USDA 504: home repair loans and grants for rural homeowners

In the countryside, a home is often a family’s for life, and repairs do not wait: the leaking roof, the failing heater, the bathroom that does not work for someone in a wheelchair. This guide is for you if you own and live in a home in a rural area and your income is very low. It explains USDA’s Section 504 program, run by the Department of Agriculture: who qualifies, what can be fixed, what the loan costs, who can get the grant and how to apply.

Interest on every 504 loan

1%¹¹

The loan repayment period

20 years¹¹

The minimum age for the grant

62⁵

If you sell sooner, you repay the whole grant

3 years¹²

What the 504 program is

USDA’s Section 504 program gives loans and grants to very-low-income homeowners who live in their homes in rural areas, so they can repair them.³ There are two tools, and they do different things:⁴

• The loan pays for general repairs and improvements, or to remove health and safety hazards, as long as the home stays modest.
• The grant is not repaid. It can be used only to remove health and safety hazards, or to adapt the home for a household member with a disability. Unused grant money is returned.

Besides the work itself, the money can pay costs of getting the loan or grant, such as title, closing or the appraisal; special design features or equipment for a physical disability; connections to water, sewer, electricity or gas; property taxes due at closing; and fees to nonprofits that prepare the application.⁴

The 504 loan and grant

Repaid, at 1%

Loan

• For general repairs and improvements, or to remove hazards.⁴
• 1% interest rate and a 20-year term.¹¹
• You must show with a budget that you can repay it.⁵

Not repaid, unless you sell within 3 years

Grant

• Only if you are 62 or older when you apply.⁵
• Only to remove hazards or adapt the home for a disability.⁴
• If you sell within 3 years, you repay it in full.¹²

You can apply for both; USDA looks at your age, your income and what the home needs.⁵

Who qualifies

The regulation sets these conditions:⁵

1. Own and live in the home.
2. For the grant, be 62 or older when you apply.
3. Very low income. At approval, the household’s adjusted income cannot exceed the very-low-income limit for your area.
4. Citizenship or eligible immigration status, as explained below.
5. No other way out. You must be unable to get help on reasonable terms from other sources and lack enough personal resources.
6. Legal capacity to sign, or a court-appointed guardian who signs for you.

The “household” is everyone expected to live in the home, except live-in aides and foster children or adults. USDA develops the very-low-income limit in consultation with HUD. And the rural area is the one defined by federal housing law.² To check whether your home is in an eligible area and whether your household might qualify, USDA’s eligibility site has a section for each; it also lets you contact a program representative.¹⁵

Your savings. If you have assets, part of them is used first. Elderly families must use net assets over $20,000 to reduce their request, and other families, assets over $15,000. The home and a minimum lot do not count for this.⁵ For USDA, an elderly family has a head, spouse or sole member who is 62 or older or disabled, or two or more people living together at least one of whom is.²

For the loan, your credit. You must show with a budget that you can repay it; if you fall short, a cosigner or other household members can join. You also need a history showing you pay your debts. A delinquency of more than 30 days in the last 12 months, a foreclosure in the last 36 months or an unresolved tax lien counts against you. A bankruptcy whose debts were discharged more than 36 months ago does not. If you are rejected for credit, you are told the reason and where the information came from.⁵

If you are not a citizen: what the rule says

The regulation puts it in these words: the applicant must be a U.S. citizen or a noncitizen who qualifies as a “legal alien,” as the regulation defines it.⁵ And it defines “legal alien” as any person lawfully admitted to the country who meets the criteria in section 214 of the Housing and Community Development Act of 1980 (42 U.S.C. §1436a).²

That law says assistance can go to a noncitizen only if they are a resident of the United States and fall into one of these categories:¹⁴

• Lawful permanent resident.
• Someone who entered before June 30, 1948 and is deemed a permanent resident by the Attorney General.
• A refugee, or a person granted asylum that has not been terminated.
• Someone lawfully present on parole for emergent reasons or reasons in the public interest.
• Someone lawfully present because their deportation is being withheld.
• Someone admitted for temporary or permanent residence under section 245A of the immigration law.
• Someone lawfully resident under the Compacts of Free Association with the Marshall Islands, Micronesia and Palau.

