HB-1-3550

12.1 INTRODUCTION

The objective of the Section 504 loan/grant program is to help very low-income owner 

occupants of modest single-family homes in rural areas repair their homes. Loan funds are available 

for repairs to improve or modernize a home, make it safer or more sanitary, or remove health and 

safety hazards. For homeowners that are 62 years of age and older, grant funds are available to 

remove health or safety hazards, or remodel dwellings to make them accessible to a household 

member with a disability. Attachment 12-A provides a summary of the differences between Section

504 loans and Section 504 grants, Attachment 12-B provides the differences between Section 502 and 

Section 504 loans, Attachment 12-C: provides a processing and closing checklist, Attachment 12- D:

provides a checklist for assessment of an existing dwelling, Attachment 12-E: provides items included 

with a complete application, and Attachment 12-F: provides a pre-construction checklist.

The procedures that differ from Section 502 loans are described in this chapter.

Unless otherwise specified in this chapter, Section 504 loan/grant applications should be 

accepted, evaluated, and closed following the same procedures described for Section 502 loans 

in Chapters 2 through 10. However, Section 504 loans cannot be assumed except on Same 

Rates and Terms as described in Paragraph 2.4 B. In addition, a property survey is not required 

for a Section 504 loan or grant unless a mortgage or deed of trust is being filed and there is a 

compelling reason to question the placement of the dwelling on the property; or, in farm acreage 

cases, where the house site is subdivided from a larger parcel. The cost of a survey can be 

included in the loan if there is sufficient equity.

12.2 ELIGIBLE PURPOSES FOR 504 FUNDS [7 CFR 3550.102]

Section 504 loan funds may be used to make general repairs to improve or modernize the 

property (including a new addition to an existing home), as long as the dwelling remains modest. 

Loan Originators may approve any of the eligible costs listed in Paragraph 6.4, unless specifically 

prohibited in 7 CFR 3550 and this chapter. In limited circumstances, funds may be used to refinance 

an Agency loan as a special servicing action (subject to the availability of funds and Agency 

priorities) such as at the end of a moratorium. Directives will be provided for usage of this option 

as Agency priorities are determined.

Section 504 grant funds may be used only for repairs and improvements that will remove 

health and safety hazards, or to repair or remodel dwellings to make them accessible and useable for a 

household member with a disability. A hazard is a property condition that jeopardizes the health or 

safety of the occupants or members of the community, but that does not make it unfit for habitation. 

A major hazard is a condition so severe that it makes the property unfit for habitation.

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CHAPTER 12: SECTION 504 LOANS AND GRANTS
HB-1-3550

Paragraph 12.2 Eligible Purposes for 504 Funds [7 CFR 3550.102]

A. Eligible Purposes for 504 Funds

In addition to the above, Section 504 loan and grant funds may be used to:

• Pay for the purchase and installation of essential equipment including range stove, 

refrigerator, clothes washer and/or dryer, if the applicant’s existing equipment is not in 

working order or the equipment is not currently in the home, and if the purchase is not the 

primary purpose of the 504 funds;

• Construct a storm shelter when needed for safety in areas with tornadoes or hurricanes; and

• Cover the initial escrow deposit when the Agency must set up an escrow account (see 

Paragraph 12.10).

B. Repairs to Mobile or Manufactured Homes

Section 504 loan and grant funds can be used to repair mobile or manufactured homes if:

• The applicant owns the home and the site and occupied the home prior to filing an 

application;

• The repairs are needed to remove health or safety hazards; and

• The home is on a permanent foundation or will be put on a permanent foundation 

with Section 504 funds.

• A permanent foundation is either: (1) a full below-grade foundation; or

(2) blocks, piers, or some other type of foundation with skirting, and 

anchoring with tie-downs.

C. Restrictions on the Use of 504 Funds

Section 504 loan or grant funds cannot be used to:

• Assist in the construction of a new dwelling;

• Make repairs to a dwelling in such poor condition that when the repairs are 

completed, the dwelling will continue to have major hazards;

• Move a mobile home or manufactured home from one site to another;

• Pay for any off-site improvements except for necessary installation and assessment 

costs for utilities;

• Refinance non-Agency debt or obligation that the applicant incurred before the date 

of application (except for payment of the installation and assessment costs of 

utilities); or

• Pay packaging fees to for-profit entities (nonprofit packaging fees may be paid by 504 

loan or grant funds).

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12.3 FORM RD 3550-35, SECTION 504 HOME REPAIR LOAN AND GRANT PROGRAM 

INTAKE FORM

The prequalification process offers potential applicants an optional way to evaluate the 

likelihood of their program eligibility. Those interested in the 504 program can be provided Form 

RD 3550-35, Section 504 Home Repair Loan and Grant Program Intake Form and Form RD 

3550-1, “Authorization to Release Information” prior to completing a full application as described 

below in Paragraph 12.4. Using the unverified information provided on the Intake Form, the 

Loan Originator will enter the prequalification data into UniFi and discuss the results with the 

potential applicant. If an application is requested, the Loan Originator should print Form RD 410-

4, “Uniform Residential Loan Application,” from UniFi and provide it to the applicant with the 

standardized application package. Further information regarding the prequalification process can 

be found in Chapter 3, Section 1.

12.4 APPLICATIONS [7 CFR 3550.104]

Applicants interested in the 504 program will be provided the standardized 

application package (which Field Staff can find in the SFH Direct SharePoint site under 

General Info > Useful Documents).

The “Date Application Received” field in UniFi must be completed promptly upon 

receipt of an application; and applications must be reviewed within 3 business days after 

receipt to determine if the Loan Estimate disclosure requirement was triggered (see, Paragraph 3.8) and to determine if items are missing. The Non-Purchase Loan Estimate 

and Closing Disclosures should be utilized for 504 loans where a security interest will be 

taken. For unsecured loans (i.e., the total Section 504 indebtedness is less than $7,500), 

Form RD 1940-41, “Truth in Lending Statement is required.”

The Loan Originator will send Handbook Letter 11 (3550), Request Information, to the 

applicant requesting any missing items and stating that their application will be withdrawn if 

the missing information is not received within 15 days (30 days may be allotted if the applicant 

is waiting for repair bid(s)). A complete Section 504 application includes applicable items 

listed on Attachment 12-E checklist.

The Loan Approval Official should make a determination of eligibility within 30 days 

of receiving a complete loan application. When funding is available, a pre-construction 

conference should be scheduled within 30 days of an eligibility determination and loan/grant 

approval.

Attachment 12-F is utilized to document the pre-construction conference. If funding is 

not available send Handbook Letter 2 (3550), Waiting Period, to the applicant.

Section 504 applications requesting assistance to remove health or safety hazards should 

receive priority processing. Veterans’ preference described in Paragraph 3.13 C. should be 

used in cases where multiple applications with the same priority preference are received on the 

same day. When funding is insufficient, complete applications with health and safety hazards 

(e.g., unsafe water, failed septic system, lack of heat, and those affected by natural disasters) 

will receive First Priority, and all other applications will be Second Priority. In the case of 

applications with equivalent priority status that are received on the same day, priority will be 

extended to applicants qualifying for a veterans’ preference.

A property evaluation may be conducted utilizing online resources and photos to view 

the property and real estate tax assessments to determine the condition and value of the 

property. If the condition of the property cannot be determined using online resources, or 

recent photos from the applicant, an on-site visit is documented with Attachment 12-D, 

Checklist for Evaluation of Existing Dwelling.

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HB-1-3550

Paragraph 12.4 Applications [7 CFR 3550.104]

By submitting applications for a grant, applicants certify that they will not engage in

the unlawful manufacture, distribution, dispensing, possession, or use of a controlled 

substance in conducting any activity with the grant.

12.5 APPLICANT ELIGIBILITY [7 CFR 3550.103]

A. Income

To be eligible for a Section 504 loan or grant, the adjusted income at the time of 

loan/grant approval and at loan closing must not exceed the applicable very low-income limit. 

Low-income applicants cannot receive assistance under Section 504.

Medical deductions in excess of 3% of annual income should be closely examined and 

applied to elderly applications, as described in HB-1-3550, Paragraph 4.4 G. Consider the 

following unreimbursed ongoing/projected medical expenses; Medicare premiums, supplemental 

insurance, long- term care insurance, prescription drug coverage, pharmacy expenses, copayments, eyewear, hearing aid / batteries, exams, monthly payments for medical bills, disability 

expenses, in home care expenses, dental expenses, including the greater of the actual travel costs 

for medical appointments or the published Internal Revenue Service mileage rate. You may not 

deduct funeral or burial expenses, nonprescription medicines, toothpaste, toiletries, cosmetics, a 

trip, or program for the general improvement of your health, or most cosmetic surgery.

Additional guidance on eligible medical expenses can be located on the Internal Revenue Service

website.

B. Credit Requirements

Applicants receiving grant only funding do not need a credit history evaluation. An 

applicant with an outstanding judgment obtained by the United States in a Federal court, other 

than in the United States Tax Court, is not eligible for a Section 504 grant or 504 loan.

