acceptable, a life estate interest must provide the applicant 

with rights of present possession, control, and beneficial use of the property. For secured 

loans, generally persons with any remainder interests must be signatories to the 

mortgage. All of the remainder interests need not be included in the mortgage to the 

extent that one or more of the persons holding remainder interests are not legally 

competent (and there is no representative who can legally consent to the mortgage), 

cannot be located, or if the remainder interests are divided among such a large number of 

people that it is not practical to obtain the signatures of all of the remainder interests. In 

such cases, the loan may not exceed the value of the property interests owned by the 

persons executing the mortgage.

(d) Undivided interest. An undivided interest is acceptable if there is no reason to believe 

that the applicant's position as an owner-occupant will be jeopardized as a result of the 

improvements to be made, and:

(1) In the case of unsecured loans or grants, if any co-owners living or planning to 

live in the dwelling sign the repayment agreement.

(2) In the case of a secured loan, when one or more of the co-owners are not 

legally competent (and there is no representative who can legally consent to the 

mortgage), cannot be located, or the ownership interests are divided among so 

large a number of co-owners that it is not practical for all of their interests to be 

mortgaged, their interests not exceeding 50 percent may be excluded from the 

security requirements. In such cases, the loan may not exceed the value of the 

property interests owned by the persons executing the mortgage.

(e) Possessory rights. Acceptable forms of ownership include possessory right on an 

American Indian reservation or State-owned land and the interest of an American Indian 

in land held severalty under trust patents or deeds containing restrictions against 

alienation, provided that land in trust or restricted status will remain in trust or restricted 

status.

(f) Land purchase contract. A land purchase contract is acceptable if the applicant is 

current on all payments, and there is a reasonable likelihood that the applicant will be 

able to continue meeting the financial obligations of the contract.

(g) Alternative evidence of ownership. If evidence, as described in paragraphs (a) 

through (e) of this section, is not available, RHS may accept any of the following as 

evidence of ownership:

(1) Records of the local taxing authority that show the applicant as owner and that 

demonstrate that real estate taxes for the property are paid by the applicant.

Appendix 1 - Page 65

(01-23-03) SPECIAL PN

Revised (05-19-16) PN 486
7 CFR Part 3550

§ 3550.107 (g) (Con.)

(2) Affidavits by others in the community stating that the applicant has occupied the 

property as the apparent owner for a period of not less than 10 years, and is 

generally believed to be the owner.

(3) Any instrument, whether or not recorded, which is commonly accepted as 

evidence of ownership.

§ 3550.108 Security requirements (loans only).

When the total section 504 indebtedness is $7,500 or more, the property will be secured 

by a mortgage on the property, leasehold interest, or land purchase contract.

(a) RHS does not require a first lien position, but the total of all debts on the secured 

property may not exceed the value of the security, except by the amount of any required 

contributions to an escrow account for taxes and insurance and any required appraisal 

fee.

(b) Title clearance and the use of legal services generally must be conducted in 

accordance with 7 CFR part 1927, subpart B. These requirements need not be followed 

for:

(1) Loans where the total RHS indebtedness is less than $7,500; or

(2) Subsequent loans made for minimal essential repairs necessary to protect the 

Government's interest.

§ 3550.109 Escrow account (loans only).

RHS may require that borrowers deposit into an escrow account amounts necessary to 

ensure that the account will contain sufficient funds to pay real estate taxes, hazard and flood 

insurance premiums, and other related costs when they are due in accordance with the Real 

Estate Settlement and Procedures Act of 1974 (RESPA) and section 501(e) of the Housing Act 

of 1949, as amended.

§ 3550.110 Insurance (loans only).

(a) Borrower responsibility. Any borrower with a secured indebtedness in excess of 

$15,000 at the time of loan approval must furnish and continually maintain hazard 

insurance on the security property, with companies, in amounts, and on terms and 

conditions acceptable to RHS including a “loss payable clause” payable to RHS to protect 

the Government’s interest.

(b) Amount. The borrower is required to insure the dwelling and any other essential 

buildings in an amount equal to the insurable value of the dwelling and other essential 

buildings. However, in cases where the borrower’s outstanding secured indebtedness is 

less than the insurable value of the dwelling and other essential buildings, the borrower 

may elect a lower coverage provided it is not less than the outstanding secured

Appendix 1 - Page 66
7 CFR Part 3550

§ 3550.110 (Con.)

indebtedness. If the borrower fails, or is unable, to insure the secured property, RHS will 

force place insurance and charge the cost to the borrower’s account. Force place 

insurance only provides insurance coverage to the Agency and does not provide any

direct coverage or benefit to the borrower. The amount of the lender-placed coverage 

generally will be the property’s last known insured value.

(c) Flood insurance. Flood insurance must be obtained and maintained for the life of the loan 

for all property located in Special Flood Hazard Areas (SFHA) as determined by the Federal 

Emergency Management Agency (FEMA). RHS actions will be consistent with RD Instruction 

1970, Subpart F, 7 CFR part 1806, Subpart B, and RD Instruction 426.2 which address flood

documentation and insurance requirements. If flood insurance through FEMA’s National Flood 

Insurance Program is not available in a SFHA, if the lowest floor (including the basement) is not 

above the base flood elevation, or if there are viable alternative housing options outside of the 

floodplain, the property is not eligible for federal financial assistance.

(d) Losses.

(1) Loss deductible clauses for required insurance coverage may not exceed the 

generally accepted minimums based on current industry standards and local market 

conditions.

(2) Borrowers must immediately notify RHS of any loss or damage to insured 

property and collect the amount of the loss from the insurance company.

(3) RHS may require that loss payments be supervised. All repairs and 

replacements done by or under the direction of the borrower, or by contract, will be 

planned, performed, inspected, and paid for in accordance with 7 CFR part 1924, 

subpart A.

(4) When insurance funds remain after all repairs, replacements, and other 

authorized disbursements have been made, the funds will be applied in the 

following order:

(i) Prior liens, including delinquent property taxes.

(ii) Delinquency on the account.

(iii) Advances due for recoverable cost items.

(iv) Released to the borrower if the RHS debt is adequately secured.

(5) If a loss occurs when insurance is not in force, the borrower is responsible for 

making the needed repairs or replacements and ensuring that the insurance is 

reinstated on the property.

Appendix 1 - Page 67

(01-23-03) SPECIAL PN

Revised (01-06-17) PN 492
7 CFR Part 3550

§ 3550.110 (d) (Con.)

(6) If the borrower is not financially able to make the repairs, RHS may take one of 

the following actions:

(i) Make a subsequent loan for repairs.

(ii) Subordinate the RHS lien to permit the borrower to obtain funds for 

needed repairs from another source.

(iii) Permit the borrower to obtain funds secured by a junior lien from another 

source.

(iv) Make a protective advance to protect the Government's interest.

(v) Accelerate the account and demand payment in full.

§ 3550.111 Appraisals (loans only).

An appraisal is required when the section 504 debt to be secured exceeds $15,000 or 

whenever RHS determines that it is necessary to establish the adequacy of the security. RHS 

may charge an appraisal fee. Appraisals must be made in accordance with the Uniform 

Standards of Professional Appraisal Practices. When other real estate is taken as additional 

security it will be appraised if it represents a substantial portion of the security for the loan.

§ 3550.112 Maximum loan and grant.

(a) Maximum loan permitted. The sum of all outstanding section 504 loans to 1 borrower 

or on 1 dwelling may not exceed $20,000.

(1) Transferees who have assumed a section 504 loan and wish to obtain a 

subsequent section 504 loan are limited to the difference between the unpaid 

principal balance of the debt assumed and $20,000.

