The USDA Home Repair Loans and Grants, or Section 504 Home Repair Program, helps low-income families repair or even improve their home. You can use the funds to make the home safer, more sanitary, or to remove a hazard. Borrowers over the age of 62 that cannot repay the loan may receive grant funds rather than a loan on this program.
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Keep reading to learn how the program works and how it applies to you.
How Can You Use the Funds?
You can make a large number of repairs/renovations to your home with the USDA Home Repair Loan. Any general repairs that make the home better or safer are typically acceptable. Just like when you bought the home, the home must remain modest in order to be eligible. Lenders can approve any repairs as long as they aren’t on the ‘prohibited list’, which includes:
- Money to build a new home
- Repairs that won’t make a home safe even after the repairs
- Transport a mobile home
- Site preparation
- Building a new deck
- Install new landscaping
- Install a new driveway unless it’s for accessible purposes
Qualifying for the USDA Home Repair Loan
Just like the USDA purchase loan, the USDA Home Repair Loan has requirements you must meet in order to qualify:
- Your income must be at the ‘very low-income level’ for your area
- Credit score of at least 620
- You must not have more than $15,000 in non-retirement assets
- Proof of sufficient income to repay the loan
- You must own and live in the home
Qualifying for the USDA Home Repair Grant
The USDA Home Repair Grant has similar requirements, but also a few unique requirements you must meet:
- Your income must be at the ‘very low-income level’ for your area
- You don’t need to prove your credit history
- You must be at least 62 years old to apply for the grant
- If your AGI doesn’t exceed 30% of the average income for the area, you can apply for the full grant
- If your AGI is greater than 30% of the average income for the area and your debt ratio is less than 46%, you can apply for 100% grant funds
- If your AGI is greater than 30% of the average income for the area and your debt ratio is between 30% and 46%, you may qualify for 50% loan and 50% grant funds
- You must own and live in the home
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The Property
The home must be modest for the area. You must prove that you live in the home full-time and don’t rent it out. The home must not have an in-ground pool and its appraised value must not exceed the loan limit for the area.
The Loan Terms
The USDA Home Repair Loan has a term of 20 years and a fixed interest rate of 1%. The maximum loan amount is $20,000 and the minimum loan amount is $1,000. You must be able prove that you can repay the loan and your debt ratio must not exceed 46%.
Doing the Repairs
The USDA won’t select a contractor for you, but they can help guide you to choose the right one. The contractor must be on board with the nature of the job and the timeline. The contractor must be able to prove that he has proper licensing.
There should be a meeting with everyone involved to ensure that everyone is on the same page. The USDA strong suggests a contract be put in place in order to ensure that the work will be done as promised and at the designated price, but it’s not required.
After the meeting occurs and the contract is signed, the work can begin. You are responsible for inspecting the work as it’s completed. The USDA doesn’t do the inspections. Typically, contractors receive full payment once the work is complete. If the contractor requires payment in intervals, the lender can work out a schedule with them.
The USDA Home Repair Loan and Grant Program is a great way for low-income families to bring their home up to code, to update it, or to make improvements. As long as the work is modest and the home meets city codes after the work is complete, the USDA is flexible in its guidelines, making it easy to get the funds you need for home improvements.