For loans, applicants must have a credit history that indicates a reasonable ability and 

willingness to meet debt obligations. Applicants with a credit score of 620 or higher, do not

require Form RD 1944-61, “Credit History Worksheet,” or further evaluation. These

applicants are considered to have acceptable credit histories, with the exception for loan

applicant(s) with a significant delinquency described in Paragraph 4.12 A., or delinquency of a 

federal debt.

For unsecured loans, an infile credit score is considered reliable. An applicant with a credit 

score less than 620 must demonstrate a history of reliable traditional or non-traditional credit 

using Form RD 1944-61, “Credit History Worksheet” to conduct the credit analysis.

The indicators of unacceptable credit described in Exhibit 4-4 for Section 502 loans 

can be used to evaluate the applicant’s credit history; however, general credit requirements 

may be less stringent than those for Section 502 loans. Late payments for housing costs 

should not be considered as an indicator of unacceptable credit.

The Loan Originator will check Department of Treasury’s Do Not Pay (DNP) portal, as 

described in Paragraph 4.11 for loan and grant requests. Infile credit reports will be required 

for applicant(s) receiving a 504 loan assistance. A Tri-Merge Credit Report (TMCR) is 

required for all applications for loans of $7,500 or greater, but the cost of the report is not 

charged to the applicant. A TMCR is not required to deny a loan request of less than $7,500.

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Paragraph 12.5 Applicant Eligibility [7 CFR 3550.103]

C. Asset Requirements

Asset requirements are identical to those imposed by Section 502, except only assets that 

can be converted to cash in 60 days or less are included in the calculation of non-retirement 

assets. Non-retirement assets in excess of $15,000 (or $20,000 for an elderly household), must 

be used to reduce the Section 504 request.

An applicant’s home equity should not be considered in the asset calculation and should 

not be used as a test for other credit. 

D. Repayment Ability

To qualify for a Section 504 loan, the applicant must have a reliable income source 

sufficient to allow repayment of the loan as supported by a budget. A budget is defined by 

using a maximum Total Debt (TD) ratio of 41%. Non-taxable income is not “grossed up” for 

the Section 504 program.

E. Age for Section 504Grants

At least one qualified applicant must be 62 or older for a household to receive grant 

assistance. A qualified applicant with an eligible grant purpose may receive grant funds first 

(up to the lifetime limit). If grant funds are not enough to cover the needed repairs, the 

applicant’s loan repayment ability will be calculated (see, Paragraph 12.4 D.).

F. Ownership of Property

The applicant must own and occupy the property to be eligible for Section 504 funds, and 

must be able to document ownership, as described in Paragraph 5.11, with 3 exceptions:

Leasehold Interest: For Section 504 loans, the property must be covered by a lease with 

an unexpired portion of not less than 2 years beyond the term of the promissory note, and for 

grants, the remaining lease period must be at least 5 years.

Land Purchase Contract: This form of ownership is acceptable if the applicant is 

current on all payments and has the ability to remain current.

Nonstandard Forms of Ownership: If standard evidence of ownership, as described in 

Paragraph 5.11, is not available, Section 504 loan/grant applicants may demonstrate ownership 

by presenting any of the following:

• 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;

• Affidavits by others in the community stating that the applicant has occupied the 

property as the apparent owner for a period of at least 10 years, and is generally 

believed to be the owner; or

• Any instrument, whether or not recorded, that is commonly considered evidence of 

ownership, such as a deed or mortgage.

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Paragraph 12.5 Applicant Eligibility [7 CFR 3550.103]

Trusts, partnerships, limited liability companies, for-profit, or non-profit corporations 

are not an eligible program applicant, borrower, or owner. In limited cases, an individual 

exception request for a special needs trust can presented to the National Office for 

consideration (see, Paragraph 1.15). 

12.6 PROPERTY ELIGIBILITY [7 CFR 3550.106(a)]

A. Property Requirements

To be eligible for Section 504 funds, the property must be owner occupied and the 

applicant’s sole and principal residence. The property must be considered typical and modest for 

the area and must not be used for rental or other income producing purposes. However, Section 

504 loan or grant funds may be used to improve a home on a property that has income-producing 

land or a small business, if the loan or grant is only used to improve the applicant’s residence.

The property must be deemed a single-family housing residential unit. The Agency 

will not use 504 program funds to improve multi-family housing, or accessory dwelling units 

(see, Paragraph 5.6 D.2.).

A modest dwelling may not have an estimated or appraised value that is greater 

than the applicable area loan limit unless waived by the State Director. Waivers will be 

documented in the recipient’s electronic customer file.

B. Determining Property Value

The Loan Approval Official will determine whether an appraisal is needed to assure 

adequate security exists for the proposed loan. An appraisal is never required for an 

unsecured loan. An appraisal is required when the sum of all secured (RD or non-RD) 

indebtedness, including the proposed repair loan, exceeds $25,000. Section 504 applicants 

are required to pay an appraisal fee if an appraisal is deemed necessary. The cost of the

appraisal fee is described in Paragraph 5.20 and may be included in the 504 loan amount.

If an appraisal is not required, the value and the method used to develop the estimate 

should be documented in the running record. Utilization of tax assessments, and real 

estate websites such as Zillow.com, Trulia.com and Realtor.com may be considered as a 

tool to estimate the value of security. Appraisals are required when issuing an adverse 

action based on inadequate value of security.

C. Construction Standards

Dwellings repaired with Section 504 loan or grant funds must remain modest and all 

work must be completed in accordance with local codes and standards. They do not need to be 

brought up to Agency development standards, nor must all of the existing hazards be removed, 

provided the property does not continue to have major health or safety hazards after the planned 

repairs are made. Refer to Section 6, Chapter 5 for all construction management information.

D. Environmental Requirements

Section 504 loans and grants are subject to the same environmental requirements as 

Section 502 loans, as described in Section 3 of Chapter 5.

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12.7 INTEREST RATE AND LOAN TERM [7 CFR 3550.113]

Section 504 loans have an interest rate of 1 percent and a term of 20 years.

Section 504 loans are amortized on a monthly basis. Annual payment terms are not 

permitted.

12.8 MAXIMUM LOAN AND GRANT AMOUNTS [7 CFR 3550.112]

A. Maximum and Minimum Loan Amount

Loan and grant amounts should be rounded to the nearest whole dollar. The 

maximum loan that an individual applicant may receive is limited by the three factors 

discussed below:

• Outstanding loan amount. The sum of the outstanding balance on all Section 504 loans 

may not exceed $40,000.

• Repayment ability. The applicant receiving a loan must demonstrate repayment ability 

based on an analysis of the applicant’s TD ratio not to exceed 41%. Please refer to 

Paragraph 4.22 (B) (2) “Establishing TD”, for guidance regarding calculating total 

debt. Compensating factors may be approved by the Loan Approval Official and 

exceed the TD ratio described in Paragraph 4.24 A without approval by a next level 

supervisor.

• Eligible costs. The applicant can only receive loan funds to cover eligible costs. 

For example, if the applicant has only $5,000 of eligible repairs to make, the 

maximum loan allowed is $5,000.

B. Grant Limits

The lifetime grant assistance to any one household or one dwelling cannot exceed a cumulative 

total of $10,000. A dwelling’s grant eligibility is reset when it is transferred to a new owner provided 

the transfer wasn’t to a household member.

12.9 LOAN APPROVAL AND CLOSING [7 CFR 3550.108]

A. Loan Approval

Form RD 3550-7, “Funding Commitment and Notification of Loan Closing” is used to 

notify applicants of loan approval for secured loans. Handbook Letter 12 (3550), Notification 

of Approval, (504 Grant and/or Loan) is used to notify applicants of loan approval for 

unsecured loans. Ideally on the same day, Form RD 3550-7 is signed by the Loan Approval 

Official, the Loan Originator obligates the funds in LoanServ, and the form is sent to the 

applicant. The applicant has 15 days to sign and return the form or the Loan Originator must 

deobligate the loan. If the loan amount increases prior to loan closing, a revised Form RD 

3550-7 (secured loan) or HB Letter 12 (unsecured loan) will be sent to the applicant within 15 

business days of the increase; the applicant has 15 days to sign and return the new form or the 

Loan Originator must deobligate the loan. Deobligations will follow the processes outlined in 

Chapter 8, Paragraph 8.3.

Preparation of all forms needed to close the loan should be handled in accordance with 

Chapter 8.

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Paragraph 12.9 Loan Approval and Closing [7 CFR 3550.108]

Handbook Letter 15 (3550) Standard Adverse Decision Letter is used to notify applicant of 

a denial of credit.

B. Security Requirements

If the total Section 504 loan indebtedness is $7,500 or more, it must be secured by a 

mortgage on the property. The Agency does not require first lien position, but the total of all 

debts secured by the property must not exceed the property’s market value, except by the amount 

of any required contributions to an escrow account for taxes and insurance and any required 

appraisal fee.

