USDA Section 504 Home Repair Program

What is the USDA 504 Loan and Grant Program?

Senior couple standing in front of their home after using the USDA 504 loanThe USDA 504 Loan and Grant Program is a government initiative to assist very low-income homeowners in rural areas with home repairs and improvements. This program provides financial support through loans and grants to help homeowners make their homes safer, more sanitary, and more accessible, particularly for elderly individuals or those with disabilities.

Through the USDA 504 program, eligible homeowners can access funds to address a variety of needs, including general repairs, modernization, and removal of health and safety hazards. The program distinguishes between loans and grants based on age and specific household requirements.

Loans provided under the USDA 504 program are intended to cover the costs associated with improving or modernizing a home, with a focus on maintaining its modesty. On the other hand, the USDA home repair grant is designated for addressing critical health and safety hazards or making necessary modifications to accommodate household members with disabilities.

To qualify for assistance under the USDA 504 program, homeowners must meet specific eligibility criteria for income, property ownership, and residency. Specific guidelines regarding using funds, loan repayment terms, and lifetime limits on grant assistance exist.

Overall, the USDA 504 Loan and Grant Program serves as a vital resource for very low-income homeowners in rural areas, offering financial support to help them maintain and improve the safety, livability, and accessibility of their homes.

Differences Between Loans and Grants

  • Loans: Loans provide financial support for home repairs, improvements, or modernization. These funds help homeowners address various property needs, such as fixing structural issues, upgrading facilities, or enhancing energy efficiency.
  • Grants: Grants are specifically earmarked to tackle critical health and safety hazards in the home or to make essential modifications for household members with disabilities. Grants focus on ensuring home safety and accessibility, particularly for vulnerable individuals.

Key Takeaways:

1. The Section 504 loan/grant program helps very low-income homeowners in rural areas improve their homes by making them safer and more sanitary.

2. Homeowners aged 62 and older can apply for grant funds to address health or safety hazards or to make their homes more accessible for disabled household members.

3. Documents explaining the differences between loans and grants and checklists to assist with the application process and property assessment are available.

4. Applying for a Section 504 loan or grant follows similar procedures as applying for a Section 502 loan. Still, some differences exist, such as restrictions on assuming loans from others and the need for property surveys.

5. Section 504 loan funds can be used for general repairs and improvements to the property, while grant funds are specifically for addressing health and safety hazards or disability accessibility.

6. Section 504 funds may also cover certain expenses, such as purchasing essential equipment or constructing storm shelters.

7. Eligibility for Section 504 assistance is based on income, credit history, asset ownership, and repayment ability, with specific requirements outlined for each category.

8. The property must meet specific eligibility criteria, including being the owner's primary residence and having a modest value for the area.

9. Section 504 loans have a low-interest rate of 1%, a term of 20 years, and monthly amortization.

10. There are maximum limits on loan amounts based on outstanding loan balance, repayment ability, eligible costs, and a lifetime limit on grant assistance per household or dwelling.

Eligibility Criteria for USDA 504 Loan and Grant Program

To qualify for assistance under the USDA 504 Loan and Grant Program, homeowners must meet specific eligibility criteria. Here's an overview of the essential requirements:

Usda 504 Loan Income Limits:

  • To be eligible for the program, homeowners must demonstrate deficient income levels. The adjusted income of applicants, both at the time of loan/grant approval and at loan closing, must not exceed the applicable very low-income limit set by the USDA. The debt-to-income ratio should be 41% or less.

Age Consideration:

  • While there are no age restrictions for eligibility, specific provisions apply to households with elderly members. Grant assistance is available if at least one qualified applicant is 62 or older. This provision aims to address the unique needs of elderly homeowners.

Property Ownership:

  • Applicants must own and occupy the property for which they are seeking assistance. They must provide documentation proving ownership, except in specific cases where alternative evidence of ownership is accepted. Additionally, the property must be the homeowner's primary residence.

Asset Requirements:

  • Asset requirements are similar to those for other USDA housing programs. Non-retirement assets that can be converted to cash within 60 days are considered, and assets exceeding a certain threshold may need to be used to reduce the requested loan or grant amount.

Credit History:

A reasonable credit history demonstrating the ability and willingness to meet debt obligations is required for loan applicants. Applicants with a credit score of 620 or higher are typically considered to have acceptable credit histories, although further evaluation may be necessary for those with lower scores.

Outstanding Judgments:

  • Applicants with outstanding judgments obtained by the United States in a Federal court other than in the United States Tax Court are not eligible for a Section 504 grant or loan.

