USDA Loan Property Requirements 2023
If you wish to purchase a home with a USDA loan, there are property requirements that must be met in order for the home to qualify for financing. These include property eligibility based upon the location of the home, as well as certain property types, and appraisal and inspection requirements.
USDA Property Location Eligibility
The first step in determining if a home is eligible to be financed with a USDA loan is to check if it is located in an eligible zone. The USDA guaranteed loan, which is also known as the “USDA rural development loan”, is only available to finance rural properties. What is technically considered rural is any town, city, place, or village outside of a major urban/metropolitan area, and that has a population that does not exceed 20,000 inhabitants. You can use the USDA eligibility search to check the eligibility of an exact address, or otherwise view by region, which will highlight ineligible areas. We can walk you through how to find USDA eligible homes for sale.
Types of Properties Allowed
USDA loans are strictly for non-income producing properties. This means that agricultural, farm, or other types of income producing properties are ineligible for a USDA guaranteed loan. The program was created to assist families and individuals purchase a primary residence (an “owner occupied” home). This means no investment or rental properties of any kind are allowed.
What type of house will qualify for a USDA loan? Generally speaking, a single family residence, which does not produce income, will be owner occupied, and is located within a designated rural development zone. We would be happy to assist you in finding eligible homes.
If you are looking for a manufactured home or condo, other USDA lenders may offer financing options for these. At this time, we only provide USDA guaranteed loans for single family residences.
USDA Loan Property Condition Requirements
In addition to a property falling within the confines of what is considered “modest housing”, a home must also meet strict “quality assurance guidelines”. The condition of the property you want to finance with a USDA loan must meet certain requirements. The appraisal should render sufficient evidence and validation that the property meets quality guidelines. The USDA wants to ensure that the location, size, and basic amenities meet the actual appraised value. The other side of this is that the USDA want to ensure that your home will have decent, safe, and sanitary conditions.
USDA Loan for Existing Dwelling
Any home that is more than 12 months old is classified as an existing dwelling. To finance an existing home with a USDA loan, you must have a state-licensed inspector conduct an inspection of the entire home. All foundational, structural, mechanical, water systems, heating and cooling, as well as potential termite/pest issues must be closely inspected.
If there are structural or mechanical aspects that need to be repaired, you may be able to finance these costs into the loan. The appraised value can be based upon the property condition once repairs are completed.
- Repairs of an Existing Property – Any pertinent repairs must be completed prior to the closing and funding of the loan. This includes anything deemed to be essential to having a “decent, safe, and sanitary” home. Any critical repairs or necessary replacements will be outlined by the appraiser. The types of repairs that are considered vital are anything that may present unsafe, unsanitary, or hazardous living conditions. All other repairs that are not critical to having a decent living space can be completed after closing.
If you wish to, you can view a much more in depth look at the appraisal requirements of a USDA loan. This includes the USDA requirements for water and wastewater systems, well water requirements, those pertaining to outbuildings, private roads, flood zones, detached garages, and much more.
USDA Loan for New Construction
Any new construction of a home that will be financed with a USDA rural development loan must meet a number of requirements. It is a rather complex undertaking, and we urge you to not rush into any new construction project without thorough guidance. We do not offer construction loans, but many other USDA mortgage lenders do. If you would like to have a new home built and financed through the USDA, you may want to look into lenders who offer a “USDA construction to permanent loan”.
Would you like to find out if you qualify for a USDA Loan? We can help match you with a mortgage lender that offers USDA loans in your location.
Frequently Asked Questions
Below are some of the most frequently asked questions about USDA loans. You may also view more questions and answers about USDA loans, on this USDA loan FAQ.
What is the maximum purchase price allowed?
There is no set maximum purchase price. The maximum purchase price will be determined by your debt-to-income ratios which will dictate the maximum monthly payment you are eligible for. Additionally, the income limits will not allow someone with too much income to qualify. We recommend getting pre-approved which will include what is the highest price of a home you are personally eligible to purchase with a USDA loan.
What is the maximum acreage limits for USDA loans?
USDA loans allow for more acres than conventional and FHA loans (which generally are limited to 10 acres). There is not an exact number of maximum acres that are allowed, but the land can not exceed more than 30% of the appraised value of the property.
Can I buy a house with a pool?
Homes with an underground pool will NOT qualify for a USDA loan.
Can the seller pay for the closing costs?
Yes, seller paid closing costs are allowed with a USDA loan. These are known as “seller concessions” and can cover loan fees, appraisal costs, title insurance, and other applicable closing costs.
What are the seller contribution limits?
The highest amount a seller can contribute is up to 6% of the loan size. This can be used towards closing costs, as well as for “funded buy down accounts”. A funded buy down account is where the seller (or other third party) contributes funds to temporarily reduce monthly payments in the beginning of the loan. Another interesting fact is that the funds can be used to pay off installment debt, and even pay off a lease early.