C. Loan Closing

If the total outstanding balance on Section 504 loans is $25,000 or less, the loan may be 

closed by the Loan Originator or designee and requires a Non-Purchase Loan Estimate and Closing 

Disclosure be provided in accordance with Truth in Lending Act and Real Estate Procedures Act 

Integrated Mortgage Disclosures (TRID). If the total outstanding balance on Section 504 loans is 

greater than $25,000 the loan must be closed by a closing agent and is also subject to TRID 

disclosure requirements. Unsecured loans (i.e., the total Section 504 indebtedness is less than

$7,500) require issuance of Form RD 1940-41, “Truth in Lending Statement.” Please refer to 

Chapter 3 for further information on TRID. The process for selecting a closing agent is the same 

as for a Section 502 loan and is detailed in Paragraph 8.4.

12.10 GRANT APPROVAL AND DISBURSEMENT

A. Grant Approval

Grant recipients are notified of grant approval by sending Handbook Letter 12(3550), 

Notification of Approval (504 Grant and/or Loan) immediately after the funds are obligated in 

LoanServ. If the grant amount increases, a new letter must be sent to the applicant within 15 days of 

the change.

B. Grant Repayment Agreements [7 CFR 3550.114]

Before any grant funds are disbursed, the recipient(s) must sign Form RD 3550-24, “Grant 

Agreement.” The agreement states that if a home repaired with Section 504 grant funds is sold 

within three (3) years of signing the grant agreement, the full amount of the grant must be repaid. 

In the case of a life estate interest or an undivided ownership interest, as described in Paragraph 

5.11, all co-owners living or planning to live in the household must sign Form RD 3550-24. The 

original Form RD 3550-24 should be filed with the promissory notes in a locked cabinet with a 

copy to the recipient’s electronic customer file, and a copy provided to the recipient. Exhibit 12-1 

illustrates owner and co-owner income, assets and signatures required for secured loans and 

unsecured loans or grants.

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Paragraph 12.10 Grant Approval and Disbursement

Exhibit 12-1

Applicant 

Co-Applicant

Co-Owner 

Resident

Co-Owner 

Non-Resident

Other Household 

Members

Verify Income Yes Yes No Yes

Verify Assets Yes Yes No Yes

Repayment 

Agreement Yes Yes No No

Security 

Instrument Yes Yes Yes or No* No

*Undivided interests, life estates and other jointly held property not exceeding 50 

percent of ownership, may be excluded by the State Director if permitted by State law 

for secured loans (see Paragraph 5.11).

C. Documentation of Grants

To ensure that any one household or one dwelling does not receive more than the maximum 

allowable grant assistance, the Loan Originator must document the amount of any prior grant 

provided to each homeowner or dwelling. Since 1998, grant records have been maintained in 

LoanServ. A list of grants closed prior to 1998 will be retained in the state operational file folder 

3550-C, "Section 504 Grantee List." When processing grant applications for individuals born 

prior to 1936, both LoanServ and the operational file folder will be checked to document if prior 

assistance was received. For all other grant applications, LoanServ must be checked by 

individual and by dwelling address. A dwelling that received past maximum grant assistance 

may only receive a new grant if ownership has changed.

12.11 ESCROW, TAXES, AND INSURANCE [7 CFR 3550.109, 7 CFR 3550.110]

If the total outstanding indebtedness is more than $15,000, Section 504 borrowers are 

responsible for furnishing and maintaining hazard insurance, as described in Section 3 of Chapter

7. If funds are not escrowed through another lender to pay for taxes and insurance, the 

borrower must contribute the appropriate amount to an escrow account managed by the Agency.

Escrow is also not required where the security property includes a farm, and the property is not 

subdivided between the farm and non-farm tract unless the housing represents the majority of the 

value of the security property, or it is in the Agency’s best interest.

Flood insurance is required when any form of federal financial assistance which is intended 

in whole or in part for the acquisition, construction, reconstruction, or substantial improvement of 

any building located in a Special Flood Hazard Area, as identified by the National Flood Insurance 

Program, administered by the Federal Emergency Management Agency and described in RD 

Instruction 426.2. Substantial improvement means any reconstruction, rehabilitation, addition, or 

other improvement of a structure, the cost of which equals or exceeds 50 percent of the market 

value of the structure (a) before the start of construction of the improvement, or (b) if the structure 

has been damaged and is being restored, before the damage occurred (see Chapter 7, Section 3 for 

further information on calculating substantial improvements).

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12.12 MANAGING REPAIRS AND MINORREHABILITATION

This section generally refers to work being done that is not new dwelling construction 

such as subsequent loans, and unsecured Section 504 loans and grants. Typically, the repairs, 

improvements, or minor rehabilitation (work) discussed within this section would be able to be 

completed within 30 days of it commencing. If work will take more than 30 days, the loan must 

be processed and coded as ‘construction’ (e.g., interest deferral period and subsequent conversion 

to a permanent loan).

A. Communicating theStandards

It is the applicant’s responsibility to be aware of the standards the local jurisdiction has in 

place for repairs or improvements to their home before the design or bid process progresses.

Contractors should be provided with a scope of work by the applicant to ensure that the repair 

estimates for labor and materials are consistent with the homeowners’ expectations. If application 

fees and permits are required, the scope of work will identify the party responsible for submitting 

the permit fees and approval from the local jurisdiction.

B. Selecting the Contractor

While the Agency does not approve contractors, the Agency may provide applicants with 

sound advice on selecting a contractor (e.g., encouraging competitive bids, checking references, 

Better Business Bureau review, etc.). The Loan Originator should discuss any concerns from 

their initial review with the homeowner to assist with their contractor selection decision. The

Loan Originator should document in the running record which contractor(s) the homeowner 

selected.

The contractor must be checked in the Do Not Pay Portal and have a valid contractor’s 

license if required by the local jurisdiction, and such license must be documented by the Loan 

Originator (e.g., contractor provided verification or online search, when available). In many 

cases, the applicant will have a contractor in mind. The contractor’s bid should include a 

breakdown of materials and labor and describe the quantity, quality, grades, styles, model 

numbers, etc. to identify the work and materials to be furnished.

The applicant will provide an adequate number of bid(s) from a qualified contractor(s).

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

serviced and the number of bid(s) are sufficient. Online construction cost comparison tools may 

be used when appropriate. The bid(s) must be detailed to include cost of material, size, quantity,

and manufacturer.

C. Pre-Construction Conference

Once the funding has been obligated, the Agency, the applicant(s), and the contractor(s) are 

required to hold a pre-construction conference using Attachment 12-F, Pre-Construction Conference 

prior to work commencing. The purpose of the conference is to ensure that each party understands their

respective roles and responsibilities. The parties should review the contract or accepted contractors 

bid/proposal, start date, estimated completion date, requirements, and specifications to ensure all parties

understand the scope of work, construction/thermal standards, environmental mitigation requirements, 

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Paragraph 12.12 Managing Repairs and Minor Rehabilitation

fees, materials, inspection requirements, change orders, responsibilities for access, cleanup, and 

payment procedures. Along with the RD Representative, the applicant/owner and the contractor

should sign Attachment 12-F. Alternatively, the applicant/owner and the contractor can

acknowledge the pre-construction conference via an email exchange that includes the completed 

Attachment 12-F with the RD Representative’s signature.

D. Construction Contract

Written contracts using Form RD 1924-6, “Construction Contract” are strongly 

recommended for all rehabilitation-related construction and are required if the construction work 

will affect the dwelling’s structural integrity (widening doorways, removing walls, foundation 

work, termite/water damage, etc.). A contract or bid not exceeding $10,000 may use Form RD 

1924-6, “Construction Contract,” but it is not required. Contractors commonly have bid 

acceptance language at the bottom of their bid proposals, regardless the homeowner’s signature 

is required as it binds the agreement (contract). The applicant and contractor must sign the 

contract(s) or bid/proposal no later than the pre-construction conference. If there are multiple 

contracts or bids and when utilizing the Borrower Method, Form RD 1924-1, “Development 

Plan” with cost estimates and bid specifications must be used. Separate contracts and 

arrangements which split responsibility of contractors (multiple small simultaneous contracts), 

should be avoided whenever it is practical to do so.

12.13 COMMENCEMENT OFWORK

Once the contract or bid has been accepted and/or signed, the pre-construction 

conference has been held, the work may begin. Generally, the complexity of most repairs and 

minor rehabilitation will not require periodic inspections by Agency staff. The homeowner and 

contractor should communicate with Agency staff any unforeseen issues that arise which could 

increase costs or jeopardize timely completion.

A. Inspecting the Work

The homeowner is responsible for inspections necessary to protect their interest. Agency 

inspections, (including acceptable alternatives) are completed to ensure the fundswere used for the 

approved purpose and do not imply duty or obligation to the homeowner. The inspection(s) may 

be conducted on-site by Agency staff utilizing Form RD 1924-12, “Inspection Report”, or by 

alternative methods provided by the contractor or homeowner such as photos/videos showing the 

completed work. Alternative methods of inspection should be accompanied by a written report as 

needed to document items such as the appropriate posters being on display, percent of work 

completed, etc. Written reports without photos provided to the Loan Originator should be used as 

last resource and must be confirmed by the homeowner.