Other Considerations:

  • Additional factors and considerations related to eligibility include the property's value, construction standards, and occupancy requirements. Applicants should review the specific program guidelines and consult USDA representatives for detailed information.

Meeting these eligibility requirements is crucial for homeowners seeking assistance through the USDA 504 Loan and Grant Program. By ensuring compliance with these criteria, homeowners can maximize their chances of qualifying for much-needed financial aid to address home repairs, improvements, and safety hazards.

Interest Rate and Loan Term

Section 504 loans have an interest rate of 1 percent (1%) and a term of 20 years. They are amortized every month, and annual payment terms are not permitted.

The sum of the outstanding balance on all Section 504 loans may not exceed $40,000.

Section 504 grant: The lifetime grant assistance to any household or dwelling cannot exceed a cumulative total of $10,000. A dwelling's grant eligibility is reset when transferred to a new owner, provided the transfer wasn't to a household member.

Property and Project Requirements

To be eligible for Section 504 funds, the property must be owner-occupied and the applicant's sole and principal residence. It must also be considered typical and modest for the area and 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 with 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 residential unit. The USDA will not use 504 program funds to improve multi-family housing or accessory dwelling units.

A modest dwelling may not have an estimated or appraised value more significant than the applicable area loan limit unless the State Director waives it. Waivers will be documented in the recipient's electronic customer file.

Qualifying Applicants

Income Eligibility

The 504 loan and grant programs have strict income requirements, typically targeting individuals with deficient income levels. You can check this chart for specific income limits applicable to these programs: https://www.rd.usda.gov/sites/default/files/RD-DirectLimitMap.pdf. It's important to note that income guidelines may vary, so the USDA can assist in determining whether you meet the income limit for your area.

504 Loan: To be eligible for a Section 504 loan or grant, the adjusted income at the time of loan/grant approval and closing must not exceed the applicable very low-income limit. Low-income applicants cannot receive assistance under Section 504.

Credit Eligibility

To qualify for loans, applicants need a credit history showing they can responsibly manage debt. Applicants with a credit score of 620 or higher don't need to fill out Form RD 1944-61, known as the "Credit History Worksheet," or undergo additional evaluation. These applicants are considered to have met the 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.

Asset Requirements

To reduce the Section 504 request, non-retirement assets over $15,000 (or $20,000 for an elderly household) must be used.

Benefits of the USDA 504 Loan and Grant Program

Use of Funds:

504 Loan: May be used to (1) improve or modernize; (2) make dwelling decent, safe, and sanitary;
(3) remove hazards. It cannot be used for acquisition or new construction. Specific prohibitions are listed in Paragraph 12.2 A.

504 Grant: This grant may be used only to remove health and safety hazards or to make the dwelling accessible to household members with disabilities.

Low-Interest Rates

Section 504 loans have a low interest rate of 1%, a term of 20 years, and monthly amortization.

Combination of Loan and Grant Options

Eligible applicants may combine the 504 loan and grant program.

How to Apply for USDA 504 Loan and Grant

Application Process

Due to the complexity of the 504 loan and grant programs, you should contact the nearest USDA office.

Required Documentation

W-2s, bank statements

Approval Timeline

The duration of the process depends on various factors, including the volume of loans being processed by the USDA and the availability of funding. You can obtain a timeline from the USDA to better understand the expected timeframe for your application.

Real-Life Examples of Successful Projects

Recap

The 504 loan provides financing for home improvements of up to $40,000, with a low interest rate of 1% and a repayment term of 20 years. On the other hand, the 504 grant offers up to $10,000 precisely for enhancing the health and safety of the dwelling, and it does not require repayment.

Conclusion

In conclusion, the USDA Section 504 Home Repair Program offers crucial support to very low-income homeowners in rural areas, aiming to enhance the safety, accessibility, and overall quality of their homes. Through a combination of loans and grants, eligible individuals can address various needs, from general repairs to critical health and safety hazards.

The program's income guidelines, property eligibility criteria, and credit requirements ensure that assistance reaches those most in need. The USDA 504 program empowers homeowners to maintain and improve their living conditions by leveraging low-interest rates, flexible repayment terms, and grant options.

Individuals can contact USDA offices for guidance on the application process and required documentation to access this valuable assistance. Ultimately, the program is a lifeline for vulnerable households, promoting sustainable homeownership and fostering safer, healthier communities.

SOURCE: Single Family Housing Repair Loans & Grants