USDA SFH Guaranteed Loan Program Technical Handbook HB-1-3555 ¶12.2 — Overview

USDA SFH Guaranteed Loan Program Technical Handbook HB-1-3555 ¶12.2 — Overview

12.2 OVERVIEW The lender must ensure the subject property meets the Agency’s site guidelines. In particular, sites must be located in eligible rural areas; meet community standards regarding utilities, including water and wastewater systems; meet street and road access and maintenance requirements; and contain other amenities essential to the continued marketability of the home. This section addresses each of these standards. 12.3 RURAL AREA DESIGNATION [7 CFR 3555.201(a)] Only loans secured by properties located in areas designated by the Agency as rural are eligible to receive a loan guarantee. This section discusses rural areas designations, how lenders are notified of changes in rural area designations, and clarifies rare situations in which loans for properties in areas no longer designated as rural may receive a loan guarantee. A. Rural Area Definition An area’s rural designation is determined by the Agency and may be changed as a result of a periodic review or after the decennial census of population. The Agency conducts reviews every five years to identify areas that no longer qualify as rural. In areas experiencing rapid growth, and in eligible communities within Metropolitan Statistical Areas (MSAs), reviews take place every three years. Public notification will be given at HB-1-3555 (03-09-16) SPECIAL PN 12-2 Revised (05-05-25) PN 640 Guidance documents lack the force and effect of law, unless expressly authorized by statute or incorporated into a contract. USDA may not cite, use, or rely on any guidance that is not available through their guidance portal, except to establish historical facts. least 30 days before the date of the final determination in order to give interested parties an adequate chance to comment. Refer to section 3550.10 of 7 CFR 3550 and HB-1-3550 Chapter 5 for additional information regarding rural area designations. In general, rural areas are defined as: x Open country that is not part of, or associated with, an urban area; x Any town, village, city, or place, including the immediately adjacent densely settled area, which is not part of, or associated with, an urban area, and which: o Is rural in character with a population of less than 10,000; or o Is not contained within an MSA and has a population above 10,000 but below 20,000 and has a serious lack of mortgage credit for lower and moderate- income families, as determined by the Secretary of Agriculture and the Secretary of Housing and Urban Development. Any area classified as “rural” or a “rural area” prior to October 1, 1990, and determined not to be “rural” or a “rural area” as a result of data received from or after the 1990, 2000, 2010, or 2020 decennial census, and any area deemed to be a “rural area” any time during the period beginning January 1, 2000, and ending December 31, 2020, shall continue to be so classified until the receipt of data from the decennial census in the year 2030 if such area has a population in excess of 10,000 but not in excess of 35,000, is rural in character, and has a serious lack of mortgage credit for lower and moderate-income families. x Two or more towns, villages, cities, or places that are contiguous may be considered separately for a rural designation if they are not otherwise associated with each other and their densely settled areas are not contiguous. B. Notification of Rural Area Designation The public website noted below provides an automated system to allow users to enter an address to determine property eligibility. Users who utilize the public website will receive one of three property eligibility decisions when an actual address is entered – “Eligible,” “Ineligible,” or “Unable to Determine.” In areas not clearly delineated, users will receive an “Unable to Determine.” With this type of determination, the lender must confirm with Agency staff the property is located in a rural area and is eligible for a HB-1-3555 (03-09-16) SPECIAL PN 12-3 Revised (05-05-25) PN 640 Guidance documents lack the force and effect of law, unless expressly authorized by statute or incorporated into a contract. USDA may not cite, use, or rely on any guidance that is not available through their guidance portal, except to establish historical facts. guarantee prior to requesting an appraisal. USDA Rural Development Property and Income Eligibility Website: https://eligibility.sc.egov.usda.gov. Attachment 12-A of this Chapter provides guidance on utilizing the public website to determine eligible rural areas. C. Making Loans in Areas Changed to Non-rural If an area’s designation changes from rural to non-rural, loans that meet the following criteria may be approved in that area: x Purchase transactions are eligible if the following requirements are met: o The application is dated and received by the lender prior to the area designation change; o The Loan Estimate was issued within three days of the application date; o The purchase contract is ratified prior to the date of the area designation change; and o The applicant and property meet all other loan eligibility requirements. x Existing Conditional Commitments that have been issued will be honored provided the commitment was issued prior to the area designation change; x Existing direct and guaranteed loans that meet all requirements, as outlined in Chapter 6, remain eligible for refinance transactions; x REO properties sold from Agency inventory remain eligible