USDA Technical Handbook HB-1-3555 §12.28 — Rehabilitation And Repair With Purchase Of Existing

USDA HB-1-3555, Chapter 12, § 12.28 — Rehabilitation And Repair With Purchase Of Existing

Effective 2025-05-05 · USDA chapter revision · Procedure Notice 640

DWELLINGS The rehabilitation and repair feature of the SFHGLP allows borrowers to finance the cost of repairs to improve an existing dwelling at the time of purchase. The maximum loan amount cannot exceed the cost of acquisition plus the cost of repairs up to the asimproved market value, plus the guarantee fee, if financed. The borrower obtains one loan at a fixed interest rate to finance both the acquisition and the rehabilitation of the property. The loan is guaranteed after the loan has closed, prior to the completion of the repairs, which minimizes the risk to the lender. In GUS, the lender will select Purchase as the loan purpose type on the Loan and Property Information page. On the Lender Loan Information page, the lender will identify the transaction as Renovation, ConstructionGuidance documents lack the force and effect of law, unless expressly authorized by statute or incorporated into a contract. USDA may not cite, use, or rely on any guidance that is not available through their guidance portal, except to establish historical facts. Conversion/Construction-to-Permanent and select the Single-Closing radio button. On the Additional Data page, “Purchase is” field equals Existing. Unless otherwise specified, the rehabilitation and repair construction loan process should be closed and managed following the same procedures described in the singleclose feature for new construction. Lenders may utilize Attachment 12-E, Repair Escrow and Rehabilitation & Repair with Purchase Comparison, when determining how repairs or rehabilitation to properties may be financed. B. Type of Loans 1. Non-Structural Repairs up to $75,000 This feature allows borrowers to finance up to $75,000 for repairs such as those identified by a home inspector or appraiser. There is no required minimum repair amount. The repairs must be non-structural, and the home must be considered habitable within 30 days of closing to be eligible for this feature. Since the dwelling will be habitable within 30 days of closing, the loan is not eligible for reserve accounts for PITI payments during the construction period. The timeframe for the repairs to be completed should typically not exceed 10 months, however, may be extended at the lender’s discretion. 2. Structural Repairs and Repairs Exceeding $75,000 This feature allows borrowers to finance structural repairs or improvements greater than $75,000 for extensive rehabilitation. If the dwelling is not habitable at the time of closing, reserves for principal, interest, taxes, and insurance may be established to cover the mortgage payments for up to 10 months, or until the home is determined to be habitable by a third-party inspector deemed qualified by the lender during the construction period. While the reserve period should typically not exceed 10 months, contract deadline extensions may be approved at the lender's discretion. C. Property Eligibility New construction or incomplete constructions are not eligible. Evidence that the home has been completed for 12 months or older must be obtained. Evidence of Guidance documents lack the force and effect of law, unless expressly authorized by statute or incorporated into a contract. USDA may not cite, use, or rely on any guidance that is not available through their guidance portal, except to establish historical facts. completion such as a Certificate of Occupancy or documentation from local taxing entities is acceptable. If the dwelling must be demolished as part of the rehabilitation, the complete existing foundation must still be in place and will be used. Properties where the foundation has been demolished or where only the footings remain, are not eligible. Evidence by a licensed engineer that the existing foundation is structurally sound and supports the proposed construction will be required. The new dwelling to be placed on the existing foundation, including manufactured housing, must meet all program requirements. 1. Prohibited Loan Purposes x Installation of new inground swimming pools, hot tubs, or saunas; x Repairs to condominiums; x Converting structures to SFH dwellings (barns, schoolhouses, etc.); x Alterations that allow income-producing features; x Installation of luxury items (exterior fireplaces and kitchens, etc.); and x Repairs or improvements to common space areas (community meeting rooms, playgrounds, etc.) 2. Eligible Loan Costs Loan proceeds must be used for the acquisition of the land and dwelling plus the total amount for repairs that include but are not limited to: x Removing safety and health hazards; x Making the dwelling accessible to persons with disabilities; x Repair or installation of septic system and water wells; x Additions, structural alterations, or reconstruction of an existing dwelling; Guidance documents lack the force and effect of law, unless expressly authorized by statute or incorporated into a contract. USDA may not cite, use, or rely on any guidance that is not available through their guidance portal, except to establish historical facts. x Addition of a garage, attached or detached; x Modernizations (kitchens and bathrooms, interior floor cover, exterior