(2) For a secured loan, the total of all debts on the secured property may not 

exceed the value of the security, except by the amount of any required appraisal 

and tax monitoring fees, and the contributions to an escrow account for taxes and 

insurance.

(b) Maximum loan based upon ability to pay. The maximum loan is limited to the 

principal balance that can be supported given the amount the applicant has available, as 

determined by RHS, to repay a loan at 1 percent interest with a 20-year term.

(c) Maximum grant. The lifetime total of the grant assistance to any recipient is $7,500. 

No grant can be awarded unless the maximum level of loans, as supported by a budget, 

have been obtained.

Appendix 1 - Page 68
7 CFR Part 3550

§ 3550.113 Rates and terms (loans only).

(a) Interest rate. The interest rate for all section 504 loans will be 1 percent.

(b) Loan term. The repayment period for the loan should generally be as short as 

possible based on the applicant's repayment ability, and may never exceed 20 years; 

however loans made in combination with grants must have a term of 20 years.

§ 3550.114 Repayment agreement (grants only).

Grant recipients are required to sign a repayment agreement which specifies that the full 

amount of the grant must be repaid if the property is sold in less than 3 years from the date the 

grant agreement was signed.

§ 3550.115 WWD grant program objectives.

The objective of the WWD individual grant program is to facilitate the use of community 

water and waste disposal systems by the residents of colonias along the border between the 

U.S. and Mexico. WWD grants are processed the same as Section 504 grants, except as 

specified in this subpart.

§ 3550.116 Definitions applicable to WWD grants only. 

 (a) Colonia. Any identifiable community designated in writing by the State or county in 

 which it is located; determined to be a colonia on the basis of objective criteria including 

lack of a potable water supply, lack of adequate sewage systems, and lack of decent, safe, 

and sanitary housing, inadequate roads, and drainage; and existed and was generally 

recognized as a colonia before October 1, 1989.

 (b) Individual. Resident of a colonia located in a rural area.

(c) Rural areas. Includes unincorporated areas and any city or town with a population not 

in excess of 10,000 inhabitants according to the most recent decennial census of the United 

States.

 (d) System. A community or central water supply or waste disposal system.

 (e) WWD. Water and Waste Disposal grants to individuals.

Appendix 1 - Page 69

(01-23-03) SPECIAL PN

Revised (05-19-16) PN 486
7 CFR Part 3550

§ 3550.117 WWD grant purposes. 

 Grant funds may be used to pay the reasonable costs for individuals to:

 (a) Extend service lines from the system to their residence.

 (b) Connect service lines to residence’s plumbing.

 (c) Pay reasonable charges or fees for connecting to a system.

 (d) Pay for necessary installation of plumbing and related fixtures within dwellings lacking 

 such facilities. This is limited to one bath tub, sink, commode, kitchen sink, water 

 heater, and outside spigot.

 (e) Construction and/or partiting off a portion of the dwelling for a bathroom, not to 

 exceed 4.6 square meters (48 square feet) in size.

 (f) Pay reasonable costs for closing abandoned septic tanks and water wells when 

necessary to protect the health and safety of recipients of a grant for a purpose 

provided in paragraph (a) or (b) of this section and is required by local or State law.

(g) Make improvements to individual’s residence when needed to allow the use of the 

 water and/or waste disposal system.

§ 3550.118 Grant restrictions.

 

(a) Maximum grant. Lifetime assistance to any individual for initial or subsequent Section

306C WWD grants may not exceed a cumulative total of $5,000.

(b) Limitation on use of grant funds. WWD grant funds may not be used to:

(1) Pay any debt or obligation of the grantees other than obligations incurred for

purposes listed in § 3550.117. 

 (2) Pay individuals for their own labor.

 

§ 3550.119 WWD eligibility requirements. 

In addition to the eligibility requirements of § 3550.103, WWD applicants must meet the 

following requirements:

(a) An applicant need not be 62 years of age or older.

Appendix 1 - Page 70
7 CFR Part 3550

§ 3550.119 (Con.)

(b) Own and occupy a dwelling located in a colonia. Evidence of ownership will be 

presented as outlined in § 3550.107. 

(c) Have a total taxable income from all individuals residing in the household that is below 

the most recent poverty income guidelines established by the Department of Health and 

Human Services. 

(d) Must not be delinquent on any Federal debt.

(e) The household income must be verified at the time they apply for assistance through 

verification of employment and benefits. Federal tax returns are used as further 

verification of household income.

§§ 3550.120 - 3550.149 [Reserved]

§ 3550.150 OMB control number. 

The information collection requirements contained in this regulation have been approved 

by the Office of Management and Budget (OMB) and have been assigned OMB control number 

0575-0172. Public reporting burden for this collection of information is estimated to vary from 5 

minutes to 3 hours per response, with an average of 1 1/2 hours per response, including time 

for reviewing instructions, searching existing data sources, gathering and maintaining the data 

needed, and completing and reviewing the collection of information. You are not required to 

respond to this collection of information unless it displays a currently valid OMB control number.

Subpart D - Regular Servicing

§ 3550.151 Servicing goals.

This subpart sets forth the Rural Housing Service (RHS) policies for managing the 

repayment of loans made under sections 502 and 504 of the Housing Act of 1949, as amended.

Appendix 1 - Page 71

(01-23-03) SPECIAL PN

Revised (05-19-16) PN 486
7 CFR Part 3550

§ 3550.152 Loan payments.

(a) Payment terms. Unless the loan documents specify other loan repayment terms, 

borrowers are required to make monthly payments. Borrowers with existing loans 

specifying annual payments may request conversion to monthly payments, and must 

convert to a monthly payment schedule before any subsequent loan or new payment 

assistance is approved. Suitable forms of payment are: check, money order, or bank 

draft. Borrowers who make cash payments will be assessed a fee to cover the cost of 

conversion to a money order.

(b) Application of payments. If a borrower makes less than the scheduled payment, the 

payment is held in suspense and is not applied to the borrower’s account. When 

subsequent payments are received in an amount sufficient to equal a scheduled payment, 

the amount will be applied in the following order:

(1) Protective advances charged to the account.

(2) Accrued interest due.

(3) Principal due.

(4) Escrow for taxes and insurance.

(c) Multiple loans. When a borrower with multiple loans for the same property makes 

less than the scheduled payment on all loans, the payment will be applied to the oldest 

loan and then in declining order of age. Future remittances will be applied beginning with 

the oldest unpaid installment.

(d) Application of excess payments. Borrowers can elect to make payments in excess of 

the scheduled amount to be applied to principal, provided there are no outstanding fees.

§ 3550.153 Fees.

RHS may assess reasonable fees including a tax service fee, fees for late payments, and 

fees for checks returned for insufficient funds.

§ 3550.154 Inspections.

RHS or its agent may make reasonable entries upon and inspections of any property 

used as security for an RHS loan as necessary to protect the interest of the Government. RHS 

will give the borrower notice at the time of or prior to an inspection.

Appendix 1 - Page 72
7 CFR Part 3550

§ 3550.155 Escrow account.

Escrow accounts will be administered in accordance with RESPA and section 501(e) of 

the Housing Act of 1949, as amended.

(a) Upon creation of the escrow account, RHS may require borrowers to deposit funds 

sufficient to pay taxes and insurance premiums applicable to the mortgage for the period 

since the last payments were made and to fund a cushion as permitted by RESPA.

(b) Borrowers may elect to escrow at any time during the terms of the loan if the 

outstanding RHS loan balance is over $2,500.

(c) RHS may require borrowers to escrow in conjunction with any special servicing 

action.

§ 3550.156 Borrower obligations.

