Together, America Prospers

Single Family Housing Subsidy Recapture (Direct Loans)

What does this 

program do?

Payment assistance, also known 

as subsidy, is granted to eligible 

very low- and low-income 

homeowners who obtain a Single 

Family Housing Section 502 

Direct Loan from USDA Rural 

Development. The borrower 

signs RD Form 3550-12, Subsidy 

Repayment Agreement, at loan 

closing. The agreement outlines 

the subsidy repayment terms, 

the requirement to repay all or a 

portion of the subsidy received 

over the life of the loan (i.e., 

subsidy recapture), and how 

subsidy recapture is calculated. 

The security instrument (Deed 

of Trust or Mortgage) contains a 

provision making the subsidy a 

lien against the property. The lien 

will not be released until subsidy 

recapture is paid in full.

How is subsidy recapture calculated?

While subsidy recapture formulas have 

changed over the years, under the 

current formula, the maximum amount of 

subsidy recapture which must be repaid 

is the lesser of the total dollar amount 

of subsidy received or 50 percent of 

the property’s value appreciation.

Value appreciation is based on the 

difference between: (1) the market 

value of the property at the time of 

loan pay off; and (2) amounts of prior 

liens, subordinate affordable housing 

products, the Rural Development loan 

being paid off, principal reduction paid 

at note rate, reasonable closing costs, 

certain capital improvements, and 

the borrower’s original equity in the 

property when the mortgage loan was 

originally closed.

Other factors, such as the term of the 

loan, average interest rate, percentage 

of outstanding balance of open loans, 

and whether all loans subject to 

recapture are being paid off, are also 

considered in subsidy recapture.

In the event of default (foreclosure 

or deed in lieu of foreclosure), the 

amount of subsidy recapture due is 

the total amount of subsidy received 

over the life of the loan.

When is subsidy recapture repaid?

The borrower must pay subsidy 

recapture when they transfer title or 

cease to occupy the property. If a 

borrower pays off the principal and 

interest of their loan and continues to 

occupy the property, repayment of 

the subsidy recapture amount can be 

deferred until the borrower ceases to 

occupy the property or transfers title. 

The security instrument securing the 

subsidy recapture amount may be 

subordinated to permit refinancing 

if Rural Development’s lien position 

will be adequately secured. If eligible 

for deferral, and to encourage early 

payment, a discount of 25 percent of 

the subsidy recapture is offered if it 

is paid at the time the principal and 

interest is paid.

How can borrowers find out the 

amount of subsidy recapture to 

be repaid?

Borrowers can obtain an estimated, 

verbal pay off amount, including 

subsidy recapture, by calling USDA 

Rural Development’s Customer Service 

Center Interactive Voice Response 

system at (800) 414-1226. Choose the 

“payoff information” option. Be ready 

to provide the estimated market value 

of the property, and estimated closing 

costs that may be incurred as the 

result of selling or refinancing.

The reverse page contains a sample 

calculation formula of subsidy recapture.
Single Family Housing Subsidy Recapture 

(Direct Loans)

NOTE: Because citations and other information may be subject to change, please always consult the program instructions. 

You may also contact your local office for assistance. You will find additional forms, resources, and program information at 

rd.usda.gov. USDA is an equal opportunity provider, employer, and lender.

Last Updated April 2020

Part 1. Calculating Value Appreciation Amount

1 Current market value of property $200,000.00

2 (less) Original amounts of prior liens and subordinate affordable housing products $2,000.00

3 (less) Rural Development (RD) loans being paid off $150,000.00

4 (less) Equity recapture due from Farm Program (FP) loan $0.00

5 (less) Closing costs $5,500.00

6 (less) Principal reduction (note rate) on RD loan being paid off $1,200.00

7 (less) Principal Reduction Attributed to Subsidy (PRAS) on loan being paid off $0.00

8 (less) Original equity $0.00

9 (less) Capital improvement credit $0.00

10 Value appreciation (Line 1 minus the total of Lines 2–9)

(If $0 or less, enter $0 and complete Part II; if more than $0, complete Part III.)

$41,300.00

Part II. Amount Due if There is No Value Appreciation Amount

11 Rural Development loans being paid off (Line 3) n/a

12 Equity recapture from FP loan to be collected n/a

13 PRAS to be collected n/a

14 Amount due (Lines 11 + 12 + 13)

(If negative, stop here. If positive continue to Part III.)

n/a

Part III. Percentage of Total Debt Subject to Recapture to be Paid Off Amount

15 Rural Development loans being paid off which are subject to recapture (Line 3) $150,000.00

16 Outstanding balance of all RD loans and the balance of prior non-RD liens and subordinate affordable 

housing products being paid off [In this example, at the time of payoff, the prior non-RD liens and 

subordinate affordable housing products were already paid in full.]

$150,000.00

17 RD loans being paid off as a percentage of all mortgage loans (Line 15 ∕ Line 16) 100.00%

Part IV. Value Appreciation Subject to Recapture Amount

18 Amount of value appreciation attributable to loans subject to recapture (Line 10; or if Part III was 

completed, Line 10 × Line 17)

$41,300.00

19 Recapture percentage (the lesser of 50% or the percentage contained in the Subsidy Recapture 

Agreement) [For the purposes of this example, 50% is used.]

50.00%

20 Value appreciation reduced by recapture percentage (Line 18 × Line 19) $20,650.00

21 Percentage of original equity (from Subsidy Repayment Agreement) 0.00%

22 Value appreciation, reduced by recapture percentage, attributable to original equity (Line 20 × Line 21) $0.00

23 Value appreciation subject to recapture (Line 20 − Line 22) $20,650.00

Part V. Amount Due if There is Value Appreciation Amount

24 Amount of payment subsidy received $30,000.00

25 Recapture amount (Line 7 + the lesser of Line 23 or Line 24) $20,650.00

26 Discounted recapture amount, if applicable (Line 25 × 75%) n/a

27 Final payoff amount (Line 3 + Line 4 + Line 25 or Line 26 as appropriate) $170,650.00