The same law says this rule applies to assistance under section 1474, the 504 repair program. And if at least one family member has established eligibility and other members’ ineligibility has not been established, the assistance is prorated by how many people are eligible.¹⁴

Which homes and repairs qualify

The area. Loans are made only in areas USDA’s Rural Housing Service designates as rural. If your area stops being rural and you already have a loan from the Service, you can still get 504 assistance.⁷

The lot and the home. The lot must not be large enough to split into more than one site. The home must be modest for the area and not designed to produce income. After the repairs it does not have to be perfect, but it cannot be left with major health or safety hazards. All work must meet local building codes.⁷

Mobile or manufactured homesmanufactured homeA manufactured home is a home built in a factory and moved in one or more sections, on its own chassis, to the site. Federal law defines it this way, with or without a permanent foundation, including its plumbing, heating, air-conditioning and electrical systems. Many people call it a mobile home or trailer. For Fannie Mae, it must meet HUD's federal standards; modular homes and what it calls prefabricated or panelized homes do not count as manufactured homes. It can be titled as real estate, generally when it sits on a permanent foundation on land the owner also owns, or as personal property, which is usually financed with a chattel loan.See the full definitionClose. They can be repaired to remove hazards if you own the home and the land, lived there before applying, and the home is or will be on a permanent foundation paid for with program funds.⁴ Our guide on buying land or a manufactured home explains more about these homes.

What cannot be paid for. The program does not pay for a new home, repairs to a home that would still have major hazards, moving a mobile home to another site, off-site improvements other than utility connections, or debts from before the application, with some exceptions.⁴

How to prove the home is yours

Many families live in a home they inherited or bought without a formal deed. The regulation accepts several forms of ownership:⁸

• Full ownership, with a deed in your name.
• A secure written lease; for the grant, with at least 5 years left.
• A life estate that gives you possession and use of the home.
• An undivided share of a property, for example among siblings who inherited, if there is no reason to think your position as owner-occupant is at risk. Heirs’ propertyheirs' propertyHeirs' property is, according to the Department of Agriculture (USDA), family land owned jointly by the descendants of someone who died without the estate going through probate. The heirs have the right to use it but do not have clear title to sell it, and each generation usually adds more owners. Without proof of ownership it can be hard to get federal benefits, and a third party could force a partition sale. In Florida, a special law protects heirs in partition lawsuits: the value is set by an appraisal and the other owners can buy out whoever asked for the sale.See the full definitionClose is sometimes like this.
• A contract for deedcontract for deedA contract for deed is a home purchase on an installment plan: you pay the seller in monthly installments instead of getting a mortgage loan from a lender. The seller keeps the deed, which shows who legally owns the home, until you make all the payments. Meanwhile, you typically pay the property taxes, insurance, repairs and maintenance. The CFPB warns that most carry risks: if you miss a payment, the seller often tries to evict you right away and might try to keep the money you paid. Protections vary from state to state.See the full definitionClose or land purchase contract, if you are current on the payments.

And if you have none of those papers, USDA may accept other evidence: local tax records showing you as owner and that you pay the taxes; sworn statements from people in your community that you have lived there as the owner for at least 10 years; or any document commonly accepted as proof of ownership, even if it is not recorded.⁸

Our guides on proving you own your home without a formal title and on wills, TOD deeds and inheriting a home explain how to put those papers in order.

How much you can borrow and what you sign

The regulation does not set the caps in dollars. Your total 504 loans cannot exceed an amount USDA sets based on average loans and repair costs, and never more than 20% of the national average area loan limit. The loan is also limited to what you can repay at 1% interest over 20 years. And the lifetime total of grants to a household or a home cannot exceed 10% of that limit.¹⁰ For the current amount, contact a USDA program representative through the eligibility site.¹⁵

Example with real numbers

A 70-year-old owner with a damaged roof

An example in words of how the rules fit together.

Her age

70: she can apply for the grant

The repair

The roof leaks over the electrical wiring

What the grant can pay

Removing health and safety hazards, up to the lifetime cap

If she needs more money

A loan at 1% over 20 years, if her budget allows

If her 504 debt reaches $7,500

The home is secured with a mortgage

If she sells the home within 3 years

She repays the whole grant

The example's rules come from USDA's regulation.^41011912 Use the family budget tool to see how much you could pay each month.

Run it with your numbersFamily budget

Security and insurance. When your 504 debt reaches $7,500 or more, the property is secured with a mortgage. USDA does not require being the first lienlienA lien is a legal right a creditor holds in your property to make sure you repay a debt. It usually prevents the property from being sold until the debt is paid, and if you do not pay, the creditor may be able to take the property. Your mortgage is a lien on your home: when you pay it off, the lien is released and that shows up in your county's property records. There are other kinds, such as a federal tax lien, which is the government's legal claim against all your property when you do not pay a tax debt.See the full definitionClose, but total debts on the home cannot exceed its value. If your secured debt is over $15,000 at loan approval, you must keep hazard insurance. And if the home is in a Special Flood Hazard Areaspecial flood hazard area (SFHA)A special flood hazard area (SFHA) is an area FEMA identifies on its maps as being at high risk of flooding. On the maps it shows up as zones that start with A, or with V on the coast, where there is also a hazard from storm waves. If your home is in one of these zones, in a community that takes part in the National Flood Insurance Program (NFIP), and you have a government-backed mortgage or one from a regulated lender, the law requires you to carry flood insurance. The lender must tell you in writing if the home is in one of these zones.See the full definitionClose, you must carry flood insurance for the life of the loan.⁹ Our flood insurance guide explains how it works.

