If you have flexibility in the location of your new home, then looking into the United States Department of Agriculture (USDA) may be a great options for you. USDA approved homes bring many benefits, especially for potential home buyers without great credit or much cash upfront to spend. In most cases, the borrower has to qualify for the loan process; however, with the USDA, the property also has to qualify. Here are the criteria that are used to qualify a property. They may surprise you.
Does the property have to be in a rural area?
You may believe that the qualifying properties must be located in a rural area just because the organization helping with the home purchase is the USDA, but this is not the case. The USDA actually qualifies properties in many different areas, including rural areas. However, you can also buy properties in metropolitan areas such as Pleasant View, Tennessee and French Lick, Indiana. The USDA is more into underpopulated areas in general rather than in rural properties specifically.
Does the USDA ever change the eligibility of properties based on geography?
USDA updates its maps according to the census, and right now, those maps are set to the population levels that were reported in the 2000 census. When the USDA updates its maps, it may remove the eligibility from areas that have since become more populated. If you are looking to get a home in an area that is seeing new development and residential building, you may want to take advantage of the maps as they are today before they are updated. The previous change was slated to occur on October 1, 2015, but that change was postponed.
There will likely be a boundary change to USDA maps in 2017, and it will likely occur in October. All of these are guesses that are based on the past habits of the organization and are subject to change. If the population of an area was under 35,000 before a change in the USDA maps, then that area may lose its eligibility if the population has moved past that number in recent years. The moral of the story: Act now before it is too late if you see a property that you want.
Do USDA properties have loan limits?
Unlike many other kinds of government sponsored programs, there is actually no loan limit on a USDA approved property. This greatly expands the type of community that a borrower can infiltrate. High value areas such as New York and California, where even conforming loan limits are higher, can house USDA approved properties that borrowers can get into because of the lack of a loan limit.
The loan is limited, however, by the qualifications of the buyer.
What property type is usually approved by the USDA?
Properties of all types are eligible for USDA loans including condos, properties in gated neighborhoods, subdivisions, and townhomes. Condos are a special case: They must also be approved by the Federal Housing Administration (FHA) or Fannie Mae and face additional scrutiny in order to qualify. However, USDA borrowers who are looking for condominium developments to invest in can certainly find them.
Another special case is the home with an in-ground pool. There are a few additional steps to qualify these kinds of properties; however, they are definitely available to purchase under the USDA umbrella as well.
Are there any kinds of properties that are not available to purchase under the USDA loan program?
The USDA is primarily interested in home buyers who are looking for a primary residence, and to this end, investment properties are not available for purchase under the USDA umbrella, nor are secondary residences. Mixed properties are also out, as the property is not allowed to generate any income from rental even as a primary residence. There are, however, loan programs for multi family housing. The USDA also does not cover any existing manufactured homes.
Contrary to popular belief, there is actually no farmland that is approved by the USDA. As a matter of fact, the program dictates that the land may not be farmland.
Do properties have to meet Department of Housing and Urban Development (HUD)requirements?
Any property that passes muster with the USDA must also meet the guidelines of current HUD handbooks 4150.2 and 4905.1. These guidelines are verified by an Existing Dwelling Inspection Report Adequacy Certification. There are also four inspections that are required: the framing inspection, the thermal certification, the footing inspection, and a general inspection that is known as the final inspection.
In addition, the site value may not be above 30 percent of the total value of the property unless the site value is considered typical for the area. However, in most cases, the actual home must be upgraded to a point where a significant portion of the value of the real property is in the domicile itself.
Are there any local requirements?
There may be additional requirements based on the state that you are looking to buy a house in. Nearly every state that has a significant amount of land that is on the USDA eligibility map has a web page that is dedicated to USDA property eligibility. Make sure that you check with the local guidelines that are for each state as well as the general guidelines so that you will choose a property that is in your best interests.
2 Point Highlight
If the population of an area was under 35,000 before a change in the USDA maps, then that area may lose its eligibility if the population has moved past that number in recent years.
The USDA is primarily interested in home buyers who are looking for a primary residence, and to this end, investment properties are not available for purchase under the USDA umbrella, nor are secondary residences.