(a) After receiving a loan from RHS, borrowers are expected to meet a variety of 

obligations outlined in the loan documents. In addition to making timely payments, these 

obligations include:

(1) Maintaining the security property, and

(2) Maintaining an adequately funded escrow account, or paying real estate taxes, 

hazard and flood insurance, and other related costs when due.

(b) If a borrower fails to fulfill these obligations, RHS may obtain the needed service and 

charge the cost to the borrower’s account.

§ 3550.157 Payment subsidy.

(a) Borrowers currently receiving payment subsidy.

(1) RHS will review annually each borrower's eligibility for continued payment 

subsidy and determine the appropriate level of assistance. To be eligible for 

payment subsidy renewal, the borrower must also occupy the property.

(2) If the renewal is not completed before the expiration date of the existing 

agreement, the effective date of the renewal will be either the expiration date of the 

previous agreement if RHS error caused the delay, or the next due date after the 

renewal is approved in all other cases.

Appendix 1 - Page 73

(01-23-03) SPECIAL PN

Revised (05-19-16) PN 486
7 CFR Part 3550

§ 3550.157 (a) (Con.)

(3) The borrower must notify RHS whenever an adult member of the household 

becomes employed or changes employment, there is a change in household 

composition, or if income increases by at least 10 percent. The household may 

also report decreases in income. If the change in the household’s income will 

cause the payment for principal and interest to change by at least 10 percent, the 

household’s payment subsidy may be adjusted for a new 12-month period. The 

new agreement will be effective the due date following the date the borrower's 

information is verified by RHS.

(b) Borrowers not currently receiving payment subsidy. Payment assistance may be 

granted to borrowers not currently receiving payment subsidy whose loans were 

approved on or after August 1, 1968, whose income does not exceed the applicable lowincome limit for the area, are personally occupying the RHS financed property, and meet 

the requirements of § 3550.53 (b), (e), and (f). In general, to receive payment assistance 

the term of the loan at closing must have been at least 25 years. If an account has been 

reamortized and the initial term of the loan was at least 25 years, payment assistance 

may be granted even though the term of the reamortized loan is less than 25 years. 

Payment assistance may be granted on a subsequent loan for repairs with a term of less 

than 25 years.

(c) Cancellation of payment subsidy. RHS will cancel a payment subsidy if the borrower 

does not occupy the property, has sold or transferred title to the property, or is no longer 

eligible for payment subsidy.

§ 3550.158 Active military duty.

The Soldiers and Sailors Relief Act requires that the interest rate charged a borrower who 

enters full-time active military duty after a loan is closed not exceed six percent. Active military 

duty does not include participation in a military reserve or the National Guard unless the 

borrower is called to active duty.

(a) Amount of assistance. If a borrower qualifies for payment subsidy after reduction of 

the interest rate to six percent, the amount of payment subsidy received during the period 

of active military duty will be the difference between the amount due at the subsidized 

rate for principal and interest and the amount due at a six percent interest rate. The six 

percent interest rate will be effective with the first payment due after RHS confirms the 

active military status of the borrower.

(b) Change of active military status. The borrower must notify RHS when he or she is no 

longer on active military duty. RHS will cancel the six percent interest rate and resume 

use of the promissory note interest rate. A new payment subsidy agreement may be 

processed if the borrower is eligible.

Appendix 1 - Page 74
7 CFR Part 3550

§ 3550.159 Borrower actions requiring RHS approval.

(a) Mineral leases. Borrowers who wish to lease mineral rights to a security property 

must request authorization from RHS. RHS may consent to the lease of mineral rights 

and subordinate its liens to the lessee's rights and interests in the mineral activity if the

security property will remain suitable as a residence and the Government's security 

interest will not be adversely affected. Subordination of RHS loans to a mineral lease 

does not entitle the leaseholder to any proceeds from the sale of the security property.

(1) If the proposed activity is likely to decrease the value of the security property, 

RHS may consent to the lease only if the borrower assigns 100 percent of the 

income from the lease to RHS to be applied to reduce principal and the rent to be 

paid is at least equal to the estimated decrease in the market value of the security.

(2) If the proposed activity is not likely to decrease the value of the security 

property, RHS may consent to the lease if the borrower agrees to use any damage 

compensation received from the lessee to repair damage to the site or dwelling, or 

to assign it to RHS to be applied to reduce principal.

(b) Subordination. RHS may subordinate its interests to permit a borrower to defer 

recapture amounts and refinance the loan, or to obtain a subsequent loan with private 

credit.

(1) When it is in the best interest of the Government, subordination will be 

permitted if:

(i) The other lender will verify that the funds will be used for purposes for 

which an RHS loan could be made,

(ii) The prior lien debt will be on terms and conditions that the borrower can 

reasonably be expected to meet without jeopardizing repayment of the RHS 

indebtedness,

(iii) Any proposed development will be planned and performed in accordance 

with 7 CFR part 1924, subpart A or directed by the other lender in a manner 

which is consistent with that subpart, and

(iv) An agreement is obtained in writing from the prior lienholder providing 

that at least 30 days prior written notice will be given to RHS before action to 

foreclose on the prior lien is initiated.

Appendix 1 - Page 75

(01-23-03) SPECIAL PN

Revised (01-06-17) PN 492
7 CFR Part 3550

§ 3550.159 (b) (Con.)

(2) The total amount of debt permitted when RHS subordinates its interests 

depends on whether the borrower pays off the RHS loan.

(i) For situations in which the borrower is obtaining a subsequent loan from 

another source and will not pay off the RHS debt, the prior lien debt plus the 

unpaid balance of all RHS loans, exclusive of recapture, will not exceed the 

market value of the security.

(ii) For situations in which RHS is subordinating only a deferred recapture 

amount, the prior lien debt plus the deferred recapture amount will not exceed 

the market value of the security.

(c) Partial release of security. RHS may consent to transactions affecting the security, 

such as sale or exchange of security property or granting of a right-of-way across the 

security property, and grant a partial release provided:

(1) The compensation is:

(i) For sale of the security property, cash in an amount equal to the value of 

the security being disposed of or rights granted.

(ii) For exchange of security property, another parcel of property acquired in 

exchange with value equal to or greater than that being disposed of.

(iii) For granting an easement or right-of-way, benefits derived that are equal 

to or greater than the value of the security property being disposed of.

(2) An appraisal must be conducted if the latest appraisal is more than 1 year old 

or if it does not reflect market value and the amount of consideration exceeds 

$5,000. The appraisal fee will be charged to the borrower.

(3) The security property, after the transaction is completed, will be an adequate 

but modest, decent, safe, and sanitary dwelling and related facilities.

(4) Repayment of the RHS debt will not be jeopardized.

(5) Environmental requirements are met and environmental documentation is 

submitted in accordance with 7 CFR part 1970.

(6) When exchange of all or part of the security is involved, title clearance are 

obtained before release of the existing security.

Appendix 1 - Page 76
7 CFR Part 3550

§ 3550.159 (c) (Con.)

(7) Proceeds from the sale of a portion of the security property, granting an 

easement or right-of-way, damage compensation, and all similar transactions 

requiring RHS consent, will be used in the following order:

(i) To pay customary and reasonable costs related to the transaction that 

must be paid by the borrower.

(ii) To be applied on a prior lien debt, if any.

(iii) To be applied to RHS indebtedness or used for improvements to the 

security property in keeping with purposes and limitations applicable for use 

of RHS loan funds. Proposed development will be planned and performed in 

accordance with 7 CFR part 1924, subpart A and supervised to ensure that 

the proceeds are used as planned.