The grant. You sign an agreement saying that if you sell the property less than 3 years after signing, you repay the whole grant.¹²

If you live in a border colonia

For coloniascolonia (border community)Under federal law, a colonia is a community in Arizona, California, New Mexico or Texas, in the U.S.-Mexico border region, that is identified as a colonia by criteria such as a lack of drinkable water, adequate sewage systems and decent, safe and sanitary housing, and that existed as a colonia before the law was passed. Those four states must set aside part of their federal community development funds for water, sewage and housing in colonias. The CFPB notes that many landowners and developers in Texas border colonias have offered financing through contracts for deed.See the full definitionClose along the border with Mexico, there is also a Water and Waste Disposal (WWD) grant for individuals. It helps you connect to a community water and sewer system: it can pay for the lines to your home, the connection to your plumbing, connection fees and basic plumbing if your home has none. The lifetime total cannot exceed $5,000. You do not need to be 62, but you must own and live in the home in the colonia, and the whole household’s taxable income must be below the Department of Health and Human Services poverty guidelines.¹³

How to apply, step by step

From application to repair

1. 1. Check your area and income

   Before you apply

   USDA's eligibility site lets you check your home's area and your household's potential eligibility.¹⁵

2. 2. Gather proof of ownership

   Before you apply

   Deed, contract, tax records or neighbors' statements covering at least 10 years.⁸

3. 3. File a complete written application

   When you are ready

   In USDA's format. It is accepted even if there are no funds at the moment.⁶

4. 4. Answer what they ask

   If they write to you

   If something is missing, they tell you in writing; if they ask you to confirm your interest, answer on time.⁶

5. 5. Get the decision in writing

   When the review is done

   If you do not qualify, they tell you why; you can ask for an appeal hearing.¹

6. 6. Sign and do the work

   If you are approved

   The work must meet local building codes.⁷

When funds run short, USDA gives priority to applications to remove health and safety hazards. Among equal applications received the same day, veterans get preference, and then requests are funded first-come, first-served.⁶ That is why it helps to explain in your application what hazard your home has.

If USDA makes a decision against you, it must tell you in writing, with your right to a hearing before USDA’s National Appeals Division. Any adverse decision can also be reviewed by the next-level supervisor.¹ Free legal aidlegal aidLegal aid is the free civil legal help that nonprofit organizations and their lawyers provide to low-income people in civil, not criminal, matters. In housing, that includes representing families facing eviction or foreclosure, alongside matters such as custody, child support, protection from domestic violence and access to benefits. In the United States, the Legal Services Corporation, created by Congress, funds a nationwide network of these organizations; its finder points you to the one in your area. Each sets its own income limits.See the full definitionClose can advise you; LSC has a search tool.¹⁶

If this is you

You are 62 or older and the heater has stopped working

You can apply for the grant to remove that hazard, and for a loan if you need more.⁴

You need a ramp or an accessible bathroom

The grant and the loan can pay to adapt the home for a household member with a disability.⁴

You inherited the home with your siblings

An undivided share of a property can count as proof of ownership.⁸

You bought with a contract for deed

A land purchase contract works if you are current on the payments.⁸

You have an ITIN or a temporary status

The rule requires being a citizen or a legal alien under federal housing law; ask an accredited representative about your case.²

Costly mistakes

• Mistake: Not applying because USDA says there are no funds.

  Instead: Applications are accepted even when funds are not available at the moment.⁶

• Mistake: Paying a company to get the grant for you.

  Instead: Program money cannot pay for-profit companies to prepare or refer applications.⁴

• Mistake: Thinking you do not qualify without a deed.

  Instead: USDA accepts tax records, neighbors' statements and other proof.⁸

• Mistake: Selling the home a year after getting the grant.

  Instead: If you sell within 3 years, you repay the whole grant.¹²

• Mistake: Ignoring a letter asking you to confirm your interest.

  Instead: If you do not answer in time, they can withdraw your application.⁶

• Mistake: Dropping flood insurance when your home is in a flood zone.

  Instead: With a 504 loan, you must keep it for the life of the loan.⁹

What to do this week

1. List the repairs your home needs and mark the ones that are a health or safety hazard.⁴
2. Check on USDA’s eligibility site whether your home is in an eligible area.¹⁵
3. Gather your proof of ownership and that you live in the home.⁸
4. Gather proof of income for everyone who lives with you.²
5. File the application in writing and keep a copy, even if you are told there are no funds.⁶