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12.9 EXISTING AND NEW DWELLINGS
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 the dwelling meets the current minimum property requirements of the Single Family Housing Policy Handbook (SF Handbook; HUD Handbook 4000.1, also known as HUD Handbook) or as superseded by HUD. An existing dwelling is defined as been completed for more than 12 months or has been completed less than 12 months but has been previously occupied.
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Qualified appraisers are licensed or certified and can attest the property meets HUD Handbook 4000.1 standards. It remains the lenders responsibility to determine if the appraiser is thoroughly familiar with the HUD Handbook. The appraiser may certify the requirements of the HUD Handbook 4000.1 have been met on page three of the appraisal form in the “comment” section, or in an addendum to the appraisal.
Appraisers who are unfamiliar with the HUD Handbook standards should not certify that a property meets those standards and doing so constitutes a misrepresentation. If the qualified appraiser is unfamiliar with the HUD Handbook standards, the lender should obtain a home inspection report provided by a home inspector deemed qualified by the lender. The appraiser must report all readily observable property deficiencies, as well as any adverse conditions discovered performing the research involved in completing the appraisal.
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. A property in which a qualified appraiser indicates is in average or good condition may be considered in good repair, though repairs may still be required by the lender. Lenders are responsible for ensuring the following guidelines are met:
x Lenders must encourage applicants to obtain a detailed home inspection of the
property independent of the inspection noted above. x 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. As stated in the HUD Handbook, the responsibility for enforcing code rests with the local municipalities. x Termite/pest inspections are required if the lender, appraiser, inspector, or State
law requires the inspection to confirm the property is free of active infestation.
x Lenders are not required to collect an inspection report to confirm thermal
standards for existing dwellings. x Lenders must provide applicants with Form HUD-92564-CN, For Your
Protection: Get a Home Inspection, with evidence maintained in the lender’s permanent loan file.
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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. 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.
HUD Handbooks and forms are located at: https://hud.gov/program_offices/administration/handbks_forms
B. New Dwellings [7 CFR 3555.202(a)]
New dwellings must be designed and constructed in accordance with certified plans and specifications. Evidence of all of the items below must be retained in the lender’s permanent loan file:
x Certified plans and specifications;
x Required construction inspections; and x Thermal standards are met.
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. One year builder warranties are deemed acceptable to the Agency when the policy is non-refundable or cancellable, the policy is from an insurance company licensed to do business in the state where the property is located, and the coverage includes (from effective date) at least one year for any defects caused by faulty workmanship or defective materials. The one year builder’s warranty must be fully executed and include the date of warranty, owner, warrantor name, location of property, signatures of all parties, and any other applicable information. This section will provide documentation options necessary to meet each of these
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requirements for both stick built and manufactured homes.
Information regarding financing new manufactured and modular homes may be found in Chapter 13 of this Handbook.
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1. Documentation Requirements for New Construction Stick Built Homes:
Evidence of Thermal Standards OPTION 1 Copy of the certification from a qualified individual or organization that the reviewed documents comply with applicable development standards; OR
Evidence of Certified Plans and Specs
Evidence of Construction Inspections
OPTION 1 Certificate of Occupancy issued by a local jurisdiction showing that it has performed at least 3 construction phase inspections, as identified in Section 12.9(B), and an acceptable 1 year builder warranty; OR
OPTION 1 A qualified, registered architect or a qualified, registered engineer may certify confirmation with IECC standards; OR
OPTION 2 Certificate of Occupancy issued by a local jurisdiction;
OPTION 2 Three construction phase inspections performed at each of the phases identified in Section 12.9(B) and an acceptable 1 year builder warranty; OR
OPTION 2 Builder may certify confirmation with the IECC standards; OR
OR
OPTION 3 Building Permit (or equivalent) issued by local jurisdiction.
OPTION 3 Final inspection and a 10-year insured builder warranty. Builder backed 2/10 warranty fulfills the 10-year warranty requirement.
OPTION 3 The final inspection or Certificate of Occupancy issued by a local jurisdiction.
The lender is responsible for obtaining one form of required evidence from the list of available source options in each category. This evidence must be kept in the lender's permanent loan file.
New Construction Certified Plans and Specifications for Stick Built Homes
The lender’s file must contain evidence the plans and specifications comply with all development standards* applicable to the new construction. Acceptable evidence includes:
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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 is not 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:
x Licensed architects; x Professional engineers; x Plan reviewers certified by a national model code organization; x Local building officials authorized to review and approve building plans and
specifications; or x National codes organizations.
*Applicable development standards. The current International Code Council (ICC) standards or current state adopted ICC code(s) for residential construction.
Evidence of Construction Inspections for Stick Built Homes
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 showing that it has performed at least 3 construction phase inspections, including inspections noted in option 2 below, and a 1-year builder warranty plan acceptable to Rural Development.
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-OR-
2. Three construction inspections performed when: x Footings and foundation are ready to be poured and prior to back-filling; x Shell is complete, but plumbing, electrical, and mechanical work is still
exposed; x Final inspection of completed work prior to occupancy; and x A 1-year 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. x Final Update and/or Completion Report (Fannie Mae Form 1004D/Freddie
Mac Form 442) is acceptable as a final inspection, provided the appraiser is deemed qualified by the lender. x Builder backed 2/10 warranty fulfills the 10-year warranty requirement.
Evidence of Thermal Standards for New Construction Stick Built Homes
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. Evidence of thermal standards are typically included in the plans and specs to which the dwelling is built.
