12.9 EXISTING AND NEW DWELLINGS (06/04/18)

Owned by Marsha Freeman
Last updated: Nov 17, 2018 by Kacey Olson
10 min read

© RHS HB-1-3555 SFH Guaranteed Loan Program Technical Handbook


A. Existing Dwellings [7 CFR 3555.202(b)]
The objective of the SFHGLP is to assist eligible rural households in obtaining an adequate, safe, and sanitary single family home. Information regarding financing existing manufactured and modular homes may be found in Chapter 13 of this Handbook.An existing dwelling may be attached, detached or semi-detached dwellings and must be inspected to determine that the dwelling meets the current minimum property requirements of:
  • Single Family Housing Policy Handbook (SF Handbook; HUD Handbook 4000.1), or as superseded by HUD.

An existing dwelling has been completed for more than 12 months or has been completed less than 12 months but has been previously occupied.

Required repairs under the noted handbooks are limited to those repairs necessary to preserve the continued marketability of the property and to protect the health and safety of the occupants. Applicants are encouraged to obtain a detailed home inspection of the property independent of the inspection noted above.

As stated in SF Handbook (HUD Handbook 4000.1) the responsibility for enforcing code rests with the local municipalities. All repair items required by the appraiser or underwriter must be inspected and the clearance documented and retained in the lender's permanent loan file.

Licensed or certified appraisers who are on the Federal Housing Administration (FHA) roster of approved appraisers can certify the HUD Handbook standards have been met. Licensed or certified appraisers who are not FHA roster appraisers may also certify the HUD Handbook standards have been met if the lender determines the non-FHA roster appraiser is thoroughly familiar with the SF Handbook (HUD Handbook 4000.1.) Appraisers who are not thoroughly familiar with the HUD Handbook standards should not certify that a property meets those standards. Doing so would constitute a misrepresentation. If the licensed or certified appraiser is not a FHA roster appraiser or familiar with the HUD Handbook standards, the lender should obtain a home inspection report provided by a home inspector deemed qualified by the lender. Lenders are responsible to determine if any repairs will be required to meet HUD Handbook standards. Lenders are reminded they are responsible for the acts of their agents, including appraisers.

  • HUD Handbooks and forms can be downloaded over the internet at https://allregs.com/login/login.aspx or obtained by calling 1-800-848-4904.
  • FHA roster appraisers can be identified at https://entp.hud.gov/idapp/html/apprlook.cfm

The appraiser may certify the requirements of the SF Handbook (HUD Handbook 4000.1 (also known as “HUD Handbook”) have been met on page three of the appraisal form in the “comment” section or in an addendum to the appraisal.

Termite/pest inspections are not required unless the lender, appraiser, inspector or State law requires the inspection to confirm the property is free of active infestation.

An inspection to confirm thermal standards is not required for existing dwellings. The Agency may approve dwellings with in-ground swimming pools.

A property which an FHA roster appraiser indicates is in average or good condition may be considered in good repair, though repairs may still be required by the lender. Regardless of whether the appraisal is performed by an FHA roster appraiser or not, the appraiser must report all readily observable property deficiencies as well as any adverse conditions discovered performing the research involved in completing the appraisal. When lending to low- and moderate-income borrowers under the SFHGLP, lenders are expected to use professional judgment and rely upon prudent underwriting practices in determining when a property condition requires additional inspections or repairs. Conditions that would warrant additional repairs include those that pose a threat to the safety of the occupants, jeopardize the soundness and structural integrity of the property, or adversely affect the likelihood of a low- or moderate-income borrower from becoming a successful homeowner.

B. New Dwellings [7 CFR 3555.202(a)]
New dwellings must be designed and constructed in accordance with certified plans and specifications. Certifications may be accepted from individuals or organizations trained and experienced in the compliance, interpretation, or enforcement of the applicable development standards for drawings and specifications. Information regarding financing new manufactured and modular homes may be found in Chapter 13 of this Handbook.The lenders permanent loan file must contain evidence of certified plans and specifications by any one of the following options:
  • Certification from a qualified individual or organization that the reviewed documents comply with applicable development standards. Lenders may utilize Form RD 1924-25, “Plan Certification” as an optional format to document certification. Qualified individuals or organizations are:
    • Licensed architects;
    • Professional engineers;
    • Plan reviewers certified by a national model code organization listed in 7 CFR 1924, Part A, in Exhibit E;
    • Local building officials authorized to review and approve building plans and specifications; and
    • National codes organizations.
  • Building Permit. State Directors determine if local communities or jurisdictions qualify to use this form of applicable evidence in accordance with RD Instruction 1924-A, section 1924.5(f)(1)(iii)(C)(2). State Directors will publish a state supplement if this is a permissible option to documenting plan certifications.
  • Certificate of Occupancy. State Directors determine if local communities or jurisdictions qualify to use this form of applicable evidence in accordance with RD Instruction 1924-A, section 1924.5(f)(1)(iii)(C)(2). State Directors will publish a state supplement if this is a permissible option to documenting plan certifications.

