The USDA offers a great program that provides assistance to very low-income families and elderly people to fix up their home. The financing program is available only to those who cannot qualify for decent financing anywhere else. There are two ways to use this program – loans and grants. The USDA provides the loans to pay for repairs and/or improvements. Grants are strictly used to remove any health or safety hazards and only pertain to those 62 and older.
How to Qualify for USDA Section 504 Loan
Because the program offers such favorable terms and in some cases, free money, you must meet strict requirements to qualify. In general, this means you cannot make more than 50% of the average median income for your area. The USDA determines this amount and publishes it on their website so you can see if you qualify. In addition, only the elderly who make less than 50% of the average median income for their area may qualify for the grant.
In order to qualify you must adhere to the following guidelines:
- You must live in the property you wish to repair or fix up, and the property must be within the USDA boundaries
- Meet the income qualifications as discussed above; your qualifying income includes any available allowances for children, the disabled, or the elderly living with you
- Be incapable of securing financing in any other form due to poor credit or lack of resources
- Prove you can afford the loan or have a cosigner help you qualify for the loan
- Prove why you need to make the repairs or modernization changes, whether due to health, safety, or to modernize the home
- Be a U.S. citizen
- Be of sound mind
- Have decent credit which shows your ability to repay your debts
The Elderly Grant
If an elderly person needs the USDA Section 504 Home Repair Program but he cannot prove he can repay the debt, there is another option. The amount of money he cannot repay can be gifted to him in a grant. This can occur in combination with the loan if there is the possibility of repaying part of the expenses to fix the home. Any money granted to the elderly person can only be used to fix serious dangers to a person’s health or safety, though.
If an elderly person takes advantage of the grant, he has to agree not to sell the home for 3 years. If the home is sold within 3 years, the sellers must repay the grant.
Eligible Repairs Under Section 504 USDA Home Repair Program
There are only certain ways you can use the funds from the Section 504 USDA Home Repair Program Funds including:
- Fixing or replacing a roof
- Improving the energy efficiency of the home with insulation or new doors/windows
- Installing wood stoves
- Fixing structural issues
- Adding rooms to the home
- Repairing or replacing water systems
- Fixing or replacing electrical wiring
- Handicap accessibility changes
The funds may not be used for any of the following:
- New construction
- Making changes to a home which is beyond help
- Costs exceed $20,000 for a loan
- Costs exceeding $7,500 for a grant
- Cash out to refinance other debts
- Purchasing appliances
- Preparing a site
- Building a deck
- Installing landscaping or driveways
Determining the Ability to Repay the Loan
Just like any other loan, the USDA needs to determine you can repay the Section 504 loan. The USDA uses your income to create a budget to determine if you can repay the loan. They try to create the shortest terms possible since the funds are subsidized and the USDA needs repayment as quickly as possible. If you have any assets on hand, especially non-retirement funds, the USDA will use them in consideration for your loan. In this case, the assets could hurt you because the USDA could require you to use those funds rather than their subsidized loan funds to complete the repairs.
Applying for the Section 504 Loan
The process to apply for the Section 504 loan works in the same way as any other loan. You fill out a loan application and provide evidence of your income, assets, and your credit. You also must provide proof of ownership of the home and information about the contractors who will do the work for you. The USDA then reviews the entire file to determine if you are eligible for the program. If the amount needed exceeds $15,000, the USDA will also require an appraisal on the home to ensure the value is high enough to warrant the work.
The USDA Section 504 Home Repair Program helps those who cannot afford to fix up their homes. The changes are not necessarily cosmetic, but rather to make a home safe and sound. If you take out a loan rather than the grant, you have more flexibility in securing funds to make the home more modern, though. The USDA provides the funds to help keep up positive activity in the rural areas without running the home values down. They do require the funds get paid back as quickly as possible, but they have many options for very low-income families and the elderly. If this types of loan interests you, the local USDA office in your county can help you start the process.