504 Repair Loan
How To Apply
USDA Rural Development
504 Repair Loan and Grant
USDA Rural Developments 504 repair loan and grant has an
objective to help very low-income
owners of modest single family homes in rural areas repair their homes. The basic
qualifying guidelines are covered here so you can determine if you are likely to qualify.
Loan funds are available for repairs to improve or modernize a home, make it safer or more sanitary, or remove health and safety hazards. This is a loan and must be repaid. The good
thing is that the interest rate is only 1%. You must be an owner occupant.
For homeowners 62 years of age and older who cannot repay a loan, grant funds
are available to remove health or safety hazards, or remodel dwellings to make them accessible
to household members with disabilities. The maximum amount is $7500.
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
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 any debt or obligation that the applicant incurred before the date of
application (except for payment of the installation and assessment costs of utilities);
Purchase or install equipment in the property (e.g., ranges, refrigerators, washers or
Pay packaging fees to for-profit entities;
Provide site preparation (e.g., grading, foundation plantings, seeding or sodding,
trees, walks, yard fences, or driveways to a building site);
Construction of new decks (existing decks may be repaired if a safety hazard exists);
Installation of concrete or asphalt driveways; or
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
- 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
In order to be eligible for a Section 504 loan or grant, the adjusted household income at
the time of loan/grant approval and at loan closing must not exceed the applicable
income limit. Low-income applicants cannot receive assistance under the 504
detailed information can be found on the income page located on the menu to the
An applicant who is subject to 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 504
For loans, applicants must have a credit history that indicates a reasonable ability and
willingness to meet debt obligations.
Regardless of the size of the loan being requested, the Loan Originator should check both
the Infile Credit Report and HUD's Credit Alert Interactive Voice Response System
Credit reports are required with all applications for loans of $7,500 or greater, but the cost of the
report is not charged to the applicant.
Indicators of Unacceptable Credit
- Little or no credit history. The lack of credit history on the credit report may be mitigated if the applicant can
document a willingness to pay recurring debts through other acceptable means such as third party verifications
or canceled checks. Due to impartiality issues, third party verifications from relatives of household members
are not permissible.
- Payments on any installment account where the amount of the delinquency exceeded one installment for more
than 30 days within the last 12 months.
- Payments on any revolving account which was delinquent for more than 30 days on two or more occasions
within the last 12 months.
- A foreclosure that has been completed within the last 36 months.
- An outstanding Internal Revenue Service (IRS) tax lien or any other outstanding tax liens with no satisfactory
arrangement for payment.
- Two or more rent or mortgage payments paid 30 or more days late within the last 2 years. If the applicant has
experienced no other credit problems in the past 2 years, only 1 year of rent history will be evaluated. This
requirement may be waived if the program loan will reduce shelter costs significantly and contribute to
improved repayment ability.
- Outstanding collection accounts with a record of irregular payments with no satisfactory arrangements for
repayment, or collection accounts that were paid in full within the last 6 months, unless the applicant had been
making regular payments previously.
- Non-Agency debts written off within the last 36 months, unless the debt was paid in full at least 12 months ago.
- Agency debts that were debt settled within the past 36 months, or are being considered for debt settlement.
- Delinquency on a federal debt.
- A court-created or court-affirmed obligation or judgment caused by nonpayment that is currently outstanding or
has been outstanding within the last 12 months, except:
A bankruptcy in which:
♦ Debts were discharged more than 36 months prior to the date of application; or
♦ Where an applicant successfully completed a bankruptcy debt restructuring plan and has demonstrated a
willingness to meet obligations when due for the 12 months prior to the date of application.
◊ A judgment satisfied more than 12 months before the date of application.