(d) Lease of security property. A borrower must notify RHS if they lease the property. If 

the lease is for a term of more than 3 years or contains an option to purchase, RHS may 

liquidate the loan. During the period of any lease, the borrower is not eligible for a 

payment subsidy or special servicing benefits.

§ 3550.160 Refinancing with private credit.

(a) Objective. RHS direct loan programs are not intended to supplant or compete with 

private credit sources. Therefore, borrowers are required to refinance RHS loans with 

private credit sources when RHS determines that the borrower meets RHS criteria.

(b) Criteria for refinancing with private credit. Borrowers must refinance with private 

credit when RHS determines that the borrower has the ability to obtain other credit at 

reasonable rates and terms based on their income, assets, and credit history. 

Reasonable rates and terms are those commercial rates and terms that borrowers are 

expected to meet when borrowing for similar purposes. Differences in interest rates and 

terms between RHS and other lenders will not be an acceptable reason for a borrower to

fail to refinance with private credit if the available rates and terms are within the 

borrower's ability to pay.

(c) Notice of requirement to refinance with private credit. The financial status of all 

borrowers may be reviewed periodically to determine their ability to refinance with private 

credit. A borrower's financial status may be reviewed at any time if information becomes 

available to RHS that indicates that the borrower's circumstances have changed.

Appendix 1 - Page 77

(01-23-03) SPECIAL PN

Revised (05-19-16) PN 486
7 CFR Part 3550

§ 3550.160 (c) (Con.)

(1) A borrower undergoing review is required to supply, within 30 days of a request 

from RHS, sufficient financial information to enable RHS to determine the 

borrower’s ability to refinance with private credit. Foreclosure action may be 

initiated against any borrower who fails to respond.

(2) When RHS determines that a borrower has the ability to refinance with private 

credit, the borrower will be required to refinance within 90 days.

(3) Within 30 days after being notified of the requirement to refinance with private 

credit, a borrower may contest the RHS decision and provide additional financial 

information to document an inability to refinance with private credit.

(d) Failure to refinance with private credit.

(1) If the borrower is unable to secure private credit, the borrower must submit 

written statements and documentation to RHS showing:

(i) The lenders contacted.

(ii) The amount of the loan requested by the borrower and the amount, if any, 

offered by the lenders.

(iii) The rates and terms offered by the lenders or the specific reasons why 

other credit is not available.

(iv) The information provided by the borrower to the lenders regarding the 

purpose of the loan.

(2) If RHS determines that the borrower's submission does not demonstrate the 

borrower's inability to refinance with private credit, or if the borrower fails to submit 

the required information, foreclosure may be initiated.

(e) Subordination of recapture amount. RHS may subordinate its interest in any deferred 

recapture amount to permit a borrower to refinance with private credit. The amount to 

which the RHS debt will be subordinated may include:

(1) The amount required to repay the RHS debt, exclusive of recapture,

(2) Reasonable closing costs,

Appendix 1 - Page 78
7 CFR Part 3550

§ 3550.160 (e) (Con.)

(3) Up to one percent of the loan amount for loan servicing costs, if required by the 

lender, and

(4) The cost of any necessary repairs or improvements to the security property.

(f) Application for additional credit. A borrower who has been asked to refinance with 

private credit will not be considered for additional credit until the refinancing issue is 

resolved unless such additional credit is necessary to protect the Government’s interest.

§ 3550.161 Final payment.

(a) Payment in full. Full payment of a borrower’s account includes repayment of principal 

and outstanding interest, unauthorized assistance, recapture amounts, and charges made 

to the borrower’s account. Any supervised funds or funds remaining in a borrower’s 

escrow account will be applied to the borrower’s account or returned to the borrower.

(b) Release of security instruments. RHS may release security instruments when full 

payment of all amounts owed has been received and verified. If RHS and the borrower 

agree to settle the account for less than the full amount owed, the security instruments 

may be released when all agreed-upon amounts are received and verified. Security 

instruments will not be released until any deferred recapture amount has been paid in full.

(c) Payoff statements. At the borrower’s request, RHS will provide a written statement 

indicating the amount required to pay the account in full. RHS may charge a fee for

statements for the same account if more than 2 statements are requested in any 30 day 

period.

(d) Suitable forms of payment. Suitable forms of payment are: check, money order, or 

bank draft. Borrowers who make cash payments will be assessed a fee to cover 

conversion to a money order.

(e) Recording costs. Recording costs for the release of the mortgage will be the 

responsibility of the borrower, except where State law requires the mortgagee to record or 

file the satisfaction.

§ 3550.162 Recapture.

(a) Recapture policy. Borrowers with loans approved or assumed on or after October 1, 

1979, will be required to repay subsidy amounts received through payment subsidy

(including the former interest credit program) or deferred mortgage assistance in 

accordance with paragraph (b) of this section. Amounts to be recaptured are due and 

payable when the borrower transfers title or ceases to occupy the property, including but 

not limited to, in the event of foreclosure or deed in lieu of foreclosure.

Appendix 1 - Page 79

(01-23-03) SPECIAL PN

Revised (05-19-16) PN 486

7 CFR Part 3550
§ 3550.162 (Con.)

Such recapture will include the amount of principal reduction attributed to subsidy (for 

loans subject to recapture that were approved, and received interest credit, between 

October 1, 1979, and December 31, 1989), except in cases of foreclosure and deed in 

lieu of foreclosure.

(b) Amount to be recaptured.

(1) General. The amount to be recaptured is the amount of principal reduction 

attributed to subsidy plus the lesser of:

(i) The amount of subsidy received; or

(ii) A portion of the value appreciation of the property subject to recapture. In 

order for value appreciation to be calculated, the borrower will provide a 

current appraisal, including an appraisal for any capital improvements, or 

arm’s length sales contract as evidence of market value upon Agency 

request. Appraisals must meet Agency standards under § 3550.62.

(2) Foreclosure or deed in lieu of foreclosure. Notwithstanding paragraph (b) (1) of 

this section, the amount to be recaptured in a foreclosure or deed in lieu of 

foreclosure is the amount of subsidy received, not including any principal 

reduction attributed to subsidy. Foreclosure actions will seek to recover such 

amounts only from the proceeds of the property. Liquidation proceeds (in the 

case of foreclosure) or the net recovery value (in the case of deed in lieu of 

foreclosure) will be applied or credited to the borrower’s debt in accordance 

with the security agreement in the following order:

 (i) Recoverable costs (e.g. protective advances, foreclosure costs, late 

charges).

 (ii) Accrued interest.

 (iii) Principal.

 (iv) Subsidy.

(3) Value appreciation. The value appreciation of a property with a crosscollateralized loan is based on the market value of the dwelling and lot. If located 

on a farm, the lot size would be a typical lot for a single family housing property.

(4) Interest reduced from the promissory note rate to six percent under the

Servicemembers Civil Relief Act (SCRA) is not subject to recapture.

Appendix 1 - Page 80
7 CFR Part 3550

§ 3550.162 (Con.)

(c) Deferral of recapture. If the borrower refinances or otherwise pays in full without 

transfer of title and continues to occupy the property, the amount of recapture will be 

calculated in accordance with paragraph (a) but payment of recapture may be deferred, 

interest free, until the property is sold or vacated. If the recapture amount is deferred, the 

Agency mortgage can be subordinated when in the Government’s best interest but will 

not be released nor the promissory note satisfied until the Agency is paid in full. In 

situations where deferral of recapture is an option, recapture will be discounted if paid in 

full at the time of settlement or timely paid after Agency notification to the borrower that 

recapture is due.

(d) Assumed loans.

(1) When a loan subject to recapture is assumed under new rates and terms, the 

recapture amount may be paid in full by the seller or included in the principal 

amount assumed by the buyer.

