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Renovation Loan Program

USDA Rehabilitation & Repair Loans

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What are USDA Rehabilitation & Repair Loans?

The rehabilitation and repair feature for USDA loans allows home buyers to finance the cost of repairs to improve an existing dwelling at the time of purchase.  There is no minimum requirement in terms of the renovation costs.

The Structural Repairs and Repairs Exceeding $35,000 feature allows borrowers to finance structural repairs or improvements greater than $35,000 for extensive rehabilitation. A Consultant is required. If the dwelling is not habitable at the time of closing, reserves for principal, interest, taxes, and insurance may be established to cover the mortgage payments for up to six (6) months or until the home is determined to be habitable by a third-party inspector during the renovation period.

The Non-Structural Repairs up to $35,000 feature allows borrowers to finance up to $35,000 for repairs such as those identified by a home inspector or appraiser. A Consultant is not required. The repairs must be non-structural, and the home must be considered habitable at the time of closing to be eligible for this feature. Since the dwelling is habitable, the loan is not eligible for a mortgage payment reserve during the renovation period.

What properties are eligible for USDA Rehabilitation & Repair Loans?

The property must be located in a USDA Eligible Area.

Any property financed by USDA Rehabilitation and Repair loans must be a primary residence. The property must also be an existing property that has been completed for at least one (1) year. If unsure of the completion date, you may request a copy of the Certificate of Occupancy (“COE”), or its equivalent.

Properties where the foundation has been demolished, or where only the footings remain, are not eligible.

Eligible properties include:

  • Single-family residence
  • Single-family residence with an Accessory Dwelling Unit (ADU)
  • Historical Properties (require approval for repairs from governing historical society)
  • Modular homes
  • Planned Unit Development (“PUD”)
  • Townhome
Mortgage Loan

What improvements are allowed with USDA Rehabilitation & Repair Loans?

You can choose which repairs you would like to finance, but it is important to note that all appraiser-noted deficiencies and repairs must be addressed.

Eligible Improvements

  • Removing safety and health hazards
  • Making the dwelling accessible to persons with disabilities
  • Repair or installation of the septic system and water wells
  • Additions, structural alterations, or reconstruction of an existing dwelling provided they comply with local codes and applicable national codes
  • Addition of a garage, attached or detached
  • Modernizations (kitchens and bathrooms, interior floor cover, exterior siding, etc.)
  • Installation of energy conservation or weatherization features
  • Repairs to existing amenities such as swimming pools, hot tubs, or saunas
  • Repairs to accessory dwelling units
  • Appliances

Ineligible Improvements 

Installation of new inground swimming pools, hot tubs, or saunas

  • Repairs to new or existing manufactured homes
  • Repairs to condominiums
  • Converting structures to SFH dwellings (barns, schoolhouses, etc.)
  • Alterations that allow income-producing features
  • Installation of luxury items (exterior fireplaces and kitchens, etc.)
  • Repairs or improvements to common space areas (community meeting rooms, playgrounds, etc.)
  • Furniture, electronic and home entertainment equipment, or other personal items

If the dwelling must be demolished as part of the rehabilitation, the complete existing foundation must still be in place and be used. Evidence by a licensed engineer that the existing foundation is structurally sound and supports the proposed construction will be required.

What are the USDA Rehabilitation & Repair Loan Appraisal Requirements?

  • As-Is Appraisal: As-is appraisals are not required for USDA Rehabilitation and Repair loans.
  • After-Improved Appraisal: An after-improved appraisal is required for every USDA Rehabilitation and Repair loan.
Mortgage Loan

What are the USDA Rehabilitation & Repair Loan Financeable Renovation Costs?

  • A contingency reserve will be funded to cover unforeseen repairs that are discovered during renovation. The amount of contingency will vary between 10%-15% of the bid amount. Contingency reserves are required and typically financed in the loan amount (i.e., Financed Contingency). Alternatively, you may bring funds to closing to fund the contingency reserves; however, any assets required to fund the contingency reserves must be documented and verified above the amount required for down payment and reserves (i.e., Borrower-Funded Contingency)
  • Hard costs (i.e., labor and materials from the contractor’s bid)
  • Architectural fees (only on Structural Repairs and Repairs Exceeding $35,000)
  • Engineering fees (only on Structural Repairs and Repairs Exceeding $35,000)
  • Consultant fees (only on Structural Repairs and Repairs Exceeding $35,000)
  • Draw inspection fees
  • Title update fees
  • Permit costs
  • Mortgage Payment Reserves (only on Structural Repairs and Repairs Exceeding $35,000) not to exceed six (6) months’ principal, interest, property taxes, and homeowner’s insurance payments, depending on the length of time the property will be uninhabitable during renovation
  • Draw management fees