- An applicant with an outstanding judgment obtained by the United States in a Federal court, other than
United States Tax Court, is not eligible for a 504 loan. This requirement is statutory and cannot
Asset requirements are identical to those imposed on 502 loans, except that only assets
that can be converted to cash in 90 days or less are included in the calculation of
assets. The limitation on non-retirement assets for non-elderly households is $15,000 and $20,000
To qualify for a Section 504 loan, the applicant must have a reliable income source
sufficient to allow repayment of the loan. If the applicant lacks the ability to repay the entire
amount through a loan, he or she may be eligible for a grant to cover the portion that cannot be
funded through a loan.
In order to determine the amount an applicant is able to repay, the applicant
must complete Form RD 1944-3,
Budget and/or Financial Statement. This form must also be prepared for grant applicants in order to document
the fact that they do not have the ability to repay a loan. This form should be prepared
at the same time the
application is completed.
Age for 504 Grants
At least one applicant must be 62 or older for a household to qualify for a grant.
Ownership of Property
The applicant must own and occupy the property to be eligible for 504 funds, and
must be able to document ownership, with 3 exceptions.
First, the time restrictions for leasehold interests are different. In general, Section 502
loans must have a leasehold interest with an unexpired term that is at least 150 percent of the
term of the mortgage. 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.
Second, a land purchase contract is acceptable if the applicant is current on all payments
and has the ability to remain current.
Third, if standard evidence of ownership is not available, 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.
To be eligible for 504 funds, the property must be considered modest for the area,
must not have an in-ground pool, and must not have a value in excess of the area loan limit.
Individual exceptions may be granted by the Deputy Administrator, Single Family Housing.
Requests for exceptions must be accompanied by documentation to support the request.
504 loan or grant may be made for a property that has income-producing land
or structures, as long as the loan or grant is to be used to improve the residential portion of the
Appraisals for Section loans are to be performed only by Agency
employees whenever feasible. Contract appraisals may be used when it is not
feasible to have Agency employees complete the appraisals. 504
applicants are required to pay an appraisal fee. The cost of the appraisal may be
included in the 504 loan amount.
An appraisal is always needed for a 504 loan when the loan is $7,500 or
more and the Agency debt plus any prior liens exceeds $15,000. In all other situations, the Loan
Approval Official will determine whether an appraisal is needed to assure adequate security
exists for the proposed loan. Appraisals are only needed if a security interest will be taken.
When an appraisal is not required, the person who inspects the property for required
repairs should estimate its value. The estimated value and the method used to develop
the estimate should be documented carefully in the running case record.
Dwellings repaired with 504 loan or grant funds must remain modest and all
work must be completed in accordance with local codes and standards. They need not be
brought 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.
Interest Rate and Loan Term
Section 504 loans have an interest rate of 1 percent and a maximum term of 20 years. The term
should be as short as possible based on the applicant's repayment ability. However, any loan made in
conjunction with a grant must be made for the full 20-year term to minimize the amount of grant funds
If the loan amount is less than the maximum that the applicant could repay, the loan term
should be shortened so that the applicant will pay the maximum amount he or she can afford
each month during the term of the loan. For example, if an applicant's repayment ability
calculations indicate the ability to repay a loan in 10 years, the loan should be written for a 10-
year term rather than for the maximum term.
Maximum Loan and Grant Amounts
Maximum Loan Amount
The maximum loan that an individual applicant may receive is limited by the 3 factors
- Outstanding loan amount. The sum of the outstanding balance on all Section 504
loans can never be more than $20,000.
- Repayment ability. The applicant must demonstrate repayment ability based on an
analysis of Form RD 1944-3, Budget and/or Financial Statement.
- 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.)
Grant funds are limited by 2 factors:
- Ability to repay a loan. An applicant is only eligible for a grant if a budget analysis
based on Form RD 1944-3 indicates that the household would be unable to repay a
loan for the amount needed over 20 years. If a budget analysis indicates that a grant
applicant has partial repayment ability, as much of the amount as possible must be
issued as a loan, with only the remainder issued as a grant.
- Lifetime maximum. The lifetime grant assistance to any applicant cannot exceed a
cumulative total of $7,500.
If you have any questions about the Repair loan or Grant you should contact
your closest USDA Office.