Qualified third-party inspectors may be used when on-site inspections or alternative 

methods are not feasible. The cost for these services may also be reimbursed to the 

homeowner with loan or grant funds. Because of additional costs to the homeowner, payment 

for qualified third-party inspectors is not the preferred method. If inspections are conducted 

by a third party, the inspector should submit periodic inspection reports to the Agency.

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Paragraph 12.13 Commencement of Work

B. Payment Upon Completion 

Payment Options

Before the Loan Originator initiates payment(s), the homeowner’s authorization must be 

documented on Form RD 1924-9, “Certificate of Contractors Release.” The number and timing

of inspections varies by the type and extent of work performed.

Once work has commenced, there are two payment options. The first and preferred 

method is lump sum payment upon completion of work. The second is multiple advances 

for work in place in accordance with HB 1-3550, Paragraph 5.26 C. Multiple advances are 

used to pay the contractor for work completed and calculated not to exceed 60% of the value 

of work in place for that portion of the contract (i.e., contract $10,000, 25% of work 

completed, calculated as: 0.25 x $10,000 x 0.60 = $1,500 payment).

C. Required Forms

The Loan Originator determines acceptability of documentation submitted showing 

completion of repairs and documents the running record accordingly.

1. For unsecured loans and grants the Loan Originator must receive the following 

documentations prior to final payment:

• Form RD 1924-9, “Certificate of Contractor’s Release” including an

applicant/owner signature(s) confirming their acceptance of the work.

• Photos of the completed work as provided by the owner or contractor, and/or a copy of a thirdparty inspection.

2. For secured loans the Loan Originator must receive the following 

documentation prior to final payment:

• Form RD 1924-9, “Certificate of Contractor’s Release” including an

applicant/owner signature(s) confirming their acceptance of the work.

• Form RD 1924-10, “Release by Claimants.”

• Form RD 1924-19, “Builder’s Warranty,” other 1 year warranty document.

• Evidence of completed work: Either Form RD 1924-12, “Inspection Report,” or a copy

of a third-party inspection, or photos of the completed work as provided by the owner 

or contractor.

12-12
HB-1-3550

Paragraph 12.13 Commencement of Work

D. Borrower Method [RD Instruction 1924-A, 1924.6 (b)]

Borrower method can be used when the construction method is not feasible, and the 

borrower demonstrates the capacity and experience to oversee the construction process. This 

method increases Agency risk and provides the least amount of coverage to the borrower. If this 

method is utilized, the total development of rehabilitation and repairs cannot exceed $5,000. A 

detailed estimate of labor and materials should be obtained in writing, with the exception for 

amounts less than $100. The Agency has two payment options:

• Checks can be made payable directly to the laborer(s) and/or supplier(s) to purchase 

labor, equipment and materials, or

• Checks can be issued to the owner, if the owner has paid for labor/material out of 

pocket, provides receipts/invoices to document the amount paid, and has obtained 

signatures of the workers who performed labor on FormRD 1924-11, “Statement of 

Labor Performed”.

The following documentation should be completed prior to final payment:

• Form RD 1924-1, “Development Plan,”

• Form RD 1924-11, “Statement of Labor Performed” for each worker involved in

performing borrower method paid labor,

• Itemized invoice to include all equipment and materials furnished,

• Homeowners’ written acceptance of the completed work,

• Photos of the completed work provided by the owner, or third-party inspector.

12.14 CLOSEOUT PROCESS

Once work is satisfactorily completed, the Agency will release the final payment in the 

form of a check made out to the homeowner and their contractor. The homeowner is party to the 

contract and therefore responsible to countersign the check and release it to the contractor as 

payment. Before payment occurs, the Loan Originator ensures that the work has been accepted 

by the homeowner. If construction or rehabilitation work cannot be completed because the 

contractor is unable or unwilling to do so, and a new contractor is not identified by the 

homeowner within 30 days, loan funds will be applied to reduce the borrower’s principal balance. 

Grant funds will be returned to the Servicing and Asset Management Office (Servicing Office).

The homeowner must be notified of this action in writing.

If the homeowner refuses to pay the contractor due to a dispute or unsatisfactory 

workmanship, the undisbursed funds will be processed in the following manner:

• If litigation is pending, the Agency will consult with the Office of the General 

Counsel prior to disbursing or returning funds.

12-13

(01-23-03) SPECIAL PN

Revised (03-08-24) PN 607
HB-1-3550

Paragraph 12.14 Closeout Process

• If litigation is not pending, the Agency will return remaining funds to be applied to the 

borrower’s loan or grant amount. Once funds have been disbursed or returned, loans 

must be converted to permanent accounts on the first of the following month. The 

homeowner should also be advised of their contractual obligations and may wish to seek 

their own legal counsel.

A. Funds Remaining After Completion [RD Instruction 1951-A, 1951.11(b)(3)]

Funds remaining after completion of 

construction and disbursement payment to the 

contractor, may either be returned as unused funds or 

used toward an eligible repair. Loan funds returned 

will be curtailed to principal. However, if a borrower 

received a combination loan and grant, the remaining 

funds will first be returned to reduce the grant amount. 

A notice informing the borrower of their right to appeal 

must be issued within 10 days of the determination to 

return unused funds. The remaining funds must be 

returned within 90 days.

B. Disbursement [DLOS Manual Chapter8]

Loans and grants can be disbursed utilizing either multiple draws or single check 

disbursement (lump-sum payment) function in LoanServ. For rehabilitation projects exceeding 30 

days and those requiring multiple draws the purpose code on the registration screen in UniFi must 

be coded 40 (construction loan). This code will transfer to the new loan screen in LoanServ which 

should reflect a close code of “5” and must be verified at loan closing. When ordering multiple 

draws for loan-grant combinations, additional draws on the grant portion cannot be performed once 

the loan has been fully disbursed.

Loan funds will typically be disbursed before grant funds; however, this may not always be 

feasible as grant funds are disbursed to remove safety and health hazards or make the dwelling 

accessible for household members with a disability. Funds remaining after completion of work should 

always be returned to reduce the grant balance first when feasible.

In some instances, a supervised bank account may be necessary for multiple disbursements.

Please refer to RD Instruction 1902-A for Supervised Bank Accounts (SBA) requirements. The 

Washington, D.C. based AgFed Credit Union is equipped to establish SBAs virtually nationwide.

C. Cancellation of Funds

Partial or full cancellation of loan and grant funds can be performed in accordance with 

DLOS Manual Chapter 8. If a Treasury Check is held by the Agency, it must be voided and 

returned to Servicing Office with form RD 3550-17, “Funds Transmittal Report”. The following 

reason codes may be used on the Funds Transmittal Report:

05 Cancellation of Treasury Funds (loan or grant)

20 Principal Curtailment

12-14

Example - Joe Smith receives

$6,000 in combination loan and 

grant assistance ($2,000 loan 

and $4,000 grant funds). The 

repairs are completed and 

invoiced at only $4,000, less 

than the original contract price. 

The remaining $2,000 will be 

returned as unused funds to 

reduce the grant (not the loan).
ATTACHMENT 12-A 

SUMMARY OF DIFFERENCES BETWEEN

SECTION 504 LOANS AND GRANTS

HB-1-3550

Attachment 12-A

Page 1 of 1

Note: This attachment summarizes key requirements to assist the reader in comparing Section 

504 loans and grants. It is not a comprehensive description of all requirements.

Topic Section 504 Loan Section 504 Grant

Use of Funds May be used to: (1) improve or 

modernize; (2) make dwelling 

decent, safe, and sanitary;

(3) remove hazards.

Cannot be used for acquisition or 

new construction. Specific 

prohibitions are listed in 

Paragraph 12.2 A.

May be used only to remove health 

and safety hazards or to make 

dwelling accessible to household 

member with disabilities.

TRID Disclosure 

Requirements

Loans of $7,500 or more require 

the issuance of Non-Purchase Loan 

Estimate and Closing Disclosure.

Loans of less than $7,500 require 

the issuance of Form RD 1940-41 

“Truth in Lending Statement.”

A list of Settlement Service 

Providers is only required when a 

Loan Estimate is issued.

N/A

Credit Reports Required for all applicants. but 

no fee charged. Loans $7,500 or 

greater require a TMCR.

N/A

Age of Applicant N/A 62 or older

Leaseholds The property must be covered by a 

lease with an unexpired portion of 

not less than 2 years beyond the 

term of the promissory note.

The remaining lease period must be 

at least 5 years from closing.

Appraisals Fee charged if appraisal completed. N/A

Maximum Assistance $40,000 outstanding at one time. $10,000 lifetime limit.

Security If the total Section 504 indebtedness 

is greater than or equal to

$7,500, a mortgage is required.

No security required.

Insurance Ifindebtedness greaterthan$15,000, 

property insurance is required.