for purchase transactions; x SFHGLP REO property sales and transfers with assumption may be processed in areas that have changed to non-rural; and x A supplemental loan may be made in conjunction with a transfer and assumption HB-1-3555 (03-09-16) SPECIAL PN 12-4 Revised (05-05-25) PN 640 Guidance documents lack the force and effect of law, unless expressly authorized by statute or incorporated into a contract. USDA may not cite, use, or rely on any guidance that is not available through their guidance portal, except to establish historical facts. of a guaranteed loan. 12.4 SITE REQUIREMENTS [7 CFR 3555.201(b)] A qualified property must be predominately residential in use, character, and design. Sites must be developed in accordance with any standards imposed by a State or local government. Therefore, the lender must verify that the following requirements are met at the time of application. x Site size. There is no specific limitation to the size/acreage of the site. The appraiser must provide an explanation in the addendum of the appraisal to explain adjustments to comparable properties, how the subject compares to other single family sites in the area, etc. x Income-Producing Buildings. The property must not include buildings principally used for income-producing purposes. Barns, silos, commercial greenhouses, or livestock facilities used primarily for the production of agricultural, farming, or commercial enterprise are ineligible. However, barns, silos, livestock facilities, or greenhouses no longer in use for a commercial operation, which will be used for storage, do not render the property ineligible. Outbuildings such as storage sheds and non-commercial workshops are permitted if they are not used primarily for an income producing, agricultural, farming, or commercial enterprise. A minimal income-producing activity, such as maintaining a garden that generates a small amount of additional income, does not violate this requirement. Home-based operations such as childcare, product sales, or craft production that do not require specific commercial real estate features are not restricted. x Accessory Dwelling Unit. An Accessory Dwelling Unit (ADU) refers to a habitable living unit, within, or detached from a single family dwelling, which together constitute a single interest in real estate. The presence of a single ADU does not automatically render the property ineligible. Design features such as converted portions of existing homes that include a kitchenette or additional attached living area (e.g., bedroom and/or bathroom) without a separate address or independent utilities (e.g., water, gas, electricity) are not restricted, provided they function in support of only the household members. ADUs which function in support of the household members, such as multigenerational households, are consistent with the objective of this program, however those designed to create a HB-1-3555 (03-09-16) SPECIAL PN 12-5 Revised (05-05-25) PN 640 Guidance documents lack the force and effect of law, unless expressly authorized by statute or incorporated into a contract. USDA may not cite, use, or rely on any guidance that is not available through their guidance portal, except to establish historical facts. potential rental income stream are not. The appraiser will determine if the ADU represents a second single family housing dwelling unit. The appraiser must document the highest and best use considering all property characteristics, including the status of the utilities if they are separate, when making this determination. The appraiser will include their evaluation in the site analysis and highest and best use section of the appraisal report, as applicable. x Income-Producing Land. The site must not have income-producing land that will be used principally for income producing purposes. Vacant land or properties used primarily for agricultural, farming, or commercial enterprise are ineligible. A residential site that houses a minimal income producing feature such as a windmill, billboard, cell phone tower, etc. located on the property does not render the site income-producing. These features are typically maintained with a legal agreement and generate a minimal amount of additional income. The lender will review the available documentation and income received in accordance with the requirements in Chapter 9 for the purpose of calculating annual household income, as applicable. x Multiple Parcels. The lender will ensure the mortgage provides a valid first lien covering each parcel. Each parcel must be conveyed in its entirety and have the same basic zoning. The entire property will contain only one dwelling but may have non-residential, non-income producing buildings, such as a garage. An improvement that has been built across lot lines is acceptable. For example, a home built across both parcels where the lot line runs under the home. Parcels divided by a road, that would otherwise be contiguous, are acceptable. x Properties with Solar Panels. Dwellings with solar panels are not considered an income producing property. If the property owner (seller) is the owner of the solar panels and the solar panels will be included as part of the purchase transaction, then standard eligibility requirements apply (i.e. appraisal, insurance, and title). If the solar panels are subject to a lease agreement, power purchase agreement (PPA), or similar type of agreement, the following requirements apply: o Leases and contracts will vary by company and should be considered on a case by case basis to ensure all