In general, the lender has primary responsibility for all loan origination activities. The Agency has primary responsibility to review lenders' actions and monitor participants' compliance with program requirements. The Agency will not require the lender to routinely submit documentation maintained in the lender's file regarding new construction that is not required to be submitted under program guidelines, such as:

  • Copies of plans, drawings, and specifications;
  • Certifications regarding the plans, drawings, and specifications (although lenders may voluntarily elect to use Form RD 1924-25, this form is not a required form for the SFHGLP. The certification may be on the plans and drawings, a separate form, or on any document that conveys the necessary information);
  • Building permits;
  • Copies of new construction inspections;
  • Occupancy certificates; and
  • Copies of construction warranties.

The Agency has the option to request any of these documents in appropriate situations such as:

  • The Agency is performing a processing review of a newly approved lender;
  • The Agency is performing a periodic review of the lender's compliance with program regulations;
  • The Agency believes the lender is not fulfilling the obligations of the Lender Agreement and/or program guidelines; or
  • The Agency is reviewing a loss claim.

New home purchase transactions that cannot meet the minimum required plan certification, inspections and warranty document requirements outlined in this paragraph are limited to a 90 percent loan to value (LTV). The lender may loan the one time upfront guarantee fee in addition to the limiting 90 percent LTV.

The following charts were developed as a guide for the certification of plans and specifications, documentation of construction inspections and certification of thermal standards.

Evidence of construction inspections.

The Lender's file must contain copies of the documents described in one of the following three options:

1. Certificate of Occupancy issued by a local jurisdiction that performs at least 3 construction phase inspections, including inspections noted in option 2 below and a 1-year builder warranty plan acceptable to Rural Development.
-OR-
2. Three construction inspections performed when:
  • Footings and foundation are ready to be poured and prior to back-filling;
  • Shell is complete, but plumbing, electrical and mechanical work is still exposed;
  • Final inspection of completed work prior to occupancy;
  • A 1-year insured builder warranty plan acceptable to Rural Development.Builders may utilize their own warranty form, HUD-92544 or Form RD 1924-19. Applicants who build their own homes cannot provide a self-warranty.
-OR-
3. Final inspection and a 10-year insured builder warranty.

New Construction Certified Plans and Specifications

The Lender's file must contain evidence the plans and specifications comply with all development standards* applicable to the new construction. Acceptable evidence includes:

1. Copy of the certification from a qualified individual or organization that the reviewed documents comply with applicable development standards. Form RD 1924-25 is an acceptable format, but may not be required by the Agency for guaranteed loans.
-OR-
2. Certificate of Occupancy issued by a local jurisdiction.**
-OR-
3. Building Permit (or equivalent) issued by local jurisdiction.**

The lender may accept certifications from individuals or organizations trained and experienced in the compliance, interpretation or enforcement of the applicable development standards* for drawings and specifications. Plan certifiers may be any of the following:

(1) Licensed architects;
(2) Professional engineers;
(3) Plan reviewers certified by a national model code organization;
(4) Local building officials authorized to review and approve building plans and specifications; or
(5) National codes organizations.

* Applicable development standards. The current International Code Council (ICC) standards or current state adopted ICC code(s) for residential construction.

** If this method is used, the State Director must determine whether local communities or jurisdictions qualify to use this form of “acceptable evidence” under RD Instruction 1924-A. The State Director will publish a state supplement if this method can be utilized to document plan certifications.

Evidence of thermal standards for new construction.

The Lender's file must contain evidence thermal standards meet or exceed the International Energy Conservation Code (IECC) in effect at the time of construction. Documentation of conformance may be by one of the following options:

