Section 504 loans and grants may be the USDA’s answer to the FHA’s 203k rehab loans. These loans help homeowners improve their rural home to make it more decent, sanitary and safer to live in. Homeowners aged 62 and older also have access to Section 504 grants to adapt their homes for health and safety reasons.
From purposes to eligibility for Section 504 loans, let’s discuss how this program works.Let’s help you find a USDA-approved lender.
What Are Section 504 Loans?
If you have a home located in a rural area and want to improve it, you could apply for a Section 504 loan. The program assists households with very low income in their home repair projects, for as long as their homes remain modest.
Section 504 loans can be up to $20,000, payable in 20 years at 1% interest rate. The amount of assistance received under Section 504 grants is $7,500.
Section 504 grants are for homeowners aged 62 and older who can’t afford to repay the entire loan amount. Grants are not to be repaid unless the home with the Section 504 grant is sold within three years of grant approval.
Main uses of 504 funding include:
- Make general repairs to improve or modernize the home.
- Remove “hazard” or “major hazard” areas in the home. Hazard is defined by the USDA as “a property condition that jeopardizes the health or safety of the occupants” but the property can still be fit for habitation. A major hazard, on the other hand, presents a condition so severe that the house becomes unfit to live in.
- Repair or remodel houses that improve access for household occupants with disabilities.
The Section 504 program is pretty flexible as to how its funding is used, but it’s clear on what not to use the funds for. Specifically, the following uses of 504 loans are not allowed:
- In helping build a new home.
- In making repairs to a home whose condition continues to have major hazards even when the proposed repairs have been made. Shop and compare mortgage loans here.
- In moving a mobile or manufactured home to another site. Notably, Section 504 loan can be used to repair or improve a mobile home on a permanent foundation.
- In paying any off-site improvements, other than for costs incurred in relation to the installation and assessment of utilities.
- In refinancing any debt or obligation that is incurred by the borrower before applying for a Section 504 loan.
- In paying fees to entities for packaging loans.
- In providing site preparation such as sodding, seeding, or other land preparation activity.
- In landscaping.
- In installing concrete or asphalt driveways although if improvements that would make the home more accessible and usable for household members with disabilities.
Eligibility for Section 504 Loans
Applying for Section 504 loans follows the same process as that of Section 502 loans. As to the eligibility requirements of Section 504 loans, take a look at the following:
1. Income. One’s adjusted household income must be within the very-low income limit of the area. Low-income households can’t qualify under the program,
2. Credit. The credit history of Section 504 grant applications doesn’t have to evaluated, except when an applicant has an outstanding judgment entered by a federal court. In that case, the applicant becomes ineligible for the grant. As to Section 504 loan applicants, they must have a credit history that shows their ability and willingness to repay debt obligations. Nonetheless, credit requirements on Section 504 loans are less stringent than on Section 502 loans.
3. Assets. Asset reserves required for Section 504 loans are identical to that of Section 502 loans but assets that are convertible to cash in 90 days or less are included in the calculation of non-retirement assets.
4. Repayment. The borrower must show a reliable income to support the debt obligation. If that income is not sufficient to fully repay the entire amount, he/she can apply for a grant to cover the portion not borrowed.
5. Ownership. The property must be owned and occupied by the borrower, although exceptions apply.
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