terms/regulations are met. o First lien position, by the lender, should be protected and maintained. HB-1-3555 (03-09-16) SPECIAL PN 12-6 Revised (05-05-25) PN 640 Guidance documents lack the force and effect of law, unless expressly authorized by statute or incorporated into a contract. USDA may not cite, use, or rely on any guidance that is not available through their guidance portal, except to establish historical facts. o The property should maintain access to an alternative source of electric/gas power that meets community standards. o The energy company or lessee should not block any foreclosure or servicing actions. o If an agreement for an energy system lease or PPA could cause restriction upon transfer of the house, the property is subject to impermissible legal restrictions and is generally ineligible for the guaranteed loan. o The lease agreement or PPA should indicate that any damage that occurs as a result of installation, malfunction, manufacturing defect, or the removal of the solar panels is the responsibility of the owner of the equipment, and the owner is obligated to repair the damage and return the improvements to their original or prior condition. o The lease agreement, PPA, or other agreement should indicate that the owner of the solar panels cannot be a loss payee on the homeowner’s insurance policy. o If a lease includes payment for equipment, it should be considered a debt and included in the total debt ratio. See Chapter 11 for additional guidance. o Leased solar panels are considered personal property and are not included in the appraised value. o Properties with Property Assessed Clean Energy (PACE) loans or assessments are ineligible for a SFHGLP loan. x Site Specifications. The site must be contiguous to and have direct access from a street, road, or driveway. Streets and roads must be hard surfaced, or all weather surfaced, with public access or permanent recorded easements. x Utilities. The site must be supported by adequate utilities and water and wastewater disposal systems. x Zoning. The property must comply with applicable zoning requirements and HB-1-3555 (03-09-16) SPECIAL PN 12-7 Revised (05-05-25) PN 640 Guidance documents lack the force and effect of law, unless expressly authorized by statute or incorporated into a contract. USDA may not cite, use, or rely on any guidance that is not available through their guidance portal, except to establish historical facts. restrictions. If an existing property does not comply with all current zoning ordinances but it is accepted by the local zoning authority, the appraiser must report the property as legal non-conforming. The appraisal must reflect any adverse effect of the legal nonconforming use on the value and marketability of the property. SECTION 2: APPRAISALS [7 CFR 3555.107(d)] 12.5 RESIDENTIAL APPRAISAL REPORTS Approved lenders must ensure appraisals are completed by a qualified appraiser that is independent and objective. Approved lenders are responsible to review all appraisals for integrity, accuracy, and thoroughness, prior to submission of a complete loan application package to USDA. The lender may pass the cost of the appraisal on to the borrower. The appraisal must have been completed within 180 days of loan closing. Appraisals that are older than 180 days prior to loan closing are eligible for an appraisal update as indicated in this Chapter. A. Qualified Appraiser Approved lenders must select qualified and competent appraisers that are properly licensed or certified, as appropriate, in the State in which the property is located. The appraiser must comply with the current edition of the Uniform Standards of Professional Appraisal Practice (USPAP). Lenders may verify that an appraiser is licensed or certified by checking the Appraisal Subcommittee website found at www.asc.gov/appraiser. B. Appraisal Report All appraisals must comply with the reporting requirements of USPAP available at www.appraisalfoundation.org. All appraisal reports must meet the Uniform Appraisal Dataset (UAD) requirements set forth by Fannie Mae and Freddie Mac. To read definitions of condition and quality ratings, refer to the Fannie Mae and Freddie Mac Uniform Appraisal Dataset, located online at: https://singlefamily.fanniemae.com/delivering/uniform-mortgage-data-program/uniform- appraisal-dataset. The appraiser will utilize the most current residential appraisal forms acceptable to Fannie Mae, Freddie Mac, HUD, or VA. HB-1-3555 (03-09-16) SPECIAL PN 12-8 Revised (05-05-25) PN 640 Guidance documents lack the force and effect of law, unless expressly authorized by statute or incorporated into a contract. USDA may not cite, use, or rely on any guidance that is not available through their guidance portal, except to establish historical facts. Appraisal considerations: x Appraiser/client confidentiality under USPAP Ethics Rules does not permit the appraiser to discuss the appraisal with anyone other than the client, without the client’s permission. It is recommended, but not required, that USDA/RD be identified as an intended user with the lender in the appraisal report obtained. x The market or sales comparison approach is required in all cases. No less than three comparable sales will be used unless the appraiser provides documentation that such comparable sales are not available. The appraiser must use their knowledge of the area and apply good judgment in the selection of comparable sales that are the best indicators of value for the subject property. x The appraiser will determine if the cost approach is