1. The builder may certify confirmation with the IECC standards.
2. A qualified, registered architect or a qualified, registered engineer may certify confirmation with IECC standards.
C. Repair Escrows for Existing and New Dwellings, Post Issuance of the Loan Note Guarantee [7 CFR 3555.202(c)]
Repair escrows, post issuance of the Loan Note Guarantee, are acceptable provided the home is habitable, as determined by the lender. All items of new construction or repairs must be 100 percent (100%) complete in accordance with plans and specifications except for minor items not affecting the livability of the structure or that cannot be completed due to weather conditions. The lender assumes responsibility for completion of repairs in accordance with the conditions set forth in this Section for any repair escrow established.The combination of both exterior AND interior repair escrows cannot exceed 10 percent of the final loan amount. Most repairs items will be required to be completed within 180 days of loan closing. This period may be extended, at the discretion of the Agency, for homes that need exterior repairs but are in an area experiencing inclement weather conditions. The maximum exterior repair escrow period when an extension is granted is limited to 240 days. Extensions may be granted beyond 180 days for exterior escrows only. 
Escrow for Exterior Development
When exterior development work is planned and cannot be completed because of inclement weather, material shortages, or other acceptable reasons, an escrow account may be established. The Agency may issue a Loan Note Guarantee prior to the completion of repairs provided all of the following conditions are met:
  • The cost of any remaining work is not greater than 10 percent of the final loan amount, provided an interior escrow is not required;
  • The livability of the dwelling is not affected;
  • A signed contract between the borrower and the contractor is in effect for the proposed work;
  • The funds to be escrowed are not less than the repair cost contract. The loan underwriter may determine the escrow amount, which could exceed the repair cost;
  • The Closing Disclosure 1 reflects the holdback;
  • The development will be complete within 180 days of closing, unless an extension is granted by the Agency for inclement weather conditions;
  • The escrow account is established in a federally supervised financial institution.
  • An inspection report certifying the defect/repair has been properly repaired. Certification of completion is required to verify the work was completed and must:
    • Be completed by the appraiser;
    • State that the improvements were completed in accordance with the requirements and conditions in the original appraisal report;
    • Be accompanied by photographs of the completed improvements; and
    • The individual performing the final inspection of the property must sign the completion report.

The lender is responsible for monitoring the completion of the work and the release of funds for payment. Documentation supporting the development work and confirmation of the completion will be retained in the lenders permanent mortgage file and is subject to the certification of Form RD 3555-18/18E. Funds remaining in the escrow account, that are representative of loan funds or a seller concession as part of the sales contract, upon completion of the work, will be used to reduce the unpaid principal balance of the mortgage. Personal funds of the applicant utilized to fund the repair escrow (excluding loan funds or a seller concession) may be returned to the applicant. A seller's personal funds utilized to fund the repair escrow (excluding a seller concession as part of the sales contract) may be returned to the seller.

Escrow for Interior Development

Repair escrows for interior repairs are subject to 10 percent when an exterior escrow for repairs has not been established. Otherwise, the combination of both an interior AND exterior repair escrow is subject to a maximum of 10 percent of the loan amount.

When the dwelling is complete with the exception of minor interior development work, the Agency may issue the loan note guarantee on the loan if the following conditions are met when establishing an interior escrow:

  • The cost of any remaining interior work is not greater than 10 percent of the final loan amount provided an exterior escrow is not required;
  • The livability of the dwelling is not affected;
  • A signed contract between the borrower and the contractor is in effect for the proposed repair work;
  • The funds to be escrowed are not less than the contractor's repair contract. The loan underwriter may determine the escrow amount, which could exceed the repair cost;
  • The Closing Disclosure reflects the holdback;
  • The development will be complete within 180 days of closing; and
  • The escrow account is established in a federally supervised financial institution;
  • An inspection report certifying the defect/repair has been properly repaired. Certification of completion is required to verify the work was completed and must:
    • Be completed by the appraiser,
    • State that the improvements were completed in accordance with the requirements and conditions in the original appraisal report, and
    • Be accompanied by photographs of the completed improvements;
    • The individual performing the final inspection of the property must sign the completion report.

The lender is responsible for monitoring the completion of the work and the release of funds to pay for the work. All documentation supporting the development and confirmation of the completion will be retained in the lender's permanent mortgage file and is subject to the certification of Form RD 3555-18/18E. Any funds remaining in the escrow account upon completion of the work, that are representative of loan funds or a seller concession as part of the sales contract, will be used to reduce the unpaid principal balance of the mortgage. Personal funds of the applicant utilized to fund the repair escrow (excluding loan funds or a seller concession) may be returned to the applicant. A seller's personal funds utilized to fund the repair escrow (excluding a seller concession as part of the sales contract) may be returned to the seller.

Escrow completion for interior or exterior repairs on an existing dwelling – without the assistance of a contractor

When a borrower will complete the planned interior or exterior development on an existing dwelling without the services of a contractor, the requirement for an executed contract noted in this section is waived when these three conditions are met:

  • The estimated cost to complete the work is not greater than 10 percent of the total loan amount; and
  • The escrow amount is less than or equal to $10,000; and
  • The lender has determined the borrower has the knowledge, skills and time necessary to complete the work within the maximum 180 day limit.

All remaining requirements as noted at Paragraph 12.9 C and 12.9 D are applicable. The lender is responsible for monitoring the completion of the work and the release of funds for payment of the work. All documentation supporting the planned development and completion will be retained in the lender's permanent mortgage file and is subject to the certification of Form RD 3555-18/18E. Funds remaining in the escrow account upon completion of the work, that are representative of loan funds or a seller concession, as part of the sales contract, will be used to reduce the unpaid principal balance of the mortgage. Personal funds of the applicant utilized to fund the repair escrow (excluding loan funds or a seller concession) may be returned to the applicant. A seller's personal funds utilized to fund the repair escrow (excluding a seller concession as part of the sales contract) may be returned to the seller.