Backed by the Department of Agriculture, USDA loans aim at helping prospective homeowners with a low household income buy their homes in an agricultural or suburban area. As such, a USDA home loan comes with favorable housing repayment terms and low interest rates. They also have no down payment requirements, which makes it easier for first-time buyers to access the property market.
USDA loans are geared towards low- to moderate-income individuals who wish to purchase a home in a rural area. USDA property eligibility is often based on the area median income. Several loan requirements can disqualify a home from being eligible for a USDA loan program, so here is a guide to help you apply for the right USDA property loan.
Property eligibility site
To ensure whether you are eligible for USDA loan property, you must check the rural development plan, as the house’s location is crucial. USDA home loans are intended for properties in designated rural in-character areas. If a property is located in an urban or densely populated area, it will not qualify. The USDA home loan provides specific maps and tools to help potential buyers determine if a property falls within an eligible rural area. To verify USDA loan property eligibility, you can use these resources to check whether the home you’re interested in meets the location requirements for this type of financing.
Condition and quality of the home
The condition and quality of the home are also crucial eligibility requirements taken into account by the lender.
When buying a home, they must be safe and sanitary and must meet certain property standards. Homes with significant structural issues, such as a damaged roof, faulty electrical systems, or inadequate plumbing, will not qualify.
The property is on a road or street
One of the main property requirements is that the property must be accessible through a road or street.
All basic comforts
Heating, plumbing, drainage, and electric systems must be fully operational and functioning. That includes water supply and sewage.
Proper roof
The roof should be in acceptable condition without any major leaks which would let water in the home.
Building codes
The property must also meet local building codes and be in a livable condition at the time of purchase.
Intended use of the property
Another disqualifying factor is the intended use of the property. USDA loan programs are strictly for owner-occupied residences. If the property is intended for real estate or business purposes, rental, or as a vacation home, it will not qualify. The borrower must plan to use the investment property as their primary residence for a certain time and show proof of it.
Property value
The value and size of the property can affect USDA loan eligibility. The USDA mortgage doesn’t penalize larger properties although the property value should be reasonable for the area. Extremely high-value homes or excessively large properties that do not match the borrower’s income level may be disqualified.
Remember that mortgage lenders will compare the price and value of the property against other properties sold in the area in the past year. An excessively expensive or big property will probably not be approved for a USDA loan, especially because the appraiser will find it hard to find comparable properties for their appraisal.
USDA loan home requirements – Property types
The most common property type that gets approval for a USDA loan is single-family housing. This makes sense as in rural and suburban areas, these are the most common types of properties.
USDA loan options are generally available for single-family homes, which can include new constructions, existing homes, or homes that need minor repairs (provided they can be made livable before closing). If you plan on making repairs, you are required to still live in your new home while the repairs are being made. This means that the USDA program allows for manageable and cosmetic repairs that allow for everyday living.
In some cases, condos and townhomes may also qualify, but they must be part of an approved development. Manufactured homes can be eligible if they meet specific USDA loan house requirements, such as being new and permanently affixed to a foundation.
Frequently Asked Questions (FAQs)
What disqualifies a home for a USDA loan?
A home can be disqualified for a USDA loan if it is not in a rural area, is in poor condition, intended for non-residential use, lacks essential utilities, or has a value and size inconsistent with the program’s guidelines. These criteria have been set up so that USDA loans are used to help individuals purchase suitable homes in rural areas, fostering community growth and stability.
If your lifestyle, work conditions, and personal preferences allow you to live and/or work in a rural setting, compared to conventional loans or FHA loans, a USDA loan provides a great help to achieve your home ownership dream. Check the eligibility map to see which areas across the United States qualify and see whether the area you are interested in falls within the criteria.
Society Mortgage and our mortgage loan officer consultants are here to help you through the application process for your USDA loan. Our experts can guide you through understanding USDA income limits, explain options for covering closing costs, and clarify details about mortgage insurance requirements. We are experienced and professional and we always work with our clients to make their homeownership dream come true.
Want to buy a home in a rural area? USDA loans can make your dream a reality! Get a USDA mortgage today with lower rates, no down payment, and flexible credit requirements.
Is a USDA loan second home disqualified?
You are not eligible for a USDA loan if you wish to purchase a second home. USDA home loans are intended solely for primary residencies, as they are designed to help families and individuals with low to moderate annual incomes.
