USDA Loan Appraisal: Requirements, Value, and Repairs

A USDA loan appraisal does two jobs at once: it establishes the home’s market value and confirms the property meets federal health and safety standards. That dual purpose is what sets USDA loan appraisal requirements apart from a conventional appraisal, which focuses almost entirely on value. The appraiser works from the minimum property standards in HUD Handbook 4000.1 for guaranteed loans, or from 7 CFR 3550.57 for direct loans, and the home has to be safe, structurally sound, and livable the day you move in.¹²

What the Appraiser Inspects

Structure and Roof

The foundation has to be free of significant cracks or settling that compromise the structure. The roof needs enough remaining useful life that it won’t need immediate replacement, generally at least two years, with no active leaks, missing shingles, or visible deterioration. Damage flagged here has to be repaired before the loan can close.

Electrical, Heating, and Plumbing

The electrical system must be adequate for the home’s size and typical household use, with no exposed or frayed wiring. There is no fixed minimum amperage; the standard is functional adequacy.³ The heating system must be able to automatically maintain at least 50 degrees Fahrenheit throughout the living areas without someone having to tend it. Plumbing needs adequate water pressure, waste disposal through a public sewer or approved private system, and heat in any area containing pipes.

Crawl Spaces and Site Access

The appraiser visually inspects any accessible crawl space for excessive dampness, poor ventilation, or mold. If it isn’t safely accessible, a third-party inspection may be required.⁴ The property also needs direct access from a hard-surfaced or all-weather road so emergency and passenger vehicles can reach it year-round.⁵

Termites and Wood-Damaging Pests

The property must be free of termites and other wood-damaging pests.² For direct loans, a state-licensed inspector generally performs a separate termite inspection unless the state’s infestation probability is rated “none to slight” or “slight to moderate” and the state director has issued a waiver.⁶ Active infestation found during the appraisal has to be treated and any damage repaired before closing.

Lead-Based Paint on Pre-1978 Homes

Any home built before 1978 triggers federal lead-based paint rules. If the appraiser spots peeling, chipping, or deteriorated paint, the surfaces must be stabilized before closing: correct the underlying cause, scrape and repaint using safe work practices, then pass a clearance examination that tests for lead dust.⁷ Small areas fall below the de minimis threshold and are exempt: 20 square feet on exterior surfaces, 2 square feet in any single interior room, or 10 percent of total surface area on small components like window sills or trim. Stabilization is not required if the paint is tested and confirmed lead-free.

Wells and Septic Systems

The separation distance between a private well and septic system must meet HUD Handbook 4000.1 or be approved by the local or state health authority.⁵ Properties on private wells typically need water testing before closing, at minimum for total coliform bacteria, nitrates, and pH; lead, arsenic, or VOC testing may be added depending on the area.⁸ A shared well requires a legally binding shared well agreement with easements for access and maintenance.

Property Types That Disqualify the Loan

The appraisal cannot rescue a property the USDA won’t finance in the first place. Four categories are out:

Income-producing properties. Buildings principally used for business — barns, commercial greenhouses, silos, livestock facilities — disqualify the property.⁵
Vacant land. A USDA loan cannot buy a lot without an eligible home on it.⁹
Existing manufactured homes. The guaranteed program generally will not finance an existing manufactured home, and it won’t finance one that has been moved from another site.
Multi-dwelling sites. Only one dwelling is allowed, though non-residential, non-income-producing buildings like a detached garage are fine.

A home designed to accommodate a business, such as one with a built-in commercial kitchen or storefront section, raises red flags whether or not a business is currently operating there.

How the Value Is Set

The lender orders the appraisal from an independent, state-certified appraiser who complies with the Uniform Standards of Professional Appraisal Practice. The borrower does not choose the appraiser.¹⁰ The findings are recorded on the Uniform Residential Appraisal Report, which combines the physical inspection with a market value analysis.¹¹

To establish value, the appraiser pulls comparable sales, typically three or more closings within the last twelve months, then adjusts for differences in square footage, bedrooms, lot size, and condition. In rural areas, truly comparable nearby sales can be hard to find. When the best indicators of value sit a considerable distance from the subject property, appraisers can use those more distant sales as long as they explain why those comparisons are the most appropriate.¹² Every readily observable deficiency has to be reported, along with any adverse conditions found during the appraiser’s research, and photographs in the report must be in color.