(2) When a loan is assumed under the same rates and terms as the original 

promissory note, recapture amounts will not be due. When the new borrower 

transfers title or ceases to occupy the property, all subsidy subject to recapture 

before and after the assumption is due.

 

(3) When a borrower has deferred payment of recapture amounts, the deferred 

recapture amount may be included in the principal amount of the new loan.

Appendix 1 - Page 81

(01-23-03) SPECIAL PN

Revised (05-19-16) PN 486
7 CFR Part 3550

§ 3550.163 Transfer of security and assumption of indebtedness.

(a) General policy. RHS mortgages contain due-on-sale clauses that generally require 

RHS consent before title to a security property can be transferred with an assumption of 

the indebtedness. If it is in the best interest of the Government, RHS will approve the 

transfer of title and assumption of indebtedness on program or nonprogram (NP) terms, 

depending on the transferee's eligibility and the property’s characteristics. 

(b) RHS approval of assumptions.

(1) A borrower with a loan on program terms who wishes to transfer a security 

property restricted by a due-on-sale clause to a purchaser who wishes to assume 

the debt must receive prior authorization from RHS. If RHS authorizes the transfer 

and assumption, the account will be serviced in the purchaser’s name and the 

purchaser will be liable for the loan under the terms of the security instrument.

(2) If a borrower transfers title to the security property with a due-on-sale clause 

without obtaining RHS authorization, RHS will not approve assumption of the 

indebtedness, and the loan will be liquidated unless RHS determines that it is in the 

Government's best interest to continue the loan. If RHS decides to continue the 

loan, the account will be serviced in the original borrower's name and the original 

borrower will remain liable for the loan under the terms of the security instrument.

(c) Exceptions to due-on-sale clauses.

(1) Due-on-sale clauses are not triggered by the following types of transfers: 

(i) A transfer from the borrower to a spouse or children not resulting from the 

death of the borrower.

(ii) A transfer to a relative, joint tenant, or tenant by the entirety resulting from 

the death of the borrower.

Appendix 1 - Page 82
7 CFR Part 3550

§ 3550.163 (c)(1) (Con.)

(iii) A transfer to a spouse or ex-spouse resulting from a divorce decree, 

legal separation agreement, or property settlement agreement.

(iv) A transfer to a person other than a deceased borrower’s spouse who 

wishes to assume the loan for the benefit of persons who were dependent on 

the deceased borrower at the time of death, if the dwelling will be occupied by 

one or more persons who were dependent on the borrower at the time of 

death, and there is a reasonable prospect of repayment.

(v) A transfer into an inter vivos trust in which the borrower does not transfer 

rights of occupancy in the property.

(2) A transferee who obtains property through one of the types of transfer listed in 

paragraph (c)(1) of this section:

(i) Is not required to assume the loan, and RHS is not permitted to liquidate 

the loan, if the transferee continues to make scheduled payments and meet 

all other obligations of the loan. A transferee who does not assume the loan 

is not eligible for payment assistance or a moratorium.

(ii) May assume the loan on the rates and terms contained in the promissory 

note, with no down payment. If the account is past due at the time an 

assumption is executed, the account may be brought current by using any of 

the servicing methods discussed in subpart E of this part.

(iii) May assume the loan under new rates and terms if the transferee applies 

and is program-eligible.

(3) Any subsequent transfer of title, except upon death of the inheritor or between 

inheritors to consolidate title, will be treated as a sale.

(d) Requirements for an assumption.

(1) Loans secured by program-eligible properties to be assumed by programeligible purchasers may be assumed on program terms. Loans secured by 

nonprogram properties and loans to be assumed by purchasers who are not eligible 

for program terms may be assumed on NP terms.

(2) The amount the transferee will assume will be either the current market value 

less any prior liens and any required down payment, or the indebtedness, 

whichever is less.

Appendix 1 - Page 83

(01-23-03) SPECIAL PN

Revised (05-19-16) PN 486
7 CFR Part 3550

§ 3550.163 (d) (Con.)

(3) For loans assumed on program terms, the interest rate charged by RHS will be 

the rate in effect at loan approval or loan closing, whichever is lower. For loans 

assumed on nonprogram terms, the interest rate charged by RS will be the rate in 

effect at the time of loan approval.

(4) If additional financing is required to purchase the property or to make repairs, 

RHS may approve a subsequent loan under subparts B or C of this part. 

(5) If an appraisal is required for an assumption on new terms, the purchaser is 

responsible for the appraisal fee.

(6) If all or a portion of the borrower’s account balance is assumed, the borrower 

and cosigner, if any, will be released from liability on the amount of the 

indebtedness assumed. If an account balance remains after the assumption, RHS 

may pursue debt settlement in accordance with subpart F of this part.

(7) Unless it is in the Government’s best interest, RHS will not approve an 

assumption of a secured loan if the seller fails to repay any unsecured RHS loan.

(8) If a loan is secured by a property with a dwelling situated on more than a 

minimum adequate site and the excess property cannot be sold separately as a 

minimum adequate site for another dwelling, RHS may approve a transfer of the 

entire property. If the excess property can be sold separately as a minimum 

adequate site, RHS will approve assumption of only the dwelling and the minimum 

adequate site. If the value of the dwelling on the minimum adequate site is less 

than the amount of the outstanding RHS debt, the remaining debt will be secured 

by the excess property. The outstanding debt will be converted to an NP loan and 

reamortized over a period not to exceed 10 years or the final due date of the 

original promissory note, whichever is sooner.

§ 3550.164 Unauthorized assistance.

(a) Definition. Unauthorized assistance includes any loan, payment subsidy, deferred 

mortgage payment, or grant for which the recipient was not eligible.

(b) Unauthorized assistance due to false information.

(1) False information includes information that the recipient knew was incorrect or 

should have know was incorrect that was provided or omitted for the purposes of 

obtaining assistance for which the recipient was not eligible.

Appendix 1 - Page 84
7 CFR Part 3550

§ 3550.164 (b) (Con.)

(2) If the recipient receives an unauthorized loan due to false information, RHS will 

adjust the account using the NP interest rate that was in effect when the loan was 

approved. The recipient must pay the account in full within 30 days.

(3) If the recipient receives unauthorized subsidy due to false information, RHS will 

require the recipient to repay it within 30 days. The account cannot be reamortized 

to include the unauthorized subsidy. If the recipient repays the unauthorized 

subsidy, the loan may be continued.

(c) Unauthorized assistance due to inaccurate information.

(1) Inaccurate information includes incorrect information inadvertently provided, 

used, or omitted without the intent to obtain benefits for which the recipient was not 

eligible.

(2) RHS will permit a recipient who receives an unauthorized loan due to 

inaccurate information to retain the loan under the following conditions.

(i) If the inaccurate information was related to the purpose of the loan or the 

recipient’s eligibility, with the exception of income, or the income used was 

incorrect, but the recipient still qualified as income-eligible, RHS will allow the 

recipient to continue the loan on existing terms.

(ii) If a section 502 recipient’s income was above the moderate-income level, 

RHS will convert the loan to an NP loan, using the nonprogram interest rate 

in effect on the date the loan was approved.

(iii) If a section 504 recipient’s income was above the very low-income level, 

RHS will apply the applicable 502 or nonprogram interest rate in effect on the 

date the loan was approved.

(iv) If an incorrect interest rate was used, RHS will adjust the account using 

the correct interest rate.

(3) If the recipient receives unauthorized subsidy due to inaccurate information, 

RHS will require the recipient to repay it within 30 days. If the recipient cannot 

repay it within 30 days, the account may be reamortized. If the recipient repays the 

unauthorized subsidy or reamortizes the loan, the loan may be continued.