Flood insurance isrequired in 

Special Flood Hazard Areas 

(SFHA) for substantial 

improvements per Paragraph

7.12 B.

Flood insurance is required in 

SFHA for substantial 

improvements per Paragraph 7.12 

B.

(01-23-03) SPECIAL PN

Revised (03-08-24) PN 607
HB-1-3550

Attachment 12-B

Page 1 of 4

ATTACHMENT 12-B

DIFFERENCES BETWEEN SECTION 502 AND SECTION 504 LOANS

Note: This attachment summarizes key requirements to assist the reader in comparing Section 

502 and 504 loans. It is not a comprehensive description of all requirements.

Topic Section 502 Loan Section 504 Loan

PROGRAM PURPOSES AND PRIORITIES

Program Purpose Assist applicants who are not 

homeowners to become 

homeowners.

Assist current homeowners with 

necessary improvements and 

repairs.

Processing Priorities Applications will be selected 

for processing using the 

priorities specified in 

Paragraph 3.13. Applications 

that meet special criteria are 

processed immediately.

Multiple priorities apply, but 

applications for assistance to 

remove health and safety hazards 

receive first priority processing.

Veterans’ preference is used for 

applications with the equivalent 

priority status received on the 

same day.

LOAN PURPOSES

Eligible Purposes In general, funds may be used to 

buy, build, rehabilitate, improve, 

or relocate an eligible dwelling 

and provide related facilities for 

the borrower to personally 

occupy.

No initial loansfor repair of 

manufactured homes.

Remove health and safety 

hazards. Repair or remodel 

dwelling to make more accessible 

and useable for a household 

member with a disability.

General repairsto improve or 

modernize a home.

Repair mobile or manufactured 

homes with a permanent 

foundation.

APPLICANT ELIGIBILITY

Income Applicant income must not 

exceed low-income limit at loan 

approval and must not exceed 

moderate-income limit at loan 

closing.

Applicant income must not 

exceed the very low-income limit 

at loan approval and closing.

(01-23-03) SPECIAL PN

Revised (03-08-24) PN 607
HB-1-3550

Attachment 12-B 

Page 2 of 4

Topic Section 502 Loan Section 504 Loan

APPLICANT ELIGIBILITY

Credit Requirements Credit history must demonstrate 

ability and willingness to pay. 

Costs for credit reports are 

charged to applicant.

Applicants must have a credit 

history that indicates a 

reasonable ability and 

willingness to meet debt 

obligations. Costs for credit 

reports are not charged to the 

applicant.

Asset Requirements Applicants are required to 

contribute nonretirement assets 

exceeding $15,000 ($20,000 for 

elderly households) toward the 

purchase of the property.

Same as Section 502, except 

nonretirement assetsinclude only 

assets that can be converted to 

cash within 60 days.

Repayment Ability Applicants must show repayment 

ability based on PITI and TD 

ratios.

Applicants mustshow repayment 

ability based on a TD ratio of 

41% or less.

Ownership The applicant need not own the The applicant must own the

property. property.

A leasehold must have an A leasehold must have an

unexpired term of at least 150% unexpired term of at least 2 years

of the term of the mortgage, beyond the loan term.

unlessthe loan is guaranteed by a 

public authority, Indian tribe, or

Indian Housing Authority.

If standard evidence of 

ownership is unavailable, 

exceptions may be made.

No exceptions on ownership

evidence.
HB-1-3550

Attachment 12-B

Page 3 of 4

Topic Section 502 Loan Section 504 Loan

PROPERTY REQUIREMENTS

Area Loan Limit Individual exceptions are 

allowed.

Individual exceptions are 

allowed.

Property Standards The property must meet the 

Agency’s site and dwelling 

standards.

The property: (1) need not be 

brought to Agency development 

standards; (2) need not have all 

hazards removed; but (3) must 

have all major hazardsremoved.

Appraisals An appraisal isrequired when the 

debt is to be secured and prior 

liens exceed $15,000. Applicants 

are required to pay an appraisal 

fee which may be included in the 

loan.

An appraisal is not required

unless an RD lien will secure

the property. An appraisal is 

required when the total

secured indebtedness (RD 

and non-RD) exceeds

$25,000. If under this 

threshold, the Loan Official

will determine if an appraisal 

is needed.

Applicants are required to pay an 

appraisal fee which may be 

included in the loan.

LOAN TERMS

Interest Rate and Loan Terms The applicable Rural Housing 

(RH) Section 502 low or 

moderate interest rate in effect at 

loan approval or closing, 

whichever is lower. Standard 

term is 33 years;some applicants 

may qualify for a 38-year term.

Borrowers may be eligible for 

paymentsubsidiesthat reduce the 

effective interest rate.

1 percent interest rate and a 

standard loan term of 20 years.

Loan Amount Totalsecured indebtedness must 

not exceed the area loan limit.

Total secured indebtedness must 

not exceed the area loan limit or 

the market value limitation.

The outstanding balance on the 

sum of all Section 504 loans 

cannot exceed $40,000.

(01-23-03) SPECIAL PN

Revised (03-08-24) PN 607
HB-1-3550

Attachment 12-B 

Page 4 of 4

Topic Section 502 Loan Section 504 Loan

LOAN APPROVAL AND CLOSING

Loan Closing Loans must be closed by a 

closing agent.

Loans $25,000 or less may be 

closed by the Loan Originator or 

a designee.

Security First liens are generally required, 

but Agency interests may be 

subordinated in some 

circumstances.

First lien position is not required.

INSURANCE

Insurance Requirements If indebtedness is greater than

$15,000, property insurance is 

required.

If indebtedness is greater than

$15,000, property insurance is 

required.
HB-1-3550

ATTACHMENT 12-C

504 SINGLE FAMILY HOUSING LOAN AND GRANT CHECKLIST

THIS CHECKLIST DOES NOT REPLACE THE RUNNING RECORD!

This document should be filed in under Folder A for an Electronic Customer File (ECF)

Once clear, readable copies are uploaded and confirmed in ECF, the originals can be destroyed following 

the requirements of RD Instruction 2033-A (e.g., PII must be cross-cut shredded) except for the 

documents identified on the Index of Essential Records which are maintained in locking-type, fireproof 

filing cabinets/safes in accordance with RD Instruction 2033-A, 2033.6(b).

ECF – Electronic Customer File (refer to the ECF Classifications – Quick Reference Guide in SharePoint) 

RP – Responsible Party

LO – Loan Originator

LAO – Loan Approval Official

Attachment 12-C

Page 1 of 6

Applicant: Co-Applicant:

ECF RP DATE

PREQUALIFICATION PROCESSING

Discuss the results with the potential applicant and emphasize that the results are informal and unbinding. As 

applicable, consider the below when discussing the results and refer to Attachment 3-F for guidance on addressing 

negative results.

C LO Form RD 3550-35, “Section 504 Home Repair Loan and Grant Program Intake Form”

and RD 3550-1, “Authorization to Release Information” (HB-1, 3.5)

C LO Check Treasury’s DNP portal, and file in applicant ECF file (HB-1, 4.11, 12.4 B)

C LO Check LoanServ’s “SSN CROSS REFERENCE” softlink key (HB-1, 4.11, 12.9 C)

C LO Infile Credit Report (HB-1, 3.3, 4.11)

C LO Verify eligibility of subject property. (HB-1, 5.1)

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

APPLICATION PROCESSING

Review application for completeness within 3 business days of receipt. Call or write the applicant to request any missing 

information. Follow up with a letter advising applicant of a 15-day deadline for submission or the application will be

withdrawn, or a 30-day deadline to obtain repair bid(s). Mark files as inactive until complete. (HB-1, 3.6)

C LO

Form RD 410-4, “Uniform Residential Loan Application,” include information sheet

similar to Attachment 3-D & RD 3550-1, Authorization to Release Information (HB-1, 3.5)

C LO

If a secured loan application is subject to TRID, forward the following documents as 

applicable to the applicant within 3 business days of receipt of the application (HB-1,

3.8):

HB Letter 5 (3550), Cover Letter to Truth in Lending Disclosure

CFPB’s “Your home loan toolkit: A step-by-step guide”

CFPB’s Non-Purchase Loan Estimate form

Attachment 3-I, Settlement Service Providers List &Mortgage App. 

Related Disclosures

(01-23-03) SPECIAL PN

Revised (03-08-24) PN 607
HB-1-3550

Attachment 12-C 

Page 2 of 6

C LO For an unsecured loan, send RD 1940-41,

“Truth in Lending Statement.”