required. For example, the property is unique, has specialized improvements, is new manufactured housing, or if the client requests the cost approach to be completed, then the appraiser will identify the source of the cost estimates and will comment on the methodology used to estimate depreciation, effective age, and remaining economic life. x The income approach is only required if the appraiser determines that it is necessary to develop credible assignment results. x An appraisal prepared for REO purposes, loan servicing consideration, or any other purpose other than the guaranteed purchase or refinance transaction is ineligible to be used in the origination of a guaranteed loan. A new appraisal with the intent to arrive at an opinion of value for a purchase transaction must be obtained. Photographs. Photographs in the appraisal report must be in color and be clear and descriptive to identify the property’s condition and quality. Photographs must clearly represent the improvements, any physical deterioration of the property, amenities, conditions, and external influences that may have a material effect on the market value or marketability of the subject property. Lenders will upload the appraisal report at the Application Documents page in the Agency’s automated underwriting system, GUS, by selecting 10002 Appraisal Report and uploading as an individual document. An appraisal report with interior and exterior inspection of the subject property must include at least the following: HB-1-3555 (03-09-16) SPECIAL PN 12-9 Revised (05-05-25) PN 640 Guidance documents lack the force and effect of law, unless expressly authorized by statute or incorporated into a contract. USDA may not cite, use, or rely on any guidance that is not available through their guidance portal, except to establish historical facts. x A front view of the subject property; x A rear view of the subject property; x A street scene identifying the location of the subject property and showing neighboring improvements; x The kitchen, main living area, bathrooms, bedrooms; x Any other rooms representing overall condition, recent updates, such as restoration, remodeling, and renovation; x Basement, including all finished and unfinished rooms; x Attic and/or crawl space when it can be safely accessed without disturbing or moving items that obstruct access or visibility; x Comparable sales, listings, and/or pending sales utilized in the valuation analysis must include at least a front view of each comparable utilized; x The HUD Data Plate and the HUD Certification Label(s) for manufactured homes; and x Condominium projects should include additional photographs of the common areas and shared amenities. Appraisal transfer. An appraisal ordered by another lender for the applicant can be transferred to the lender who will complete the purchase transaction. The initial lender must agree to the transfer of the report. A letter from the initial lender who ordered the appraisal report must be retained in the permanent loan file as evidence the initial lender transferred the report to the lender completing the purchase transaction. The receiving lender must assume full responsibility for the integrity, accuracy, and thoroughness of the appraisal report, including the methods that the original lender used to acquire the appraisal. The appraisal report must be no older than 180 days at loan closing to be valid. Appraisal update. The validity period of an appraisal report can be extended only one time with an Appraisal Update Report. The appraisal may be expired at the time the appraisal update is requested. However, when the original appraisal is subsequently HB-1-3555 (03-09-16) SPECIAL PN 12-10 Revised (05-05-25) PN 640 Guidance documents lack the force and effect of law, unless expressly authorized by statute or incorporated into a contract. USDA may not cite, use, or rely on any guidance that is not available through their guidance portal, except to establish historical facts. updated, the appraisal is valid for no greater than one year from the effective date of the original appraisal report at loan closing. The purpose of an appraisal update request is to determine if the property has declined in value since the effective date of the original appraisal. An update is not eligible to support a higher appraised value of the property. USPAP considers the term “Appraisal Update” as a business term, but regardless of the nomenclature used, when a client seeks a more current value or analysis of a property that was the subject of a prior assignment, this is not an extension of that prior assignment that was already completed; it is simply a new assignment. Refer to USPAP Advisory Opinion 3 for additional clarification, available at www.appraisalfoundation.org. USPAP (Advisory Opinion 3) states that there are three ways that the reporting requirements can be satisfied for this type of assignment: 1. Provide a new report that contains all the necessary information/analysis to satisfy the applicable reporting requirements, without incorporation of the prior report by either attachment or reference. 2. Provide a new report that incorporates by attachment specified information/analysis from the prior report so that, in combination, the attached portions and the new information/analysis added satisfies the applicable reporting requirements. 