Appendix 1 - Page 85

(01-23-03) SPECIAL PN

Revised (05-19-16) PN 486
7 CFR Part 3550

§ 3550.164 (c) (Con.)

(d) Unauthorized grants. Recipients may either repay the unauthorized assistance in a 

lump sum or execute a promissory note, regardless of whether the unauthorized 

assistance was due to false or inaccurate information. RHS may seek a judgment if the 

recipient refuses to repay the unauthorized assistance.

(e) Account servicing. RHS will adjust all accounts retroactively to establish the amount 

of unauthorized assistance. If the recipient does not repay the unauthorized assistance 

within 30 days, RHS may accelerate the loan. If the unauthorized assistance is due to 

inaccurate information and the recipient is unable to repay within 30 days, RHS may 

reamortize the loan.

(f) Accounts with no security. If an unauthorized loan or grant is unsecured, RHS may 

seek the best mortgage obtainable.

§§ 3550.165 - 3550.199 [Reserved]

§ 3550.200 OMB control number.

The information collection requirements contained in this regulation have been approved 

by the Office of Management and Budget (OMB) and have been assigned OMB control number 

0575-0172. Public reporting burden for this collection of information is estimated to vary from 5 

minutes to 3 hours per response, with an average of 1 1/2 hours per response, including time 

for reviewing instructions, searching existing data sources, gathering and maintaining the data 

needed, and completing and reviewing the collection of information. You are not required to 

respond to this collection of information unless it displays a currently valid OMB control number.

Subpart E - Special Servicing

§ 3550.201 Purpose of special servicing actions.

The Rural Housing Service (RHS) may approve special servicing actions to reduce the 

number of borrower failures that result in liquidation. Borrowers who have difficulty keeping 

their accounts current may be eligible for one or more available servicing options including: 

payment assistance; delinquency workout agreements that temporarily modify payment terms; 

protective advances of funds for taxes, insurance, and other approved costs; and payment 

moratoriums.

Appendix 1 - Page 86
7 CFR Part 3550

§ 3550.202 Past due accounts.

An account is past due if the scheduled payment is not received by the due date.

(a) Late fee. A late fee will be assessed if the full scheduled payment is not received by 

the 15th day after the due date, or as authorized by State law.

(b) Liquidation. 

(1) For borrowers with monthly payments. The account may be accelerated 

without further servicing when at least 3 scheduled payments are past due or an 

amount equal to at least 2 scheduled payments is past due for at least 3 

consecutive months. In such cases RHS may pursue voluntary liquidation and 

foreclosure.

(2) For borrowers with annual payments. The account may be accelerated without 

further servicing when at least 3/12ths of 1 scheduled payment has not been 

received by its due date. In such cases, RHS may pursue voluntary liquidation and 

foreclosure.

(3) Subsidy recapture. Acceleration under this section will take into account any 

subsidy recapture due under § 3550.162.

§ 3550.203 General servicing actions.

Whenever any of the servicing actions described in this subpart result in reamortization of 

the account RHS may:

(a) Require a borrower who currently makes annual payments, but receives a monthly 

income, to convert to monthly payments.

(b) Require the creation and funding of an escrow account for real estate taxes and 

insurance, if one does not already exist for any borrower with monthly payments.

(c) Convert the method of calculating interest for any account being charged daily simple 

interest to an amortized payment schedule.

§ 3550.204 Payment assistance.

Borrowers who are eligible may be offered payment assistance in accordance with 

subpart B of this part. Borrowers who are not eligible for payment assistance because the loan 

was approved before August 1, 1968, or the loan was made on above-moderate or nonprogram 

(NP) terms, may refinance the loan in order to obtain payment assistance if:

(a) The borrower is eligible to receive a loan with payment assistance,

Appendix 1 - Page 87

(01-23-03) SPECIAL PN

Revised (05-19-16) PN 486
7 CFR Part 3550

§ 3550.204 (Con.)

(b) Due to circumstances beyond the borrower's control, the borrower is in danger of 

losing the property, and

(c) The property is program-eligible.

§ 3550.205 Delinquency workout agreements.

Borrowers with past due accounts may be offered the opportunity to avoid liquidation by 

entering into a delinquency workout agreement that specifies a plan for bringing the account 

current. To receive a delinquency workout agreement, the following requirements apply:

(a) A borrower who is able to do so will be required to pay the past-due amount in a 

single payment.

(b) A borrower who is unable to pay the past-due amount in a single payment must pay 

monthly all scheduled payments plus an agreed upon additional amount that brings the 

account current within 2 years or the remaining term of the loan, whichever is shorter.

(c) If a borrower becomes more than 30 days past due under the terms of a delinquency 

workout agreement, RHS may cancel the agreement.

§ 3550.206 Protective advances.

RHS may pay for fees or services and charge the cost against the borrower’s account to 

protect the Government’s interest.

(a) Advances for taxes and insurance. RHS may advance funds to pay real estate taxes, 

hazard and flood insurance premiums, and other related costs, as well as amounts 

needed to fund the current escrow cycle.

(b) Advances for costs other than taxes and insurance. Protective advances for costs 

other than taxes and insurance, such as emergency repairs, will be made only if the 

borrower cannot obtain a subsequent loan.

(c) Repayment arrangements.

(1) Advances for borrowers with multiple loans will be charged against the largest 

loan.

(2) Amounts advanced will be due with the next scheduled payment. RHS may 

schedule repayment consistent with the borrower’s ability to repay or reamortize the 

loan.

(3) Advances will bear interest at the promissory note rate of the loan to which the 

advance was charged.

Appendix 1 - Page 88
7 CFR Part 3550

§ 3550.207 Payment moratorium.

RHS may defer a borrower’s scheduled payments for up to 2 years. NP borrowers are 

not eligible for a payment moratorium.

(a) Borrower eligibility. For a borrower to be eligible for a moratorium, all of the following 

conditions must be met:

(1) Due to circumstances beyond the borrower's control, the borrower is 

temporarily unable to continue making scheduled payments because:

(i) The borrower's repayment income fell by at least 20 percent within the 

past 12 months, 

(ii) The borrower must pay unexpected and unreimbursed expenses resulting 

from the illness, injury, or death of the borrower or a family member, or

(iii) The borrower must pay unexpected and unreimbursed expenses 

resulting from damage to the security property in cases where adequate 

hazard insurance was not available or was prohibitively expensive.

(2) The borrower occupies the dwelling, unless RHS determines that it is 

uninhabitable.

(3) The borrower's account is not currently accelerated.

(b) Reviews of borrower eligibility.

(1) Periodically RHS may require the borrower to submit financial information to 

demonstrate that the moratorium should be continued. The moratorium may be 

canceled if:

(i) The borrower does not respond to a request for financial information,

(ii) RHS receives information indicating that the moratorium is no longer 

required, or

(iii) In the case of a moratorium granted to pay unexpected or unreimbursed 

expenses, the borrower cannot show that an amount at least equal to the 

deferred payments has been applied toward the expenses.

Appendix 1 - Page 89

(01-23-03) SPECIAL PN

Revised (05-19-16) PN 486
7 CFR Part 3550

§ 3550.207(b) (Con.)

(2) At least 30 days before the moratorium is scheduled to expire, RHS will require 

the borrower to provide financial information needed to determine whether the 

borrower is able to resume making scheduled payments.

(c) Resumption of scheduled payments. When the borrower is able to resume scheduled 

payments, the loan will be reamortized to include the amount deferred during the 

moratorium and the borrower will be required to escrow. If the new monthly payment, 

after consideration of the maximum amount of payment subsidy available to the borrower, 

exceeds the borrower's repayment ability, all or part of the interest that has accrued 

during the moratorium may be forgiven.

