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Construction Loan Information for

Applicants and Builders (Georgia)

Highlights of the “Section 502” Single Family Housing Direct Loans as processed in

Georgia

USDA is an equal opportunity provider, employer and lender.

General

Q1.Who qualifies for New Construction? A1. Anyone who qualifies for a USDA Rural

A3. If a Construction Loan is used by the homeowner, at contract completion, the loan will be

converted to Section 502 Permanent Loan. Interest accrued during construction period (at a

subsidized rate) is added to the loan principle. Payments are calculated on this amount.

Q4. What is considered a New Dwelling? A4. The proposed dwelling or a dwelling less

than one year old per Certificate of Occupancy and never occupied

Proposed Construction

House Plan Requirements: The applicant chooses the plans. Plans must not be plagiarized.

Plans must contain professional designer’s stamp; be certified as meeting all building codes and

on ¼-inch scale. The loan amount must be under: 1) Maximum loan limit for Specific County

and 2) Maximum loan for what the applicant qualifies according to their Certificate of

Form RD 1924-25, “Plan Certification”. Builder must be in good standing with RD. An

approved 10-year warranty company may self-certify plans. Plans must be agreed upon and

signed by the applicant, builder and Rural Development. See RD Instruction 1924-A, page 10

for acceptable plan certs.

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Plan Specifications: Construction must be completely described on the plans and

specifications. Form RD 1924-2, “Description of Materials” or similar document may be used.

The Specs must be agreed to and signed by the applicant and the builder.

Building Codes: The Georgia Department of Community Affairs is the “keeper” of Georgia’s

Construction Codes. They no longer keep a list of cities and counties that have adopted or

2. International Residential Code, 2012 Edition, with Georgia Amendments (2014/2015 GA

Amendments)

3. International Fire Code, 2012 Edition (2014 GA Amendments)

4. International Plumbing Code, 2012 Edition, with Georgia Amendments (2014/2015 GA

Amendments)

5. International Mechanical Code, 2012 Edition, with Georgia Amendments (2014/2015 GA

Amendments)

6. International Fuel Gas Code, 2012 Edition, with Georgia Amendments (2014/2015 GA

Amendments)

7. National Electrical Code, 2014 Edition (No Georgia Amendments)

be appraised by contract appraiser “as proposed” or “as built”. This establishes the upper limit on

the loan amount.

Construction Contract

Contract Documents: Form RD 1924-D will spell out the terms of agreement. In addition, 1)

Form RD 400-1, Equal Opportunity Agreement; 2) Form RD 400-3, Notice to Contractors and

Applicants; and 3) Form RD 400-6, Compliance Statement, are required.

Parties to Contract: USDA Rural Development is NOT a party to the contract, but may

provide advice to ensure a successful transaction.

Important Details: Please pay close attention; the contract has many important details such as

draws limited to 60 percent of work-in-place (without surety bonds) and applicant’s right to stop

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Changes: All changes to plans or specifications must be agreed upon by the applicant, builder

and USDA Rural Development by being spelled out on a signed Form RD 1924-7, “Contract

construction loan with their lender or if the Applicant will utilize Draw method under the

contract.

Turn-key vs Draw: Construction Financing Options, 1) Builder buys the lot, builds the house,

sells the house/lot as a “turn-key” job using Sales Contract (includes spec-houses); or 2)

Applicant buys the lot, enters contract with builder to build on their lot.

Inspections

Four Inspection Options:

1. If the city or county has adopted all eight building codes (“code city/county”), their

periodic inspections are acceptable

2. If not a “code city/county,” Rural Development or other qualified inspector may conduct

http://www.rd.usda.gov/files/1924a.pdf for RD Instruction 1924-A, Exhibit L, Attachment 1 (see

page 163 of the pdf.)

1. Homebuyer’s Warranty Co. (“HBW” or “2-10 Warranty”)

2. Residential Warranty Corp. (“RWC”)

3. StrucSure Home Warranty

4. Manufactured Housing Warranty Corp.

Super Energy Efficient Homes

Increased Repayment Ratios: While all homes must be built to the minimum standards of

the “International Energy Code”, homes that are considered super-energy-efficient may provide

applicants an extra 2 percent increase in repayment ratios. In these cases, instead of qualifying

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1. Energy Star for New Homes (U.S. EPA)

2. Zero Energy Ready Homes (U.S. Dept. of Energy)

3. Leadership in Energy and Environmental Design (LEED; U.S. Green Building Council)

Builders)

5. Green Communities (Enterprise Community Partners)

Construction Closeout

Final Forms: Once construction and rehabilitation work is satisfactorily completed, the Agency

will make final payment to the contractor. Before that can occur, the loan Originator must

ensure that the work has been done properly and that no one will make any claims against the

property (such as dissatisfied subcontractors or suppliers). The Agency provides several forms

to help the Loan Originator close out the construction process. The forms are as follows:

1. “Certificate of Contractor’s Release” (Form RD 1924-9), signed by the contractor. It

certifies that the work has been completed according to the drawings and specifications

3. Builder’s Warranty guaranteeing quality of work and materials. A one-year Builder’s

Warranty is the required minimum. The warranty guarantees that the builder will repair

or replace any defects in materials or construction that occur within one year from the

date of acceptance. A 10-year warranty is preferred.

boundary lines, encroachments on the subject or adjacent property, above-ground easements, set-

backs imposed by either restrictive covenants or zoning, and any additional requirements needed

to obtain title insurance. For new construction, the boundary corners must also be clearly

marked. Existing survey may be used if it meets the requirements of the title insurance.

Laws and Regulations

1. Located in a Rural Area

2. Size must not be large enough to be subdivided under local subdivision regulations

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3. The value of the site should not exceed 30 percent of the as-is improved appraised value

of the property. The 30 percent limit may be exceeded if the site meets the requirement 2

and the value of the site is typical for the area, as evidenced by the appraisal and the

4. The property must not include farm service buildings; however smaller outbuildings such

as storage sheds are allowed.

1. In-ground pools

2. Income-producing properties (Home based operations that do not require specific features

such as child care, product sales, or craft production are not restricted.)

Recently Completed Homes Eligibility: Recently completed homes are eligible however

the home should have been inspected during construction by either, 1) local code enforcement in

the jurisdiction that has adopted all eight of the mandatory building codes; copies of inspections

provided to Rural Development; 2) USDA Rural Development employee; or 3) be covered under

an RD-approved 10-year Warranty Company. If none of these apply, Rural Development