Date 

Returned:

C LO Check Treasury’s DNP portal, and file in applicant ECF file (HB-1, 4.11, 12.4B)

C LO Check LoanServ’s “SSN CROSS REFERENCE” softlink key (HB-1, 4.11, 12.9 C)

C LO Check list for 504 Grant recipients born prior to 1936 for prior assistance and document in 

running record (HB-1, 12.9C)

C LO Check address in LoanServ’s “CUS XREF ID” softlink key for prior grant assistance on the 

dwelling (HB-1, 12.9C)

C LO

Identification and Verification of age (grants only) (HB-1,4.21)

Evidence

of age

Taxpayer’s

ID number

Photo ID

D5 LO If not a citizen, see attachment 4-D (S.A.V.E.) (HB-1, 4.20)

E LO Evidence of homeownership and occupancy: (copy of Deed, RE Tax Bill, etc.) (HB-112.4F)

C LO Verify eligibility of subject property. (HB-1, 5.1)

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

C LO Enter application complete date in stage updating of UniFi and on Form RD410-4

C LO Funds Available; send HB Letter 11, Request Information (HB-1, 3.13)

C LA

O

Funds Not Available; send HB Letter 2, Funds Not Available (HB-1, 3.12)

INCOME

D1 LO

Paycheck stubs (4 most recent & consecutive weeks)-Only for employment which is not seasonal in

nature. Seasonal employment is verified using the last two years of complete tax returns with W-2s and 

applicable schedules. (HB-1, 4.3)

D1 LO Oral Verification of Employment – if applicable (HB-1,3.15 A.3.)

D1 LO

Form RD 1910-5, “Request for Verification of Employment” – if paystubs are not available LO

(HB-1, 4.3):

If no response in 14 days, call employer to follow up and document the discussion

D1 LO

Other Income/ documentation (HB-1, 4.3, 4.5):

Public Assistance Self-employment income

Child Support /Alimony Social Security/ VA

Benefits

Unemployment Benefits Pensions/ 

Annuities

Latest two Federal Income Taxes with W-2s and applicable schedules

Tax transcripts directly requested and obtained by applicant using IRS Form 4506-T, 

Request for Transcript of Tax Return, if additional income validation was needed.

Other

D1 LO Form RD 3550-4, “Employment and Asset Certification”

D1 LO Separation/Divorce/Paternity/Property Settlement Agreement, if applicable

DEDUCTIONS

D2 LO

Deduction documentation (HB-1,4.4):

Childcare Disability Assistance Expense

Elderly/Disabled (RD 1944-4, if 

applicable)

Full-Time Student Status

Medical Expenses Minor Dependent

Other
HB-1-3550

Attachment 12-C

Page 3 of 6

C LO If changed circumstances occur, issue revised Loan Estimate within 3 business days of receiving

new information, but no later than 4 business days prior to loan consummation.

(01-23-03) SPECIAL PN

Revised (03-08-24) PN 607

ASSETS

D3 LO

Most recent bank account statements covering at least a two-month period – statements 

must include the transaction history,reviewany recurring deposits or debits, and obtain explanation

forlarge deposits(HB-1, 4.5)

D3 LO Form RD 1944-62 “Request for Verification of Deposit” – if statements are not available or the 

accuracy of the applicant’s self-certification or statements are questioned (HB-1, 4.3)

D5 LO Form RD 3550-2 “Request for Verification of Gift/Gift Letter,” if applicable (HB-1, 4.3)

D3 LO Land and Other Real Estate, if applicable (HB, 4.5, Exhibit 4-3)

D3 LO Most recent retirement fund statements cover at least a two-month period (considered for 

income calculations, but not for down payment) (HB-1, 4.6, 4.7)

D3 LO Other Assets (HB-1, 4.5, Exhibit 4-3)

CREDIT

C LO Infile Credit Report (HB-1, 3.3, 4.11)

D4 LO

Tri-Merge Credit Report (TMCR) documentation (Only loans$7,500 or greater) [no grants] – no 

charge to the applicant) (HB-1, 4.12 & 12.4):

Report: Requested Received

Document in item 19 of RD 410-4

Credit 

Scores:

Applicant CoApplicant

D4 LO

Creditscore is less than 620 (HB-1,12.4B):

Nontraditional credit verifications

Applicant Reference Letter (RD410-8)

Credit History Worksheet (1944-61)

Credit Letter of Explanation, if applicable (HB-1, 4.12)

OTHER

D1 LO Automated Worksheet for Computing Income and 504 Eligibility

D5 LO Document repayment ability, TD ratio does not exceed 41% without documented compensating 

factors (HB-1, 12.7).

D5 LO Document applicant lacks personal resources and meets non-retirement asset limitations

($15,000; $20,000 for elderly households) (HB-1, 4.6, 6.10, and 12.4 C)

F LAO If applicant is not eligible, send HB Letter 15 (3550), Standardized Adverse Decision Letter 

with review and appeal rights (must be signed by the LOA) (HB-1, 1.9)

D5 LAO Document Eligibility on originally submitted Application - item 17. Update UniFi/Stage 

Updating

D5 LAO Handbook Letter 16B, Self-Help Applicant Eligibility-Owner Occupied Rehabilitation issued 

when loan and/or grant eligibility has been determined.

D5 LO Form RD 3550-23, “Applicant Orientation Guide” (HB-1, 4.26 loans only)
HB-1-3550

Attachment 12-C 

Page 4 of 6

PROPERTY ELIGIBILITY

D1 LAO

Property eligibility determination (document with Automated Worksheet forComputing Income 

and 504 Eligibility) (HB-1, 12.3) Method used: (site visit, online resources)

Online Resources can be uploaded to Property Visit & Documentation for Repair

F LAO If denying property, send HB Letter 15 (3550), Standardized Adverse Decision Letter

with Review and appeal rights (must be signed by the LOA) (HB-1, 1.9 & 8.2)

E LO

Verify the subject property’s address using the USDA address verification site. Result code

must be 1 or 2; or researched, verified, and documented if not. Enter verified Address in 

UniFi. (HB-1, 5.1)

(http://eligibility.sc.egov.usda.gov/eligibility/addressVerification)

E LO Checklist for Evaluation of Existing Dwelling (HB-1, 12.3, Attachment 12-D), if applicable.

E LO Photographs of property and essential repairs (before and after). (HB-1, 12.12)

E LO Appraisal Report, or document Statement of Value (HB-1, 12.5B)

E LAO Form RD 1922-15, “Administrative Appraisal Review for Single Family Housing” - within 7

days of appraisal (HB-1, 5.19); Reviewed and Accepted (initial and date)

E LO

Notify Applicant of appraisal results and provide a copy of the appraisal. If making

an adverse decision on the appraisal, send either HB Letter 17 or HB Letter 18, as applicable, 

along with a copy of the appraisal.

E LO Lead Based Paint (LBP) Compliance Key and Print Out (houses built prior to 1978) 

(https://leadpaint.sc.egov.usda.gov/LBPWeb/lbpQuestionaire)

E LO/

LAO

RD Instruction 1970-B, Exhibit D, “Environmental Checklist for Categorical Exclusions” or 

RD Instructions 1970-C, Exhibit E “Guide for Reviewing Environmental Assessments (as 

applicable) (1970-B & HB-1, 5.8)

E LO FEMA’s Standard Flood Hazard Determination Form (HB-1, 5.8 & 1970-F) 

(https://www.floodcert.com)

E LO

FEMA’s Elevation Certificate Form, (HB-1, 5.8 & 1970-F), ifsubstantial rehabilitation 

(https://www.fema.gov/media-library/assets/documents/160)

Private Party Notice Regarding Flood Hazards, as applicable (HB-1, 5.8 &1970-F)

E LO

Form RD 3550-6, “Notice of Special Flood Hazards, Flood Insurance Purchase

Requirements, and Availability of Federal Disaster Relief Assistance,” as applicable (mail 10 

days prior to closing) (HB-1, 5.8)

CONSTRUCTION

E2 LO Check contractor(s) in the DNP portal whose contracts are equal to or greater than $25,000 and

place copies in file (1940-M)

E2 LO Attachment 12-F. Pre-Construction Conference (HB-1, 12.3) (at or before closing)

E2 LAO Form RD 1924-7, “Contract Change Order,” if applicable

CONTRACTS $10,000 OR LESS

E2 LO

Review detailed bid(s) from contractor(s) itemized costs to include labor and materials (HB-1,

5.25) or use 1924-6, Construction Contract and RD 1924-7, Contract Change Order, if 

applicable.