Cost, Timeline, and How Long the Appraisal Stays Valid

The borrower pays for the appraisal. The lender may collect the fee when the appraisal is ordered or roll it into closing costs. A standard single-family home appraisal generally runs between $300 and $600, though rural properties with large lots or limited comparable sales data can push the cost higher.

After the lender orders the appraisal, plan on roughly five to ten business days for the appraiser to visit the property, research comparables, and deliver the report. Rural properties sometimes take longer because the search for comparable sales has to widen.

The appraisal is valid for 120 days from its effective date.¹⁰ If closing is delayed, the lender can extend that window to 150 days without an update, since the extra 30 days is a built-in grace period. Beyond that, the lender can order an appraisal update report that extends validity to 240 days total from the original effective date, but only one update is allowed per original appraisal.¹³ Once the appraisal fully expires, a brand-new one is required at additional cost.

If the Appraisal Comes In Below the Purchase Price

USDA will not guarantee a loan for more than the appraised value. If the home appraises for less than your contract price, you have two main options:¹⁴

Renegotiate the price. You and the seller can amend the purchase agreement to the appraised value or somewhere in between. The appraisal report itself does not need to be updated, but the amendment stays in the lender’s permanent loan file.
Cover the gap in cash. If the seller won’t move, you can bring extra funds to closing to cover the difference. The lender must verify you have the money and update the loan application to reflect the additional costs.

Repairs and Re-Inspection

When the appraiser flags deficiencies that violate the minimum property requirements, the loan stalls until those items are fixed. Required repairs are limited to those necessary to protect the health and safety of occupants and preserve the home’s marketability.⁵

Either the seller or the buyer can do the work. In some cases, the lender may allow a repair escrow account so closing can proceed while repairs are completed afterward. The escrow must hold at least 100 percent of the estimated repair cost, and lenders can require more at their discretion.¹⁵ Not every repair qualifies for escrow; the lender decides whether the work is minor enough to allow closing first.

After repairs are done, the appraiser returns to confirm each flagged deficiency has been corrected. The re-inspection carries a separate fee, typically a few hundred dollars added to closing costs. Once the completion report is signed, the file goes back to USDA and the loan can move to funding.

Repairs are where USDA deals most often fall apart. Sellers in rural markets sometimes refuse to make repairs on older homes, and buyers have limited leverage because the program will not waive safety standards. If a property is clearly in rough shape, a general home inspection before the appraisal is worth the money so you know what you’re walking into.

1
USDA Rural Development. Appraisal and Property Eligibility Training
2
eCFR. 7 CFR 3550.57 – Dwelling Requirements
3
U.S. Department of Housing and Urban Development. HUD Handbook 4000.1 – FHA Single Family Housing Policy Handbook
4
U.S. Department of Housing and Urban Development. HUD Handbook 4000.1 – FHA Single Family Housing Policy Handbook
5
USDA Rural Development. HB-1-3555, Chapter 12 – Property and Appraisal Requirements
6
USDA Rural Development. HB-1-3550, Chapter 5 – Property Requirements
7
U.S. Department of Housing and Urban Development. Interpretive Guidance – The HUD Regulation on Controlling Lead-Based Paint Hazards
8
Centers for Disease Control and Prevention. Guidelines for Testing Well Water
9
eCFR. 7 CFR Part 3555 – Guaranteed Rural Housing Program
10
GovInfo. 7 CFR 3555.107 – Application Requirements
11
Fannie Mae. Uniform Residential Appraisal Report
12
Fannie Mae. Comparable Sales
13
USDA Rural Development. Chapter 12 – Property and Appraisal Requirements (Draft)
14
USDA Rural Development. Single Family Housing Guaranteed Loan Program – Frequently Asked Questions
15
USDA Rural Development. Existing Dwelling Requirements and Escrow Accounts