USDA loans have flexible guidelines and don’t require a down payment, but not everyone qualifies. Sometimes it’s not you that doesn’t qualify, though, sometimes it’s your house that doesn’t qualify.
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The USDA has specific requirements for any home bought with a USDA loan. Keep reading to learn if your home qualifies.
It Must be Rural
First, the home must be located in a rural area. You probably picture cornfields and country living, right? You may be pleasantly surprised, though. The USDA sets its own ‘rural’ guidelines. You can view them here. The USDA bases rural properties on the population in the area. The area cannot be part of the city, and cannot have more than 10,000 residents.
The Eligible Types of Properties
The USDA allows almost any type of property, including manufactured homes. All homes must be permanently affixed to the ground in order to qualify, though. In general, USDA financing is available for:
- Single-family homes
- New construction homes
The USDA loan is for low to moderate-income families, so the home must be modest for the area. The USDA is lenient in its definition of modest, but every lender differs in its requirements.
You Must Live in the Home
USDA loans are only for borrowers that don’t have another home. If you plan to buy the home as a vacation home, second home, or investment, USDA financing isn’t the answer. The home must be your primary residence. In other words, you must prove that you will live in the home year-round.
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The Home Must Pass the USDA Appraisal
Lenders must use USDA-approved appraisers to conduct the appraisal for a USDA loan. The USDA, like all other government agencies, has specific requirements the home must meet. Basically, the home must be safe, sound and sanitary. You also must be able to move into it right away. If it needs work, the work must be done before the closing.
While these requirements may seem excessive, they are along the lines of what every lender wants when using a home as collateral. With USDA loans, they are non-negotiable:
- The foundation and roof must be structurally sound
- There must be year-round access to the home from the street
- The HVAC systems must be in good, working condition
- The electrical and plumbing systems must be in good, working condition
- The well and septic systems must be working and at least 100 feet away from the home
- There cannot be any pest or termite damage
- There cannot be any attached buildings used for income-producing purposes
- It must meet all building codes
If you can find a modestly priced home in a rural area that meets the above requirements, you may secure USDA financing on it. If you think you are eligible for USDA financing, check the eligible USDA areas here to find the home you’ll buy with USDA financing.