siding, etc.); x Installation of energy conservation or weatherization features; x Repairs to existing swimming pools, hot tubs, or saunas; and x Repairs to accessory dwelling units. Applicable soft costs as defined in Paragraph 12.15 are allowable in addition to: x Contingency reserves; 10% when utilities are on, 15% when they are off for all transactions; x Principal, Interest, Tax, and Insurance payments for up to ten months for reserves, when applicable; and x Inspection/Consultant fees, if applicable. D. Managing Construction Originating lenders do not need to have construction experience if the servicing lender will administer the construction phase. Servicing lenders must meet the requirements outlined in Paragraph 12.13. Builder/contractors must meet the requirement outlined in Paragraph 12.14. The borrower may not act as the general contractor. A preconstruction conference with all parties is strongly encouraged. The lender may engage any inspector or consultant deemed qualified by the lender to evaluate the property, write up the necessary improvements, conduct periodic inspections, and to act as a liaison between the borrower, builder, and lender. x Inspector/Consultant fees: For structural repairs and those exceeding $75,000, an inspector will perform a thorough inspection of the property and prepare a detailed write-up of the work to be repaired and include estimated costs for labor and materials and associated fees that are customary and typical for the area. This write-up will be used to obtain cost estimates from contractors. Inspectors or Guidance documents lack the force and effect of law, unless expressly authorized by statute or incorporated into a contract. USDA may not cite, use, or rely on any guidance that is not available through their guidance portal, except to establish historical facts. consultants are selected by the lender. An inspector or consultant is not required for non-structural repairs of $75,000 or less. x Cost Estimate: The borrower must obtain a detailed and fixed cost estimate that fully describes the work being performed to include itemized costs for labor and material. The cost estimate must identify the borrower’s name, subject property address, contractor’s name, contact information, and license number, where applicable. For work repairs $75,000 or less, the cost estimate must indicate that the repairs are non-structural. x Appraisals: The appraisal report must support the “As Improved” market value of the property with the assumption that all repairs are completed. A copy of the original write-up or the cost estimate including reserves will be provided to the appraiser. x Construction Period: The construction period should typically not exceed 10 months from the date of closing for all transactions. However, contract deadline extensions may be approved at the lender’s discretion. x Construction Contract: The lender must ensure the utilization of a fixed price contract. The total amount in the construction contract must match the total cost breakdown of the bid proposal, must have a start and end date, must be signed by the contractor and borrower(s) and must be referenced and made part of the Security Instrument. x Additions: New structures or additions to the existing dwelling must comply with local codes and applicable national codes. x Unpermitted work: When unpermitted work is discovered in the existing dwelling, the lender must ensure that the owner and/or contractor contact the appropriate code enforcement office to obtain retroactive permitting or devise a plan to permit the previous construction. The lender must ensure that the borrower obtains a rehabilitation loan permit certification prior to the loan closing so that all permit fees associated with the new and/or previous construction are included in the total bid. x PITI Reserve: The lender will be responsible for making the borrower’s monthly Guidance documents lack the force and effect of law, unless expressly authorized by statute or incorporated into a contract. USDA may not cite, use, or rely on any guidance that is not available through their guidance portal, except to establish historical facts. PITI payments during the period of rehabilitation, up to a maximum of 10 months or when the dwelling is determined to be habitable by a qualified third-party inspector. Revised (11-29-22) SPECIAL PN Guidance documents lack the force and effect of law, unless expressly authorized by statute or incorporated into a contract. USDA may not cite, use, or rely on any guidance that is not available through their guidance portal, except to establish historical facts. ATTACHMENT 12-A Determining Eligible Areas Using the Public Website https://eligibility.sc.egov.usda.gov Select “Single Family Housing Guaranteed” from the menu. The additional menu options for the guaranteed loan program will be available. The “Property Eligibility Disclaimer” will be displayed. Read the disclaimer and select “Accept.” Enter the address of the property to determine if it is located in an eligible rural area. Every effort is made to ensure eligible rural areas inquiries are provided an accurate response. If a property is deemed “Ineligible” or “Unable to Determine,” lenders can obtain assistance by contacting the Guaranteed Policy, Analysis and Communications Branch at [email protected]. k Revised (11-29-22) SPECIAL PN Guidance documents