3. Provide a new report that incorporates by reference specified information/analysis from the prior report so that, in combination, the referenced portions and the new information/analysis added satisfies the applicable reporting requirements. The appraiser may use a pre-printed form or a narrative report to provide the appraisal update, but whichever reporting format is used, it must be in compliance with USPAP. Fannie Mae Form 1004D/Freddie Mac Form 442, Appraisal Update and/or Completion Report, may be utilized by the lender to report the completion of a repair and/or satisfaction of requirements and conditions noted in the original appraisal report. Property flipping. It remains the lenders responsibility to ensure any recently sold property’s value is strongly supported when a significant increase between sales occur. The lender must perform a thorough review of the appraisal report to validate and support the property’s value and protect the applicants from possible predatory real estate lending. HB-1-3555 (03-09-16) SPECIAL PN 12-11 Revised (05-05-25) PN 640 Guidance documents lack the force and effect of law, unless expressly authorized by statute or incorporated into a contract. USDA may not cite, use, or rely on any guidance that is not available through their guidance portal, except to establish historical facts. C. Agency Review The Agency will review appraisals for all guarantee loan requests by completing Form RD 1922-15, Administrative Appraisal Review. If the Agency reviewer detects concerns, the appraisal will be referred to an Agency Review Appraiser for a technical desk or technical field review. Should the Agency licensed appraisers determine the appraisal is not adequate, the lender will be informed of corrections needed prior to issuance of the Conditional Commitment for Loan Guarantee. The lender will be required to correct or complete any appraisal returned by the Agency for corrective action. The lender is responsible to communicate and initiate corrective action with the appraiser. The corrected appraisal will be subject to the same review process described in this section. The Agency retains the right to determine an appraiser is ineligible based upon their failure to comply with requirements of this section. The Agency will notify the lender when appraisals completed by ineligible appraisers will no longer be accepted for the SFHGLP. D. Directors of the Origination and Processing Division Responsibilities A director of the Origination and Processing Division (OPD) will designate or delegate authority to the supervisory staff of the unit or other qualified personnel to conduct administrative appraisal reviews. Technical appraisal reviews must be completed by an Agency certified or licensed appraiser and need only be licensed or certified in one State or territory to perform real estate appraisal duties as Federal employees in all states and territories. Review appraisers must have recent, documented appraisal experience or other factors which clearly establish their qualifications as a reviewer. A director of the OPD will determine and establish the training needs for Rural Development OPD staff completing appraisal reviews. A director of the OPD will also assure that an adequate number of reviews are being completed. E. Types of Agency Reviews There are three types of reviews for appraisals: “Administrative,” “Technical Desk,” and “Technical Field.” An administrative review will be completed for all transactions involving the submittal of an appraisal report. A sufficient number of technical desk and technical field reviews will be completed to ensure the Agency is getting quality HB-1-3555 (03-09-16) SPECIAL PN 12-12 Revised (05-05-25) PN 640 Guidance documents lack the force and effect of law, unless expressly authorized by statute or incorporated into a contract. USDA may not cite, use, or rely on any guidance that is not available through their guidance portal, except to establish historical facts. appraisals for the Guaranteed Loan Program. An explanation of the review types are as follows: 1. Administrative Reviews Administrative reviews are performed by the Agency loan approval official or qualified designee on all appraisals prior to issuance of the Conditional Commitment. This review determines if there are inconsistencies in the appraisal report that may have to be addressed, or if a technical review should be completed by the Agency staff appraiser prior to issuance of the Loan Note Guarantee. Indicators that a technical review may be required will be documented on Form RD 1922-15. x Administrative reviews are completed by the Agency on Form RD 1922-15. This form will be signed, dated, and retained in the Agency file for uploading. This review should be completed prior to issuance of the Conditional Commitment. x If there is a deficiency with an appraisal, the loan approval official should communicate the deficiency to the lender. These deficiencies should include items that affect loan security, value conclusions, or unacceptable property conditions. 