Documentation of conformance may be met by one of the following options:
1. A qualified, registered architect or a qualified, registered engineer may certify confirmation with IECC standards; or
2. The builder may certify confirmation with the IECC standards; or
3. The final inspection or Certificate of Occupancy issued by a local jurisdiction meets this requirement.
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2. Documentation Requirements for New Construction Manufactured Homes:
Evidence of Thermal Standards OPTION 1 Copy of the certification from a qualified individual or organization that the reviewed documents comply with applicable development standards; OR
Evidence of Certified Plans and Specs
Evidence of Construction Inspections
OPTION 1 Certificate of Occupancy issued by a local jurisdiction showing that it has performed at least the footing and final inspections, as identified in Section 12.9(B), and an acceptable 1 year builder warranty; OR
OPTION 1 HUD Data Plate confirmation with IECC standards; OR
OPTION 2 Certificate of Occupancy issued by a local jurisdiction; OR
OPTION 2 Footing and final inspections performed by a qualified inspector as identified in Section 12.9(B), and an acceptable 1 year builder warranty; OR
OPTION 2 Builder may certify confirmation with the IECC standards; OR
OPTION 3 Building Permit (or equivalent) issued by local jurisdiction.
OPTION 3 Final inspection and a 10-year insured builder warranty. Builder backed 2/10 warranty fulfills the 10-year warranty requirement.
OPTION 3 The final inspection or Certificate of Occupancy issued by a local jurisdiction.
The lender is responsible for obtaining one form of required evidence from the list of available source options in each category. This evidence must be kept in the lender's permanent loan file. Warranty documents for manufactured homes must include the serial number.
New Construction Certified Plans and Specifications for Manufactured Homes
The lender’s file must contain evidence the plans and specifications comply with all
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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 is not 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.
Evidence of Construction Inspections for Manufactured Homes
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 showing that it has performed at least 2 construction phase inspections, which must include the inspections noted in option 2 below, and a 1-year builder warranty plan
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acceptable to Rural Development.
-OR-
2. Two construction inspections performed when: x Footings and foundation are ready to be poured and prior to back-filling; x Final inspection of completed work prior to occupancy; and x A 1-year 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. x Final Update and/or Completion Report (Fannie Mae Form 1004D/Freddie
Mac Form 442) is acceptable as a final inspection, provided the appraiser is deemed qualified by the lender. x Builder backed 2/10 warranty fulfills the 10-year warranty requirement.
Evidence of Thermal Standards for New Construction Manufactured Homes
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. Evidence of thermal standards are typically included in the plans and specs to which the dwelling is built.
Documentation of conformance may be met by one of the following options:
1. A HUD Data Plate confirmation with IECC standards; or
2. The builder may certify confirmation with the IECC standards; or
3. The final inspection or Certificate of Occupancy issued by a local jurisdiction meets this requirement.
In general, the lender has primary responsibility for all loan origination activities. The Agency has primary responsibility to review lenders’ actions and monitor participants’
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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:
x Copies of plans, drawings, and specifications;
x 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; x Building permits;
x Copies of new construction inspections, including pest and termite inspections
that the lender may opt to collect as part of state laws or investor requirements;
x Occupancy certificates; and x Copies of construction warranties. The Agency has the option to request any of these documents in appropriate situations such as:
x The Agency is performing a processing review of a newly approved lender; x The Agency is performing a periodic review of the lender’s compliance with
program regulations;
x The Agency believes the lender is not fulfilling the obligations of the Lender Agreement and/or program guidelines; or
x 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.
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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, and the estimated cost to complete the work is not greater than 10 percent of the total loan amount. This section does not apply to the Single Close Combination Construction to Permanent Loans or Rehabilitation or Repair Loans. The lender assumes responsibility for completion of repairs in accordance with the conditions set forth in this Section for any repair escrow established. Lenders may utilize Attachment 12-E, Repair Escrow and Rehabilitation & Repair with Purchase Comparison, when determining how repairs or rehabilitation may be financed.
Repair 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.
The Agency may issue a Loan Note Guarantee prior to the completion of interior or exterior repairs provided all the following conditions are met:
x The incomplete work does not affect the livability of the dwelling, nor the health
or safety of the occupants; x A signed contract between the borrower and the contractor is in effect for the
proposed work; x The funds to be escrowed are not less than 100 percent of the repair cost contract.
The loan underwriter may determine the escrow amount, which could exceed the repair cost; x The Closing Disclosure reflects the holdback;
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x The development will be completed within 180 days of closing, unless an
extension is granted by the Agency for inclement weather conditions; x The escrow account is established in a federally supervised financial institution;
and
x An inspection report certifying the defect/repair has been properly repaired is
obtained. Certification of completion is required to verify the work was completed and must:
o Be completed by the appraiser;
o State that the improvements were completed in accordance with the
requirements and conditions in the original appraisal report;
o Be accompanied by photographs of the completed improvements; and
o 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 loan file and is subject to the certification of Form RD 3555-18/18E. Funds that remain in the escrow account after the completion of all required repairs must be utilized for an eligible loan purpose or applied to the principal balance of the permanent loan. Personal funds of the borrower utilized to fund the repair escrow (excluding loan funds or a seller concession) may be returned to the borrower. 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 conditions are met:
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x The estimated cost to complete the work is not greater than 10 percent of the total
loan amount; x The escrow amount is less than or equal to $10,000; and
x 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 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 loan 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 or utilized for an eligible loan purpose. Personal funds of the borrower utilized to fund the repair escrow (excluding loan funds or a seller concession) may be returned to the borrower. 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.
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SECTION 4: ENVIRONMENTAL REQUIREMENTS [7 CFR 3555.5] 12.10 HAZARD IDENTIFICATION