lack the force and effect of law, unless expressly authorized by statute or incorporated into a contract. USDA may not cite, use, or rely on any guidance that is not available through their guidance portal, except to establish historical facts. The eligibility determination is returned. It may be Eligible, Ineligible, or Unable to Determine. In the example below the property is eligible. The map view may be changed by selecting the “Switch Basemap” option. k Revised (11-29-22) SPECIAL PN Guidance documents lack the force and effect of law, unless expressly authorized by statute or incorporated into a contract. USDA may not cite, use, or rely on any guidance that is not available through their guidance portal, except to establish historical facts. Revised (11-29-22) SPECIAL PN Guidance documents lack the force and effect of law, unless expressly authorized by statute or incorporated into a contract. USDA may not cite, use, or rely on any guidance that is not available through their guidance portal, except to establish historical facts. If an exact address is unknown, the user may click on a State from the U.S. map to review eligible and ineligible areas. Revised (11-29-22) SPECIAL PN Guidance documents lack the force and effect of law, unless expressly authorized by statute or incorporated into a contract. USDA may not cite, use, or rely on any guidance that is not available through their guidance portal, except to establish historical facts. This is a closer look at Texas. A double click will enhance zoom. The darker colored areas will provide users with a good idea of eligible and ineligible areas. All property eligibility determinations will be made by USDA. Questions regarding property eligibility determinations made from this online tool should be directed to the Policy, Analysis and Communications Branch at [email protected] to obtain additional clarification. ___________________________________________________________________________________________ Guidance documents lack the force and effect of law, unless expressly authorized by statute or incorporated into a contract. USDA may not cite, use, or rely on any guidance that is not available through their guidance portal, except to establish historical facts. ATTACHMENT 12-B RURAL DEVELOPMENT CONDOMINIUM CERTIFICATION This warranty certifies the dwelling served by the homeowner’s association and identified below has been approved or accepted by HUD, VA, Fannie Mae, or Freddie Mac. Documentation supporting this certification will be maintained in the lender’s permanent loan file and will be available for inspection by Rural Housing Service, United States Department of Agriculture upon request. Borrower(s): Property Address: Lender: Lender Representative Name: ________________________ Representative Signature: Date: ________________________ ___________________________________________________________________________________________ Guidance documents lack the force and effect of law, unless expressly authorized by statute or incorporated into a contract. USDA may not cite, use, or rely on any guidance that is not available through their guidance portal, except to establish historical facts. ATTACHMENT 12-C PROJECT REVIEW *This optional checklist is not an exhaustive list of requirements for the Single Close Construction loan product. Details on key points referenced in this checklist, along with full program details, can be found throughout Chapter 12 of this Handbook. † Documentation of lender requirements See Paragraphs 12.13 and 12.19-12.27 of Chapter 12 for construction oversight, loan management, and experience requirements. † Documentation of contractor-builder requirements See Paragraph 12.14 of Chapter 12 for licensure, insurance, and experience requirements. † Budget – Cost Breakdown (See Paragraph 12.15) x Must match construction contract. x Must be for eligible loan costs, including change orders. x Contingency reserves are limited to 10% of new construction costs and 15% when repairing an existing dwelling with disconnected utilities. † Plans, Drawings and Specifications (See Paragraph 12.9B) x Must be certified in accordance with Paragraph 12.9B. x Must fully describe work to be completed. x Lender may use optional Form RD 1924-25 or an alternative source that documents the necessary information. ___________________________________________________________________________________________ Guidance documents lack the force and effect of law, unless expressly authorized by statute or incorporated into a contract. USDA may not cite, use, or rely on any guidance that is not available through their guidance portal, except to establish historical facts. † Construction Contract x Evidence of all pages of the fixed price contract. x Must contain a time frame for work to be completed (start/end). x Change order fees that exceed what is available in the contingency reserve account will be the responsibility of the borrower. x Must be signed by the contractor-builder and borrower. x Amount must match the total amount of budget-cost breakdown. † Rehabilitation and Repair with the Purchase of Existing Dwellings (See Paragraph 12.28) x Construction period should not exceed ten months from date of closing. x Appraisal report should support the “As Improved” market value. x An inspector/consultant is not required for non-structural repairs of $75,000 or less. x