2. Technical Desk Reviews A technical desk review is performed to determine whether the appraisal was complete, was clearly reasoned, and had adequate support for the conclusion of value. Technical reviews are performed by the Agency Appraiser. Technical reviews completed by Agency appraisers must follow current USPAP guidelines. x Technical desk reviews may be documented in any format that complies with USPAP and is acceptable for use by RD. Technical reviews should be selected in a random method. The percent of files randomly selected will be set by the direction of the SFHGLP. A director of the OPD, the Quality Assurance and Lender Oversight Division, or designated supervisory staff, will coordinate with Program Support Staff (PSS) in National Headquarters to establish internal management controls and systems to document and substantiate residential appraisal compliance activities, which will be HB-1-3555 (03-09-16) SPECIAL PN 12-13 Revised (05-05-25) PN 640 Guidance documents lack the force and effect of law, unless expressly authorized by statute or incorporated into a contract. USDA may not cite, use, or rely on any guidance that is not available through their guidance portal, except to establish historical facts. evaluated during Internal Control Reviews, Single Family Housing program reviews, and other similar types of reviews. Technical desk reviews of appraisals received by the Agency provide a method of internal control by the appraisal review staff and ensure that appraisals received by the Agency are in compliance with USPAP and Agency regulations. A Director of the OPD, or designated supervisory staff, will support completion of technical desk reviews in coordination with PSS to achieve the appraisal quality control requirements of the Agency. A technical review may also be requested by OPD staff when problems are detected on the administrative review that cannot or will not be addressed by the submitting lender or original appraiser. These problems must be significant and result in an appraisal which does not support the value conclusion. OPD staff will document the nature of their concerns on Form RD 1922-15. The appraisal will then be forwarded to the Appraisal Services Branch for a technical and/or field review prior to approval of the loan. 3. Technical Field Reviews Field reviews will involve on-site visits to the subject property and the comparable properties used in the report. Field reviews are completed by Agency Appraisal staff on a random, spot-check basis to determine if the appraiser has followed accepted appraisal techniques and arrived at a logical conclusion. x USPAP Standard 3 Review is used for technical field reviews. The reviewer may use any reporting format that complies with USPAP and is acceptable for use by RD. A director of the OPD, or designated supervisory staff, and the appraisal review staff are responsible for the administration of residential appraisal compliance and training. Appropriate actions will be initiated by a director of the OPD, or designated supervisory staff, and appraisal review staff to ensure compliance with USPAP and SFHGLP policies governing the residential appraisal process. F. Appraisals in Remote Rural Areas, on Tribal Lands, or in Areas Lacking Market Activity In remote, rural areas, on Tribal lands, or areas with a lack of market activity, as identified by the Agency, it may be difficult to obtain adequate comparable sales to appraise a property. When the sales comparison approach cannot be developed for a HB-1-3555 (03-09-16) SPECIAL PN 12-14 Revised (05-05-25) PN 640 Guidance documents lack the force and effect of law, unless expressly authorized by statute or incorporated into a contract. USDA may not cite, use, or rely on any guidance that is not available through their guidance portal, except to establish historical facts. credible opinion or conclusions regarding value, the lender’s appraiser may use other methods in compliance with the Uniform Standards of Professional Appraisal Practice (USPAP) and perform an appraisal without completing the sales comparison approach to value. Appraisers must explain the exclusion of the sales comparison approach to value and document their efforts to obtain comparable market data along with an explanation for any sales data not used. The primary method that the appraiser is relying on should be summarized to the extent that the user or a review appraiser can understand the reasoning and support of the valuation and conclusions. Remote rural areas are identified by the Agency and are defined as areas with all the following characteristics: x Scattered population; x Low density of residences; x Lack of basic shopping facilities; x Lack of community and public services and facilities; and x Lack of comparable sales data. If the appraiser is using the cost approach, external depreciation based on the remoteness of the site must not be considered; however, factors that impact the site such as immediate proximity to a feedlot, factory, or other similar considerations should be included. If the appraiser is using the income approach, they must explain why the income and expenses used are comparable to the subject property. When a market is established in these areas, the Agency will again require the sales comparison approach to be used. 12.6 WATER AND WASTEWATER DISPOSAL SYSTEMS [7 CFR 3555.201] The site must have acceptable water and wastewater disposal systems to ensure the property is decent, safe, sanitary, and meets community standards. Public water and wastewater disposal systems are presumed to meet state and local requirements with no additional documentation or inspections. Private well and wastewater systems that meet the requirements in HUD Handbook 4000.1 or meet the requirements of local and/or state health authority do not require additional inspections other than water purity tests as HB-1-3555 (03-09-16) SPECIAL PN 12-15 Revised (05-05-25) PN 640 Guidance documents lack the force and effect of law, unless expressly authorized by statute or incorporated into a contract. USDA may not cite, use, or rely on any guidance that is not available through their guidance portal, except to establish historical facts. discussed in this section. Evidence will be retained in the lender’s permanent loan file. A. Water Water systems, for existing or new construction, that require continuous or repetitive treatment to be safe bacterially or chemically may be used if the individual water system, with purification, meets the requirements of the state department of health or other comparable reviewing and regulatory authority. 