USDA Renovation Loans in Texas
Quick answer: USDA lets you buy an existing Texas home and finance repairs in the same fixed-interest loan, through its Rehabilitation and Repair with Purchase feature. Smaller, non-structural repairs and larger or structural renovations follow different rules. Separately, a repair escrow can cover minor unfinished items on a home that's already livable. All loans subject to credit and property approval.
What is a USDA renovation loan?
It's USDA's Rehabilitation and Repair with Purchase feature: one loan to buy an existing home and pay for repairs, based on the home's value after the work is done.
The loan amount can't exceed the purchase cost plus repair costs, up to the "as-improved" appraised value, plus any financed guarantee fee (HB-1-3555, 12.28). The repairs are handled much like a construction loan, with a contractor, a fixed-price contract, and payments released as work is done.
What are the two types of USDA renovation loans?
USDA separates non-structural repairs under a dollar cap from structural repairs or larger projects, and each has its own rules.
| Feature | Non-structural repairs | Structural or larger repairs |
|---|---|---|
| Scope | Repairs like those flagged by an inspector or appraiser, under USDA's cap | Structural work, or repairs above USDA's cap |
| Minimum repair amount | None | Above USDA's non-structural cap, or any structural work |
| Livability | Home must be livable shortly after closing, within USDA's window | Home may be unlivable at closing |
| Payment reserve | Not applicable | Principal, interest, taxes and insurance reserve allowed while you can't live there |
| Inspector or consultant | Not required | Required to write up the work and costs |
USDA sets the dollar cap and time windows in the handbook. Danny Nassar, NMLS 220172, will confirm the current figures and which type fits the home you're considering.
What repairs can a USDA renovation loan pay for?
Repairs that improve health, safety, accessibility, energy use or the home's basic function, plus some modernizations.
- Removing health and safety hazards
- Accessibility changes for people with disabilities
- Repairing or installing a septic system or water well
- Additions, structural changes, or rebuilding on the existing foundation
- Adding a garage, attached or detached
- Kitchen and bathroom updates, flooring, siding
- Energy conservation and weatherization
- Repairs to an existing pool, hot tub or sauna
- Repairs to an accessory dwelling unit
Soft costs, a contingency reserve and inspection fees can also be included.
What can't it be used for?
New in-ground pools, hot tubs or saunas, luxury items, income-producing changes, condo repairs, and converting barns or other buildings into homes.
- New in-ground swimming pools, hot tubs or saunas
- Luxury items, such as outdoor kitchens and exterior fireplaces
- Changes that add income-producing features
- Repairs to condominiums or common areas
- Converting structures like barns or schoolhouses into homes
Which homes qualify for a USDA renovation loan?
Existing homes that have been finished for at least 12 months, in an eligible area; new or unfinished construction doesn't qualify.
The lender needs proof of completion, such as a certificate of occupancy or local tax records. If the home will be demolished and rebuilt, the existing foundation must stay in place and be reused. You can't act as your own general contractor, and the contractor must meet USDA's builder requirements. Check the address on the USDA eligibility map first.
What is a USDA repair escrow?
A repair escrow holds funds at closing for minor unfinished work on a home that's already livable, so the purchase isn't held up.
It's different from a renovation loan. Under HB-1-3555, 12.9, a repair escrow can be used when the unfinished work doesn't affect livability, health or safety, there's a signed contract for the work, the escrow covers at least the full contract cost (or, where no contractor is used, as the handbook otherwise allows), and the work is finished within USDA's deadline and confirmed by the appraiser. It's common for items like exterior work that can't be done because of weather, or small repairs found in the appraisal. Seller-paid repair funds must also go into escrow.
Should you choose a renovation loan or a repair escrow?
A repair escrow fits small finishing items on a livable home; a renovation loan fits a home that needs real work before or right after you move in.
USDA publishes a side-by-side comparison in Attachment 12-E of the handbook, and lenders use it to choose. Not every lender offers USDA renovation loans, so ask Danny which options Canopy Mortgage currently offers. Call 512-743-5512 with the property address.
Source: USDA Handbook HB-1-3555, Chapter 12 (12.9 and 12.28, Attachment 12-E). All loans subject to credit and property approval.
Frequently asked questions
Can I use a USDA loan to buy a fixer-upper in Texas?
Yes, through USDA's Rehabilitation and Repair with Purchase feature, if the home is in an eligible area, has been finished for at least 12 months, and the repairs are eligible.
Can I do the repairs myself?
Not on a rehabilitation and repair loan: a contractor who meets USDA's builder requirements does the work under a fixed-price contract. For small unfinished items on a home that's already livable, USDA lets the lender approve owner-completed work in a repair escrow in limited cases. Ask Danny Nassar, NMLS 220172, what applies to your home.
Can a USDA renovation loan add a pool?
No. New in-ground pools, hot tubs and saunas are prohibited. Repairs to an existing pool are allowed.
Is a USDA renovation loan the same as a USDA home repair grant?
No. Repair grants and loans for current owners are a separate USDA program. The renovation loan described here is for buyers purchasing an existing home.
Talk with Danny about your Texas USDA loan
Tell Danny the county you're buying in and who lives in your household. He'll walk you through the USDA rules that apply to you and the next steps.
All loans subject to credit and property approval.