(d) Borrowers unable to resume scheduled payments. If even after all appropriate 

servicing actions have been taken the borrower is unable to resume making scheduled 

payments after 2 consecutive years of being on a moratorium, the account will be 

liquidated.

§ 3550.208 Reamortization using promissory note interest rate.

Reamortization using the promissory note interest rate may be authorized when RHS 

determines that reamortization is required to enable the borrower to meet scheduled obligations, 

and only if the Government’s lien priority is not adversely affected.

(a) Permitted uses. Reamortization at the promissory note interest rate may be used to 

accomplish a variety of servicing actions, including to:

(1) Repay unauthorized assistance due to inaccurate information.

(2) Repay principal and interest accrued and advances made during a moratorium.

(3) Bring current an account under a delinquency workout agreement after the 

borrower has demonstrated the willingness and ability to meet the terms of the loan 

and delinquency workout agreement and reamortization is in the borrower’s and 

Government’s best interests.

(4) Bring a delinquent account current in the case of an assumption where the due 

on sale clause is not triggered as described in § 3550.163(c).

(5) Cover the remaining debt when a portion of the security property is being

transferred but the acquisition price does not cover the outstanding debt. The 

remaining balance will be reamortized for a period not to exceed 10 years or the 

final due date of the note being reamortized, whichever is sooner.

Appendix 1 - Page 90
7 CFR Part 3550

§ 3550.208 (a) (Con.)

(6) Bring an account current where the National Appeals Division (NAD) reverses 

an adverse action, the borrower has adequate repayment ability, and RHS 

determines the reamortization is in the best interests of the Government and the 

borrower.

(b) Payment term of reamortized loan. Except as noted in paragraph (a)(5) of this 

section, the term of the reamortized loan may be extended to the maximum term for 

which the borrower was eligible at the time the loan was originally made, less the number 

of years the loan has been outstanding. In all cases, the term must not exceed the 

remaining security life of the property.

§ 3550.209 [Reserved]

§ 3550.210 Offsets.

Any money that is or may become payable from the United States to an RHS borrower 

may be subject to administrative, salary, or Internal Revenue Service (IRS) offsets for the 

collection of a debt owed to RHS.

(a) IRS offset. RHS may take action to effect offset of claims due RHS against tax 

refunds due to RHS debtors under 31 U.S.C. 3720a and 31 CFR 285.2.

(b) Salary offset. Offset of claims due to RHS may be collected pursuant to the salary 

offset provisions in 7 CFR part 3, subpart C for a federal employee or other persons 

covered in that subpart.

(c) Administrative offset. RHS may take action to effect administrative offset to recover 

delinquent claims due to it in accordance with the procedures in 7 CFR part 3, subpart B.

(d) Offset by other federal agencies. Escrow funds and loan and grant funds held or 

payable by RHS are not subject to offset by other federal agencies.

§ 3550.211 Liquidation.

(a) Policy. When RHS determines that a borrower is unable or unwilling to meet loan 

obligations, RHS may accelerate the loan and, if necessary, acquire the security property. 

The borrower is responsible for all expenses associated with liquidation and acquisition. 

If the account is satisfied in full, the borrower will be released from liability. RHS may 

pursue any deficiency unless the borrower received a moratorium at any time during the 

life of the loan and faithfully tried to repay the loan.

Appendix 1 - Page 91

(01-23-03) SPECIAL PN

Revised (05-19-16) PN 486
7 CFR Part 3550

§ 3550.211 (Con.)

(b) Tribal allotted or trust land. Liquidations involving a security interest in tribal allotted 

or trust land shall only be pursued after offering to transfer the account to an eligible tribal 

member, the tribe, or the Indian Housing Authority. Forced liquidation of RHS security 

interests in Indian trust lands or on tribal allotted land will be recommended only after the 

State Director has determined it is in the best interest of the Government.

(c) Acceleration and foreclosure. If RHS determines that foreclosure is in the best 

interest of the Government, RHS will send an acceleration notice to each borrower and 

any cosigner. 

(d) Voluntary liquidation. After acceleration, borrowers may voluntarily liquidate through:

(1) Refinancing or sale. The borrower may refinance or sell the security property 

for at least net recovery value and apply the proceeds to the account.

(2) Deed in lieu of foreclosure. RHS may accept a deed in lieu of foreclosure to 

convey title to the security property only after the debt has been accelerated and 

when it is in the Government’s best interest.

(3) Offer by third party. If a junior lienholder or cosigner makes an offer in the amount 

of at least the net recovery value, RHS may assign the note and mortgage.

(e) Bankruptcy.

(1) When a petition in bankruptcy is filed by a borrower after acceleration, 

collection actions and foreclosure actions are suspended in accordance with the 

provisions of the Bankruptcy Code.

(2) RHS may accept conveyance of security property by the trustee in bankruptcy if 

the Bankruptcy Court has approved the transaction, RHS determines the 

conveyance is in the best interest of the Government, and RHS will acquire title free 

of all liens and encumbrances except RHS liens.

(3) Whenever possible in a Chapter 7 Bankruptcy, a reaffirmation agreement will 

be signed by the borrower and approved by the court prior to discharge, if RHS 

decides to continue with the borrower.

(f) Junior lienholder foreclosure. When a junior lienholder foreclosure does not result in 

payment in full of the RHS debt but the property is sold subject to the RHS lien, RHS may 

liquidate the account unless the new owner is eligible to assume the RHS debt and 

actually assumes the RHS debt.

(g) Payment subsidy. If the borrower is receiving payment subsidy, the payment subsidy 

agreement will not be canceled when the debt is accelerated, but will not be renewed 

unless the account is reinstated. 

Appendix 1 - Page 92
7 CFR Part 3550

§ 3550.211 (Con.)

(h) Eligibility for special servicing actions. A borrower is not eligible for special servicing 

actions once the account has been accelerated.

(i) Reporting. RHS may report to IRS and credit reporting agencies any debt settled 

through liquidation.

§§ 3550.212 - 3550.249 [Reserved]

§ 3550.250 OMB control number.

The information collection requirements contained in this regulation have been approved 

by the Office of Management and Budget (OMB) and have been assigned OMB control number 

0575-0172. Public reporting burden for this collection of information is estimated to vary from 5 

minutes to 3 hours per response, with an average of 1 1/2 hours per response, including time 

for reviewing insurrections, searching existing data sources, gathering and maintaining the data 

needed, and completing and reviewing the collection of information. You are not required to 

respond to this collection of information unless it displays a currently valid OMB control number.

Subpart F - Post-Servicing Actions

§ 3550.251 Property management and disposition.

(a) Policy. Rural Housing Service (RHS) will manage custodial property and Real Estate 

Owned (REO) property to protect the Government’s interest, and may dispose of REO 

property through direct sales, sealed bid, or auction. RHS will follow affirmative fair 

housing marketing policies.

(b) Custodial property. RHS may take custodial possession of security property that has 

been abandoned, or for other reasons necessary to protect the Government’s security. 

After taking custodial possession of a security property, RHS may maintain and repair the 

security property as needed to protect the Government’s interest, pay required real estate 

taxes and assessments, and secure personal property left on the premises. Expenses 

will be charged to the borrower's account. Custodial property may be leased when it is in 

the Government’s best interest and in such cases the borrower’s account will be credited 

for income from the security property.

Appendix 1 - Page 93

(01-23-03) SPECIAL PN

Revised (05-19-16) PN 486
7 CFR Part 3550

§ 3550.251 (Con.)

(c) REO property.