1. Individual Privately Owned x Individual water systems are owned and maintained by the homeowner and subject to compliance with all requirements of the local and/or State Health Authority codes. Water quality tests are required as follows: o The water quality of the well must meet the requirements of the state or local authority. If the state or local authority does not have specific requirements, the maximum contaminant levels established by the Environmental Protection Agency (EPA) will apply. o The local health authority or a state certified laboratory must perform a water quality analysis. The Safe Water Drinking Act does not apply to private wells. Contact the EPA’s Safe Drinking Water Hotline at (800) 426-4791 for referral to certified labs and other inquiries. o The water analysis report must be no greater than 180 days old at loan closing. If the Agency is aware of any recent environmental impacts that may render the previous analysis invalid (for example – chemical spills, natural disasters, etc.) a new report may be required. x The well location for individual water supply systems must be measured to establish the distance from the septic system. The separation distance between the well and septic systems must meet the SF Handbook (HUD Handbook 4000.1) or be found acceptable by the Local and/or State Health Authority. x Individual water systems/wells should be located on the subject property site. If located on an adjacent property, evidence of water rights and recorded HB-1-3555 (03-09-16) SPECIAL PN 12-16 Revised (05-05-25) PN 640 Guidance documents lack the force and effect of law, unless expressly authorized by statute or incorporated into a contract. USDA may not cite, use, or rely on any guidance that is not available through their guidance portal, except to establish historical facts. maintenance agreement must be retained in the lender’s permanent loan file as acceptance of the well as the primary source of water. 2. Individual Privately Owned Shared If the property is served by a shared well or off-site facility, the lender must ensure the private system will provide a continuous and adequate supply of safe and potable water. The following requirements must also be met: x The well serves properties that cannot feasibly be connected to an acceptable public or community water supply system. It is the lender’s responsibility to make this determination. x A shared well must have a valve on each dwelling. x The water supply is adequate for all families served. A shared well must service no more than four living units or properties unless approved and enforced by the local code authority. x The water quality of the well must meet the requirements of the state or local authority. If the state or local authority does not have specific requirements, the maximum contaminant levels established by the Environmental Protection Agency (EPA) will apply. x The well must have an agreement that meets the following requirements: o Is binding upon all signatory parties and their successors in title; o Is recorded or will be recorded no later than the closing date; and o Makes provisions for maintenance and repair of the system and the sharing of costs to do so. These provisions must include a permanent easement that allows access for maintenance and repair. 3. Community Owned If the property is served by a community water system operated by a private corporation or nonprofit property owner’s association, the lender must ensure the HB-1-3555 (03-09-16) SPECIAL PN 12-17 Revised (05-05-25) PN 640 Guidance documents lack the force and effect of law, unless expressly authorized by statute or incorporated into a contract. USDA may not cite, use, or rely on any guidance that is not available through their guidance portal, except to establish historical facts. following conditions are met: x The system and the water supply meet all applicable federal, state, and local requirements. x The system has the capacity to provide a sufficient water supply during periods of peak demand. x The system is operated under a legally binding agreement that allows interested third parties to enforce the obligation of the operator to provide satisfactory service. 4. Required Inspections and Documentation The lender must obtain documentation the water quality meets state and local standards as discussed in this section. Lenders will retain all documentation in their permanent loan file. 5. Individual Water Systems in Hawaii and the Western Pacific Region Due to the limited regulation provided by local ordinances and/or regulations of each jurisdiction in Hawaii and the Western Pacific Region regarding individual water systems (IWS), including rainwater catchment systems, the Agency has determined that an IWS is considered an eligible water system if the following conditions are met: x The property is located in Hawaii or the Western Pacific Region; x The property does not have an available affordable connection to a public or private community water system; x The alternative water supply system, rainwater catchment system, complies with and/or is not prohibited by ordinances and/or regulations of the local jurisdiction in which the