Other Highlights of USDA Rehabilitation & Repair Loans


  • No down payment is required. You may finance up to 100% of the property’s value to cover the cost of the purchase price, all renovation costs, closing costs, and pre-paid items such as homeowner’s insurance, property taxes, and pre-paid interest due at loan closing
  • A Guarantee Fee equal to 1% of your base loan amount will be financed into your loan and an annual fee will be divided by twelve (12) months and included in your monthly payment
  • Refinances are not allowed
  • Household income may not exceed the adjusted annual income threshold for the state and county where the property is located
  • Your contractor’s credentials will be vetted. Any contractor hired will have to provide proof of licensing (if required), a Certificate of Liability Insurance, Worker’s Compensation (if required), any specialty certifications required (e.g., lead-based paint, mold, radon, asbestos), and a signed IRS W-9 Form
  • Your contractor’s bid has to meet certain requirements such as being on contractor letterhead, naming you as the client, identifying the property where the work will take place, a full description and the location of all work being performed, a labor and materials breakdown per line item, permits and their associated costs, accurate tally of all sub-totals and the grand total, start and completion dates, and number of draws needed. If the property will be uninhabitable during renovation, the contractor should indicate so and let us know how long the property will be uninhabitable. For USDA Rehabilitation and Repair loans using the Non-Structural Repairs up to $35,000 feature, the contractor must specifically state all repairs being performed are non-structural in nature
  • Do-It-Yourself (“DIY”) or self-help is not allowed
  • Gifts and gifts of equity are allowed
  • All permits should be pulled immediately after loan closing, work should commence within thirty (30) days’ of loan closing, work should not cease for any thirty (30) day period, and must be completed within six (6) months of loan closing

Draw Process of USDA Rehabilitation & Repair Loans


Allowable Disbursements at Closing

     Structural Repairs and Repairs Exceeding $35,000

  • Consultant Fees
  • Architectural/Engineering Fees
  • Permit costs (permits must be obtained before work commences)
  • Draw Management Fee
  • Materials costs for items, prepaid by the Borrower in cash or by the contractor, where a contract is established with the supplier and an order is placed with the manufacturer for delivery at a later date; and/or
  • Up to 50 percent of materials costs for items, not yet paid for by the Borrower or contractor, where a contract is established with the supplier and an order is placed with the manufacturer for delivery at a later date

     Non-Structural Repairs up to $35,000 

  • Permit costs (permits must be obtained before work commences)
  • Draw Management Fee
  • Up to 50 percent of the estimated materials and labor costs

Remaining Draw Process 

     Structural Repairs and Repairs Exceeding $35,000

  • Up to 5 draws are allowed
  • A 10% percent holdback is required for each progress draw; the total of all holdbacks will be released in the final draw
  • The Consultant will perform an inspection prior to every draw, including the final inspection, and prepare a Draw Request Form

     Non-Structural Repairs up to $35,000 

  • Remaining 50% of bid amount will be released after all work has been completed
  • Final inspection will be performed by the original appraiser or an eligible Consultant

There are many different types of renovation loans: conventional renovation loans through Fannie Mae® (“FNMA”) and Freddie Mac® (“FHLMC”), FHA renovation loans, USDA renovation loans, a VA renovation loan option, and portfolio renovation loans.

Below is a high-level overview of the renovation loans Diamond Residential Mortgage Corporation offers. For more information, explore FAQs and Blog.

Keys To Success:

  • Inquire early! If you attempt to place an offer on a property that is listed for sale without a pre-qualification letter, your offer may be rejected and you may miss a window of opportunity. It is best to secure financing before you are too far into the buying process.
  • Make sure your contractor is on board with the contractor qualifications, bid requirements, and draw process required for your loan type.
  • If a Consultant is involved, meet together at the property with the contractor, so all parties can finalize the scope of work together.
  • Provide requested paperwork quickly to meet contract deadlines. Time lost on the front end of a deal oftentimes cannot be made up on the back end of the deal to hit closing deadlines.
  • Be decisive!  Decide on the details of your renovation project early and resist the temptation to make changes throughout the loan process. Wavering during the process can cause delays with your closing. Feel confident in pushing forward with the decisions you make at the onset of the transaction. That’s not to say you can’t make changes along the way, but making those changes mid-stream will likely cause delays.

HomeStyle® Renovation Loans

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HomeStyle® Energy Loans

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FHA 203(k) Loans

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USDA Rehabilitation & Repair Loans

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VA Alterations & Repairs Loans

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RenoRefresh Second Mortgage

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How the renovation mortgage process works


Get pre-approved


Go under contract for the purchase of a home


Find contractor


Get bid


Work with Consultant (if/when applicable)


Appraisal is ordered


Loan is submitted to underwriting


Close loan


Begin renovations