(1) Classification. When RHS takes title to a security property, it is classified as 

either program or nonprogram (NP) property. An REO property that is eligible for 

financing under the section 502 program, or which could reasonably be repaired to 

be eligible, is classified as program property. An REO property that cannot 

reasonably be repaired to be eligible as section 502 property, and property that has 

been improved to a point that it will no longer qualify as modest under section 502, 

is classified as NP property.

(2) Disclosing decent, safe, and sanitary defects. When RHS determines that an 

REO property to be sold is not decent, safe, and sanitary, or does not meet costeffective energy conservation standards, it will disclose the reasons why. The deed 

by which such an REO property is conveyed will contain a covenant restricting it 

from residential use until it is decent, safe, and sanitary and meets the RHS costeffective energy conservation standards. RHS will also notify any potential 

purchaser of any known lead-based paint hazards.

(3) Property on Indian tribal allotted or trust land. REO property which is located 

on Indian tribal allotted or trust land, will be sold or otherwise disposed of only to a 

member of the particular tribe having jurisdiction over the allotted or tribal land, to 

the tribe, or to an Indian housing authority serving the tribe on a first-come, firstserved basis.

(4) Reservation of program REO properties.

(i) Program REO properties are reserved for eligible direct or guaranteed 

single family housing loans under this part or part 1980, subpart D of this title 

and nonprofit organizations or public bodies providing transitional housing 

during the first 60 days after the date of the first notice of sale, and during the

first 30 days following any reduction in price or any other change in credit 

terms or other sale terms. After the expiration of a reservation period, 

program REO properties can be bought by any buyer.

(ii) An offer on a program REO property from a buyer who does not qualify 

for a direct or guaranteed single family housing loan may be submitted during 

a reservation period, but is considered to have been received on the day after 

the reservation period ends.

(iii) No offer is considered until 3 business days after the date the property is 

offered for sale. An offer received during the 3-day holding period is not 

considered until the 4th day, and is evaluated with any other offers actually 

received on the 4th day.

Appendix 1 - Page 94
7 CFR Part 3550

§ 3550.251 (c) (Con.)

(5) Priority of offers received the same day.

(i) Offers received on the same business day are selected in the following 

order:

(A) Offers from eligible direct or guaranteed single family housing loan 

applicants, with a request for credit on program terms. All offers are 

evaluated as if they were submitted at the listed price, regardless of the 

offering price.

(B) Offers from nonprofits or public bodies for conversion to use as 

transitional housing or for other special purposes as specified in 

paragraph (d)(4) of this section.

(C) Cash offers, from highest to lowest.

(D) NP credit offers, from highest to lowest.

(ii) Acceptable offers of equal priority received on the same business day are 

selected by lot.

(iii) REO properties are not held off the market pending the outcome of an 

appeal of RHS rejection of a request for financing.

(6) Sale by sealed bid or auction. RHS may authorize the sale of an REO property 

by sealed bid or public auction when it is in the best interest of the Government. 

RHS will publicly solicit requests for sealed bids and publicize auctions. If a 

successful bidder is unable to settle the transaction under the terms of the offer, 

except for the financing contingency, any required bid deposit may be retained by 

RHS. If the highest bid is lower than the minimum acceptable bid established by 

RHS, or if no acceptable bids are received, RHS may negotiate a sale without 

further public notice.

(d) Special purposes.

(1) REO property may be purchased for conversion to multiple family housing.

Appendix 1 - Page 95

(01-23-03) SPECIAL PN

Revised (05-19-16) PN 486
7 CFR Part 3550

§ 3550.251 (d)(Con.)

(2) When a nonprofit organization or public body notifies RHS in writing of its intent

to buy an REO property to provide transitional housing for the homeless, RHS may 

withdraw the property from the market for up to 30 days to give the entity an 

opportunity to execute a purchase contract. The listed price may be discounted for 

offers on a nonprogram REO property at any time, and on a program REO property 

after the 60-day reservation period. No down payment is required, and the loan 

term will be for a maximum of 30 years. Until RHS executes a sales agreement, an 

offer from a program-eligible applicant will receive priority, regardless of a 

nonprofit’s interest in purchasing the REO property for use as transitional housing.

(3) NP properties may be leased to a nonprofit organization or public body to 

provide transitional housing for the homeless at an annual cost of one dollar. When 

an REO property is to be leased as transitional housing, RHS will make repairs 

needed to put the property in decent, safe, and sanitary condition. The lessee is 

responsible for all future repairs and maintenance.

(4) REO property may be sold under special provisions to nonprofit organizations 

or public bodies for the purpose of providing affordable housing to very low- and 

low-income families.

§ 3550.252 Debt settlement policies.

(a) Applicability. Debt settlement procedures may be initiated to collect any amounts due 

to RHS including:

(1) Balances remaining on loan accounts after all liquidation proceeds or credits 

have been applied,

(2) Subsidy recapture or grant amounts due, and

(3) Unauthorized assistance due.

(b) Judgment. RHS may seek a judgment whenever a judgment might enable RHS to 

collect all or a significant portion of an amount owed.

(c) Multiple loans. RHS does not settle debts for one loan while other RHS loans on the 

same security property remain active.

(d) Cosigners and claims against estates. RHS may use any and all remedies available 

under law to collect from any cosigner and from a deceased borrower's estate.

(e) Reporting. RHS will report to the Internal Revenue Service and credit reporting 

agencies any debt settled through cancellation, compromise, or adjustment.

Appendix 1 - Page 96
7 CFR Part 3550

§ 3550.252 (Con.)

(f) Settlement during legal or investigative action. Cases that are under investigation for 

fiscal irregularity or have been referred to the Office of the Inspector General, the Office of 

the General Counsel, or the U.S. Attorney will not be considered for debt settlement until 

final action by the investigating or prosecuting entity has been taken.

(g) Offsets. RHS may request offsets as described in § 3550.210 to collect amounts 

owed.

(h) Escrow funds. At liquidation all funds held in escrow or unapplied funds will be 

applied against the debt.

§ 3550.253 Settlement of a debt by compromise or adjustment.

Compromise or adjustment offers may be initiated by the debtor or by RHS. RHS will 

approve only those compromises and adjustments that are in the best interest of the 

Government.

(a) Compromise. A compromise is an agreement by RHS to release a debtor from 

liability upon receipt of a specified lump sum that is less than the total amount due.

(b) Adjustments. An adjustment is an agreement by RHS to release a debtor from 

liability generally upon receipt of an initial lump sum representing the maximum amount 

the debtor can afford to pay and periodic additional payments over a period of up to 5 

years.

(c) Timing of offers.

(1) For a settlement offer to be considered, secured debts must be fully matured 

under the terms of the debt instrument or must have been accelerated by RHS.

(2) Unsecured debts owed after the sale of the security property may be proposed 

for compromise or adjustment at any time. Debts that were never secured may be 

proposed for compromise or adjustment when they are due and payable.

(d) Retention of security property. The debtor may retain the security property if the 

compromise payment is at least equal to the net recovery value, and it is in the best 

interest of the Government to allow the debtor to retain the security property.

Appendix 1 - Page 97

(01-23-03) SPECIAL PN

Revised (05-19-16) PN 486
7 CFR Part 3550

§§ 3550.254 - 3550.299 [Reserved]

§ 3550.300 OMB control number.

The information collection requirements contained in this regulation have been approved 

by the Office of Management and Budget (OMB) and have been assigned OMB control number 

0575-0172. Public reporting burden for this collection of information is estimated to vary from 5 

minutes to 3 hours per response, with an average of 1 1/2 hours per response, including time 

for review instructions, searching existing data sources, gathering and maintaining the data 

needed, and completing and reviewing the collection of information. 

o0o

Appendix 1 - Page 98