property is located; x Water quality tests are not required if the state or local authority does not have specific requirements and EPA testing is not available; HB-1-3555 (03-09-16) SPECIAL PN 12-18 Revised (05-05-25) PN 640 Guidance documents lack the force and effect of law, unless expressly authorized by statute or incorporated into a contract. USDA may not cite, use, or rely on any guidance that is not available through their guidance portal, except to establish historical facts. x Reliance upon the rainwater catchment system does not diminish the marketability or value of the property within its marketplace. The system must be typical for the area as described by the appraiser; and x The applicant is required to acknowledge and certify of their responsibility to maintain the rain catchment system. B. Wastewater 1. Individual Privately Owned The lender is required to obtain a septic evaluation. A qualified appraiser who certifies the property meets required HUD’s Single-Family Housing Policy Handbook, a government health authority, a licensed septic system professional, or a qualified home inspector may perform the septic evaluation. The septic evaluation may require additional inspections as a result of the inspection. The septic system must be free of observable evidence of failure. Existing dwellings appraised by a qualified appraiser who indicates the dwelling meets the required HUD handbook policy does not require further septic certification; however, water supply systems must be measured to establish the distance from the septic system. The separation distance between the well and septic systems must meet the SF Handbook (HUD Handbook 4000.1) or be found acceptable by the local and/or State Health Authority. If the property is served by an individual sewage disposal system, the lender must ensure the system: x Meets any applicable requirements of the state or local health authority with jurisdiction; x Is located entirely on the subject property. If any part of the system is located on an adjacent property (for example leach lines), evidence such as a perpetual encroachment easement must be recorded to establish the rights of HB-1-3555 (03-09-16) SPECIAL PN 12-19 Revised (05-05-25) PN 640 Guidance documents lack the force and effect of law, unless expressly authorized by statute or incorporated into a contract. USDA may not cite, use, or rely on any guidance that is not available through their guidance portal, except to establish historical facts. the property owner’s permitted use; and x Is operating properly and has the capacity to dispose of all domestic wastes in a manner that will not create a nuisance or endanger public health. 2. Community Owned If the property is served by a community wastewater system operated by a private corporation or nonprofit property owner’s association, the lender must ensure that the system: x Meets any applicable requirements of the state or local health authority with jurisdiction; x Is licensed, operating properly, and has the capacity to dispose of all domestic wastes in a manner that will not create a nuisance or endanger public health; and x Is subject to a legally binding agreement that allows interested third parties to enforce the obligation of the operator to provide satisfactory service. 3. Required Inspections and Documentation The lender must obtain documentation the wastewater system meets state and/or local standards. Lenders will retain all documentation in their permanent loan file. 12.7 STREET ACCESS AND ROAD MAINTENANCE [7 CFR 3555.201] A. Access The site must be contiguous to, and have direct access from, a public or private street, road, or driveway. Private roads or streets are acceptable provided each property has vehicular or pedestrian access. Private roads or streets must be protected by permanent recorded easement (non-exclusive and non-revocable easement without trespass from the property to a public street) or the street must be maintained by a homeowner’s association (HOA). Shared driveways must also meet these requirements requiring a permanent recorded easement for ingress and egress. This agreement must be binding to successors and title. A copy of a title report, retained in the lender’s loan file, may be used to HB-1-3555 (03-09-16) SPECIAL PN 12-20 Revised (05-05-25) PN 640 Guidance documents lack the force and effect of law, unless expressly authorized by statute or incorporated into a contract. USDA may not cite, use, or rely on any guidance that is not available through their guidance portal, except to establish historical facts. evidence the easement. Private streets must have a permanently recorded easement or be owned and maintained by an HOA. All evidence of recorded easements or maintenance agreements must be reviewed and approved by the approved lender’s underwriter and documented in the lender’s permanent loan file. B. Maintenance Streets and roads must be hard surfaced or all-weather surfaced. An all-weather surface is a road surface over which emergency and the area’s typical passenger vehicles can always pass. A publicly maintained road is automatically assumed to meet this requirement. If a HOA is responsible for maintaining streets and roads, it must meet the criteria set forth by Fannie Mae, Freddie Mac, the U.S. Department of Housing and Urban Development (HUD), or U.S. Department of Veterans Affairs (VA). SECTION 3: DWELLING REQUIREMENTS [7 CFR 3555.202]

Source: USDA SFH Guaranteed Loan Program Technical Handbook HB-1-3555 ¶12.2 — Overview · source URL · snapshot 0466acd1ea2d17a4