E2 LO Form RD 1924-1, “Development Plan”

E2 LO Form RD 1924-9, “Certificate of Contractor’s Release”
HB-1-3550

Attachment 12-C

Page 5 of 6

E2 LO Form RD 1924-10, “Release by Claimants” if applicable

E2 LO Form RD 1924-11, “Statement of Labor Performed for each worker involved in

performing borrower method paid labor

E LO Pictures of repairs before and after

E2 LO Form RD 1924-19, “Builder’s Warranty” (HB-1, 5.27), if construction contract used 

and the loan is secured (HB-1, 12.12 C)

CONTRACTS GREATER THAN $10,000

E2 LO Form RD 1924-6, “Construction Contract”

E2 LO Ex C, RD Inst. 1901-E (HB-1, 12.11) DOL within 10 days,DOL

website (https://www.dol.gov/agencies/ofccp/contact/regional-offices)

E2 LO “400 Series” (400-1, 400-3, 400-6, posters) (HB-1,5.25)

E2 LO Form RD 402-1, “Deposit Agreement” and RD 402-2, “Statement of Deposits and

Withdrawals,” if applicable

E2 LO Form RD 1924-12,Inspection Report. Third Party Inspections, or alternative method

(HB-1, 12.12)

E2 LO Form RD 1924-9, “Certificate of Contractor’s Release”

E2 LO Form RD 1924-10, “Release by Claimants,” if applicable

E2 LO Form RD 1924-11, “Statement of Labor Performed” (borrower method only)

E2 LO Form RD 1924-19, “Builder’s Warranty” (HB-1, 5.27), if construction contract used

UNDERWRITING/APPROVAL

D1 LO Reverify income - if over 120 days old (HB-1, 8.6)

DI LO Automated Worksheet for Computing Income and 504 Eligibility-if income reverified

LO Verify UniFi Program Type Code (must match 

income type)

Program Type 

Code:

F LO Update all screens in LoanServ before uploading file; check Display History Screen for 

correct loan / grant amount

F LO Direct-US Findings Report (optional)

F LAO If rejected, use HB Letter 15 (3550), Standardized Adverse Decision Letter, and attach 

review & appeal rights (HB-1, 1.9 & 8.2)

F LAO

Form RD 3550-7, “Funding Commitment and Notification of Loan Closing” – issued

when

secured loan funds are obligated in LoanServ (if not accepted and returned in 15 days, 

deobligate) (HB-1, 8.2)

F LAO Handbook Letter 12 (3550), Notification of Approval – issued when unsecured loan

and/or grant funds are obligated in LoanServ.

F LO Obligate through LoanServ (HB-1, 8.7).

F LO If changed circumstances occur, issue revised Loan Estimate within 3 business days of 

receiving new information, but no later than 4 business days prior to loan consummation.

CLOSING

G LO Check Treasury’s DNP portal for closing agent (Label as Closing Agency using ECF Title 

field) (HB-1, 4.11, 12.4B)

G LO Form RD 1927-4, “Transmittal of Title Information” (HB-1,8.4)

G LO Title Insurance required for loans if the total outstanding balance on Section 504 loans is 

greater than $25,000 (HB-1, 8.4)

G LO Form RD 1927-9, “Preliminary Title Opinion” (if the total outstanding balance on

Section 504 loans is greater than $25,000), as applicable (HB-1, 8.4)

(01-23-03) SPECIAL PN

Revised (03-08-24) PN 607
HB-1-3550

Attachment 12-C 

Page 6 of 6

G LO Hazard Insurance Binder & Receipt for 1st year premium for loans $15,000 or 

greater (HB- 1, 7.12)

G LO Flood Insurance Binder & Receipt for 1st year premium required for properties 

located in Special Flood Hazard Area (Loans and grants with substantial 

improvement)

G LO Review Title Insurance Binder/Preliminary Title Opinion and verify legal description is 

correct If exceptions noted affect the security value, loan cannot close (HB-1, 8.5)

G LAO Form RD 3550-15, “Tax Information” – loans $15,000 or greater (HB-1, 7.10)

G LO Form RD 3550-9, Initial Escrow Account Disclosure Statement, loans $15,000 or greater

(HB-1, 7.5 & 12.10)

G LO

/ 

LAO

Form RD 3550-25, Loan Closing Instructions and Loan Closing Statement – if the total 

outstanding balance on Section 504 loans is greater than $25,000 (should include 

documents

to be signed at closing) (HB-1, 8.11)

G LO Form RD 3550-17, Funds Transmittal Report for tax service & appraisal fees, escrow 

funds, etc. (copy in Collections Operational File) (1951-B, if applicable)

G LO Form RD 3550-19, Transmittal-Closing Documents & Attachments, as applicable (Grant 

documents are not sent to Servicing Office) (HB-1, 8.11)

G LO Form RD 410-4, Uniform Residential Loan Application - PRINTED FROM UniFi

G LO Form RD 1927-5 “Affidavit Regarding Work of Improvement” (if required by State 

Supplement)

send blank to closing (1927-B, 1927.58)

G LO Form RD 1940-16, “Promissory Note” (original in safe) - all loans (HB-1, 8.9)

G LO Non-Purchase Closing Disclosure (HB-1, 8.5), review for compliance with tolerance limits

(secured loans)

G LO Form RD 1940-41, “Truth in Lending Statement,” if applicable for an unsecured loan 

(HB-1, 3.8B)

G LO Form RD 1940-43, “Notice of Right to Cancel” - if secured loan (HB-1, 8.6)

G LO Form RD 3550-14, “Real Estate Mortgage or Deed of Trust for (State)” – ($7,500 or 

greater – sent blank) (HB-1, 8.11)

G LO Form RD 1927-10, “Final Title Opinion,” if applicable

G LO Form RD 1927-8, “Agreement with Prior Lienholder, “if applicable (HB-1, 8.6)

G LAO Form RD 3550-24, Grant Agreement (original in safe; copy in case file) (HB-1, 12.9)

G LO Form RD 3550-29, “Document Errors and Omissions Agreement” (HB-1. Attachment 8-

A)

G LO Forms RD 3550-10, “Condominium Rider” or RD 3550-11, “Planned Unit Development

Rider” (if applicable)

POST CLOSING

G LO

Verify closing documents faxed to Servicing Office in required time frame (HB-1, 8.11)

Verify proper lien position.

Post 1 month follow-up for recorded Real EstateMortgage.

Post follow-up for Title Insurance Policy (60 days) or Final Title Opinion (14 

days). (If not received, contact Closing Agent by mail with a copy of the

letter to the insurance company.)

H LO Activate loan (wait until the rescission period has expired, if applicable)

H LO Review final Loan Estimate & Closing Disclosure for tolerance violations. Cure violation 

within 60 days of closing.

H LAO Form RD 3550-25 – “Loan Approval Official” approves after all forms are returned,

reviewed, and correct (HB-1, 8.11 secured loans)

H LO Delinquent/Lienholder Screen – complete LoanServ screen for each leveraged partner –

Include forgivable loans from CDCs and Non-Profits
ATTACHMENT 12-D

HB-1-3550

Attachment 12-D

Page 1 of 2

CHECKLIST FOR EVALUATION OF EXISTING DWELLING

Owner-Occupant Name Property Address

Co-Owner Occupant Name AccountNumber 

Mark the appropriate box to indicate the condition of each element.

Yes No

Health / 

Safety 

Hazard

Element

1. Entry, Exit, Walkway and Driveway. Porches, stairs, decks are sound and free of 

deterioration. Handrails are required for extended stairs generally four or more 

consecutive steps. Walkways, porches, and decks pose no safety hazards and provides 

adequate accessibility for a household member with a disability, if applicable.

Comments:

2. Exterior Walls. Exterior walls do not exhibit signs of structural fatigue, failure, 

or excessive bowing. The siding is free of any rot or paint that is loose, peeling, 

chipping, scaling, or cracking. Vinyl or aluminum siding is free of mildew. Brick 

or stone veneer is sound and exhibits no displacement.

Comments:

3. Utilities. The property is connected to a water/septic system that is approvable by 

an appropriate public agency. The system is adequate for the size of the property 

and is performing satisfactorily. The dwelling has adequate, safe, dependable

utilities with no evidence of malfunction.

Comments:

4. Foundation. The foundation is structurally sound with no evidence of defects such 

as cracks, bowing or moisture intrusion. If a deficiency is noted, describe the nature of 

the deficiency and report necessary repairs, alterations or required inspections to 

alleviate the deficiency. Gutters, downspouts and grading are functioning adequately 

and provide proper drainage, if applicable.

Comments:

5. Roof. The roof is satisfactory and free of serious defects such as buckling, 

sagging, holes, leaking and is expected to last a minimum of 2 years.

Comments:

(01-23-03) SPECIAL PN

Revised (10-05-17) PN 504
HB-1-3550

Attachment 12-D 

Page 2 of 2

Yes No

Health / 

Safety 

Hazard

Element

6. Interior walls, framing and trim. Structurally sound and are

exhibiting no signs of bowing, sagging, or deterioration.

Comments:

7. Windows. Windows are functional, adequate and energy 

efficient exhibiting no obvious signs of deterioration.

Comments:

8. Framing. Floor, subflooring, ceiling joists and partition framing are 

sound and exhibit no structural deficiencies.

Comments:

9. Floor covering. Structurally sound and without presence of cracks, 

holes, buckling, damage, heavily worn or soiled.

Comments:

10. Plumbing. Functionally adequate water pressure, flow and waste 

removal. Water heater and sump pump are functional. Plumbing 

fixtures exhibits no evidence of leaks, damage.

