USDA, or the United States Department of Agriculture and Rural Development, rural housing loans are for single-family primary residences, which are in a liveable condition in rural areas. This program is in place to help approved lenders ensure loans for families and individuals with low to moderate incomes. The loan and appraisal process is also in place to ensure those qualifying for the loan are receiving a property that is moderate, safe, and sanitary. Such an appraisal must meet USDA appraisal guidelines.
All houses built within the last two years will need an appraisal. Appraisers judge the property’s value based on location, current market values, quality of construction, available amenities, general property condition, and sales comparisons of similar properties. Appraisers must follow current HUD standards and accurately report the property’s condition. This inspection includes making the current homeowner aware of any needed repairs.
The USDA will only offer loans if the property meets a current market value deemed sufficient to cover the cost of the loan. Market values are assessed by an independent and unbiased appraiser.
Loans through the USDA rural housing loan program will finance up to 90% of the estimated property value. The last 10% in value is provided as a cushion for the lenders to assure they don’t overextend on the loan and risk defaults with significant negative value.
USDA Appraisal Requirements
- Appraisals must be made by a currently licensed appraiser on the USDA-approved list.
- All appraisals must conform to the current edition of the Uniform Stands of Professionals Appraisal Practice.
- The loan originator must order the appraisal within three business days of the property’s acceptance by USDA.
- Sex, age, religion, family relation, and disabilities are not allowed as factors for determining the appraisal.
- Appraisals by third-party participating lending institutions may be accepted by the USDA.
USDA rural housing loans are for primary residences in your current city. Homes must currently be in liveable condition. These loans can be offered for new manufactured homes if they are permanently installed, but are only available for existing properties if they were originally financed through USDA. Homes under the USDA program must be modest in design, cost, and size.
Each appraisal requires a Fannie Mae/Freddie Mac Market Conditions Addendum to the Appraisal Report.
Appraisers will inspect any foundations and crawl spaces to check for structural damage or evidence of infestations. A mandatory termite inspection will be performed if any signs of damage or decay are discovered during the appraisal. Any signs of damage or potential water damage, including dampness, will lead to an extensive examination of mildew and mold problems. Any problems or damage discovered by the appraiser will be required to be fixed by the seller before a USDA loan can be approved.
Additionally, the appraiser will inspect mechanical, electrical, and plumbing systems to ensure they are up to code, safe, and working properly. Since appraisers are not home inspectors, their evaluation of these systems will be simply to see if they appear to be in working order and not to judge the current quality of the systems in place. This inspection will include turning on and off all light systems, water, and heat. The appraiser will check temperatures on water heaters and will report if any of the systems seem to be malfunctioning. If the appraiser deems there is damage, a more thorough investigation by a home inspector must be completed, followed by needed repairs, before the property will be deemed acceptable by the USDA rural loans program.
Tips for Improving Property Appraisals
While there is a long list of things that can be done to improve the estimated property value, certain repairs and cosmetic changes will provide far more bang for their buck. A new kitchen might be a great selling point but it often costs far more than the value it will add in an appraisal. Instead, try painting any worn or faded rooms or the exterior of your home. The cost of this activity is relatively low and tends to add far more value to the property. You can also maintain the immediate grounds. A well-watered and manicured yard takes some upkeep, but the well-groomed aesthetic of the property instantly raises the property value. Finally, make sure everything is clean. Years of dirt or grime can give a more worn appearance. A good cleaning can add more perceived life to the home and raise its value.