The lender administering the construction phase must meet the experience requirements in Paragraph 12.13. x Fees associated with bringing previously unpermitted repairs up to code must be included in total bid prior to the loan closing. † Loan Closing (See Paragraph 12.20) x Lender will ensure all security documents are completed at loan closing and may use industry standard documents, as USDA does not maintain a list of required forms. x May not exceed 30-year term, including construction period. x Interest on loan is payable monthly. Lender will determine payor based on how the loan is structured. ___________________________________________________________________________________________ Guidance documents lack the force and effect of law, unless expressly authorized by statute or incorporated into a contract. USDA may not cite, use, or rely on any guidance that is not available through their guidance portal, except to establish historical facts. ATTACHMENT 12-D APPROVED LENDER CERTIFICATION Completion of New Construction Borrower: ____________________________________________ Co-Borrower: _________________________________________ Property: _____________________________________________ City, State, Zip: ________________________________________ In accordance with Paragraph 12.20 of Chapter 12, HB-1-3555, I have included a copy of the loan amortization agreement if the loan was reamortized or modified after construction. In addition, whether the loan was reamortized or not, I certify the following: 1. Construction is complete in accordance with approved plans, specifications and change orders. 2. The property can be occupied by the borrower. 3. The following is complete. Evidence is retained in our permanent loan file for further review by Rural Development: a. Plans, drawings and specifications have been certified in accordance with Paragraph 12.9B of Chapter 12, HB-1-3555. b. Required construction phase inspections have been completed in accordance with Paragraph 12.9B of Chapter 12, HB-1-3555; c. Thermal standards meet or exceed the 2021 International Energy Conservation Code (IECC) or subsequently issued code; Guidance documents lack the force and effect of law, unless expressly authorized by statute or incorporated into a contract. USDA may not cite, use, or rely on any guidance that is not available through their guidance portal, except to establish historical facts. d. Construction warranties have been issued to the borrower; and e. Evidence of the construction contract, cost breakdown and construction ledger related to the construction of this home. Approved Lender Certification: I am duly authorized to represent this organization. I certify that we have originated, underwritten, closed and monitored the completion of new construction of the above loan in accordance with all Agency loan requirements of 7 CFR 3555. Lender’s Signature Title of Lender’s Representative Date Executed Name of Approved Lender Guidance documents lack the force and effect of law, unless expressly authorized by statute or incorporated into a contract. USDA may not cite, use, or rely on any guidance that is not available through their guidance portal, except to establish historical facts. ATTACHMENT 12-E Repair Escrow and Rehabilitation & Repair with Purchase Comparison Lenders should follow the guidance in 12.9 C. Repair Escrows for Existing and New Dwellings, Post Issuance of the Loan Note Guarantee [7 CFR 3555.202(c)] as well as 12.28 Rehabilitation and Repair with Purchase of Existing Dwellings. 1. New construction must be 100% complete, except for minor work not affecting livability that cannot be completed due to weather conditions. 2. The maximum loan amount cannot exceed the cost of acquisition plus the cost of repairs, up to the as-improved market value, plus the guarantee fee, if financed. 3. Extensive rehab over $75,000 allows for up to 10 months PITI reserves, or until lender deems property habitable. 4. Borrower may complete their own repairs if lender determines borrower has knowledge, skills, and time to complete work within 180 days. 5. Repair work can be escrowed for and completed post Loan Note Guarantee, provided the work does not affect the livability of the dwelling, and all requirements of Section 12.9C are met. REQUIREMENT Repair Escrow: Minor Borrower Completed Repairs Repair Escrow: Contractor Completed Repairs Rehab and Repair Program: Minor Rehab ($75,000 or less) Rehab and Repair Program: Extensive Rehab (greater than $75,000) Property Type New or Existing1 New or Existing1 Existing Existing Repair Amount Up to $10,000 and not greater than 10% of the loan amount Not greater than 10% of the loan amount, lender must escrow at least 100% of total repairs Not to exceed $75,0002 Greater than $75,0002 Timeframe 180 days 180 days Typically 10 months Typically 10 months Property to be habitable at close Yes Yes Yes No3 Contract Required No4 Yes Yes Yes Loan Note Guarantee Issued At Close5 At Close5 At Close At Close Guidance documents lack the force and effect of law, unless expressly authorized by statute or incorporated into a contract. USDA may not cite, use, or rely on any guidance that is not available through their guidance portal, except to establish historical facts.

Source: USDA HB-1-3555, Chapter 12, § 12.28 — Rehabilitation And Repair With Purchase Of Existing · source URL · snapshot 0466acd1ea2d17a4