Comments:

11. Heating and Air Conditioning. Functionally adequate

Comments:

12. Electrical Wiring. Functionally adequate.

Comments:

Additional Comments: 

Reviewer Signature Date
HB-1-3550

Attachment 12-E 

Page 1 of 2 

ATTACHMENT 12-E 

CHECKLIST OF ITEMS TOACCOMPANY

APPLICATION FOR HOME REPAIR LOAN OR GRANT FUNDS

You, as the applicant, need to simultaneously submit the applicable items below when applying for 

the Single-Family Housing (SFH) 504 Repair program. All applicable items requested below should be 

submitted. If any item, information and/or signature is missing, your application will be considered 

incomplete, and you will be contacted to provide the missing items. If the missing items are not 

provided within the specified timeframe 15 days (30 days for bids), your application will be 

considered incomplete and will be withdrawn from consideration. To avoid delay or withdrawal, 

please verify that your loan application is fully complete prior to submission. 

Check the boxes below when completed: 

 This checklist with the applicable and included items checked.

 Form 410-4, “Uniform Residential Loan Application” you must complete all sections and

sign/date pages 5 & 8.

 Verification of identity: you must provide a copy of your government-issued picture

identification (ID) along with evidence of age. Standard verifications are a driver’s license or

a passport. Contact us if you do not have these standard verifications to discuss possible

alternatives.

 Verification of taxpayer ID number: you must provide verification of your full taxpayer ID

number (i.e., no hidden or suppressed numbers) using evidence such as your pay stubs or tax

returns. A copy of your social security card is only needed if you do not have any other

evidence of your full taxpayer ID number.

 Form 3550-1 “Authorization to Release Information”. Each adult member of the household must

sign/date a separate release form.

 Form 3550-4, “Employment & Asset Certification” for each adult household member.

 List your personal email address(es) below if you authorize the Agency to contact you via email.

The Agency password protects emails containing personal identifiable information.

INCOME: 

 Verification of all household income. To qualify for the program, a household’s adjusted

income must be within the established income limit based on size and location. Below are

some examples of income that may be applicable to all household members and what should

be provided to the Agency.

 Last four consecutive weeks of pay stubs.

 Recent benefit statements for regular unearned income (such as social security,

public assistance, retirement income, etc.).

 Last 12-month payment history of alimony and/or child support received as

provided by the court appointed entity responsible for handling payments. If this

is not available, a copy of the separation agreement or divorce decree.

(01-23-03) SPECIAL PN 

Revised (03-08-24) PN 607
HB-1-3550

Attachment 12-E 

Page 2 of 2

INCOME (continued):

 Your last two signed Federal Income Tax Returns with all applicable tax return 

schedules. Also provide:

• All W-2s, 1099s, and other forms attached to the returns

• If filed electronically, include a copy of the signature page with the SelfSelect PIN, confirmation that the return was accepted, or evidence that it 

was filed by an authorized E-File provider.

 For each non-retired applicant, a written explanation of employment history of less 

than two years or employment gaps in excess of 30 days within the last two years.

ASSETS, CREDIT, OTHER DOCUMENTATION:

 For each household member, a copy of their two most recent asset/bank statements. (Note 

that if you are obtaining this information through online banking, you should print your bank 

statement, as opposed to printing the online transaction history.)

 For each applicant, a written explanation for late payments, collections, judgments, or other 

derogatory items in their credit history of which they may be aware. If applicants are 

unsure what their credit history looks like, they can obtain a free credit report by calling 1-

877-322- 8228 or logging into https://www.annualcreditreport.com. Individuals are entitled

to receive one free credit file disclosure every week from each of the nationwide consumer 

credit reporting companies – Equifax, Experian and TransUnion. This free 

report cannot replace the credit report that the Agency will obtain to determine eligibility.

 For a household member who is a full-time student and 18 years of age or older, a copy of 

their school transcript.

 If applicable, provide written evidence of childcare expenses for dependents 12 years of age 

or younger.

 If applicable, evidence of out-of-pocket annual medical expenses (for applicants 62 years of 

age and older, or individuals with a disability) who wish to be considered for a deduction to 

household income.

PROPERTY INFORMATION:

 Evidence of Ownership: Copy of Deed, or other documentation.

 Tax Statement: Most recent property tax assessment and annual statement, if applicable.

 Insurance: Evidence of homeowner’s hazard or flood coverage, if applicable.

 Repair Bid(s) including an itemized description of repairs, material, labor, and a copy of 

Contractor’s license, if applicable.

 Mortgage Statement: Most recent copy of mortgage statement, if applicable.

 Photos of the areas requested for repair(s), as well as the front and back of the dwelling.
HB-1-3550

ATTACHMENT 12-F

PRE-CONSTRUCTION CONFERENCE

Attachment 12-F

Page 1 of 2

Owner Name(s): Contractor: 

A Pre-Construction Conference was held ( ) in person, ( ) by telephone on

to review the contract/bid and/or specifications dated for work to be completed and 

performed at the property address, .

The Contractor will start work on , and will complete the work by .

• Although Rural Development (RD) is interested in the proper completion of the work, RD is 

not and will not become a party to the contract nor incur any liability thereunder.

• Parties involved have reviewed the plans and specifications/bid and understand the scope of 

work, construction standards, environmental requirements, materials, liquidated damages, 

inspections, change orders and payment procedures.

• The Contractor will submit evidence (i.e. unconditional lien waivers) that all payrolls, labor, 

equipment and material bills, and other indebtedness connected with the work have been paid 

and at completion of the Contract, will furnish and sign Form RD 1924-10 “Release of 

Claimants”, Form RD 1924-9 “Certificate of Contractor’s Release”, and RD 1924-19 

“Builders Warranty” (or similar documentation).

• Acceptance by the Owner will not relieve the Contractor of obligation to the Owner to 

discharge any and all liens for the benefit of subcontractors, laborers, material, person, or any 

other persons performing labor upon the work or furnishing material or machinery for the 

work covered by this contract, which have attached to or may subsequently attach to the 

property, or interest of the Owner.

• All notices, consents, or other acts to be given or done hereunder shall be valid only if in 

writing.

• Disputes in the construction and/or completion of the contract will be resolved between the 

Owner and the Contractor with RD remaining informed by both parties.

• Should a dispute arise between the Contractor and Owner, the Contractor will have 90 

days to complete court proceedings. If these actions are not taken within this timeframe, 

RD will return funding obligated toward the project and the Owner will be responsible for 

the decision rendered by the judge.

Responsibilities:

• Owner is responsible to monitor progress of proposed repairs, approve payments to 

contractor as specified in contract, and attend final inspection. Owners are responsible 

for property inspections, to address any faulty or defective work or nonconformance with 

the contract and provide written notice to RD to protect their own interests.

(01-23-03) SPECIAL PN

Revised (11-18-22) PN 571
HB‐1‐3550

Attachment 12-F 

Page 2 of 2

• Contractor’s responsibilities include obtaining and displaying posters and permits as 

required, perform work in accordance with approved plans, specifications and apply 

for preapproval of contract change orders if necessary. Notify owner and RD when 

work is complete. It is the Contractor’s responsibility to obtain and furnish RD with 

all permits, inspections and approvals required by the local code department. Be 

advised that should human remains, historic or cultural resources be uncovered during 

excavation or site development, all work must be stopped until an additional 

environmental analysis is completed.

• RD’s responsibility is to protect the government’s interest, monitor progress of repairs, 

authorize partial payments, final payments, and authorize contract change orders. RD 

inspections do not create or imply duty or obligation to the owner and are conducted to 

determine whether the property provides adequate security and dwelling requirements.

Check the applicable:

Contract is in excess of $10,000 and subject to Executive Order 11246, as amended. Form RD 

400-1 has been executed by the Owner, Form RD 400-3 has been issued by the Agency along with 

applicable posters to be displayed at the job site, and Form RD 400-6 has been executed by the 

Contractor. Established affirmative action goals for women and minority construction 

participation are included in the contract, or;

Contract is not in excess of $10,000 and is not subject to EO 11246.

Contractor and subcontractors (if applicable) greater than $25,000 sums haveexecuted Form AD 

1048, “Certification Regarding Debarment, Suspension, Ineligibility” in accordance with EO 

12549; or

Contract sum is $25,000 or less and Form AD 1048 is not required.

Form RD 1924-25, “Plan Certification” is required and has been completed;or

Form RD 1924-25, “Plan Certification” is not required.

Contractor will obtain applicable building and occupancy permits;or

No building or occupancy permits are required.

The presence of Lead-Based Paint (LBP) is presumed. Contractor will use EPA certified Safe 

Work Practices in accordance with 24 CFR 35.1350, HUD LBP regulations during completion of 

work to be performed. Upon completion of the contract, the area in which the work was 

performed will be subject to an LBP Clearance Test, as performed by a licensed LBP Inspector or 

Risk Assessor. Should the test results indicate an unacceptable level of LBP residue, the 

Contractor will be responsible for additional cleanup, and providing an acceptable clearance 

report from an LBP Inspector or Risk Assessor to RD. No payment for work will be made until 

an acceptable clearance report is provided; or

No LBP Clearance Test isrequired.

No subcontractors will be utilized; or

A list of subcontractors will be provided by theContractor and is attached.

Sign below if the conference was held in person or acknowledge the conference via email if held by 

telephone/virtual.

Owner: Co-Owner:

Contractor: RD Representative