Finding USDA-eligible homes for sale

*As of July 6, 2020, Rocket Mortgage is no longer accepting USDA loan applications.

While many people know the United States Department of Agriculture (USDA) for its stamp of approval on choice meats, this government agency is responsible for much more, including farming, food safety, natural resource protection and developing the rural economy. One way the USDA helps with rural development is through its USDA loan program, which we’ll explore in detail in the sections to follow.

What is a USDA loan and how does it work?

A USDA loan is a mortgage loan that helps low- to moderate-income families purchase a home in an eligible rural area. The loan is backed by the USDA, which allows lenders to offer lower interest rates and require no down payment. By making homeownership more affordable for many families, USDA loans, in turn, help these communities flourish and provide a better quality of life for residents of rural areas.

Multiple USDA loan programs are available. The two most common ones are the:

• Single Family Housing Guaranteed Loan Program, which private lenders offer
• Single Family Housing Direct Home Loan, which the USDA offers

USDA loan process

The process for getting a USDA loan is similar to the mortgage process for other loans, but with some notable modifications. Here are a few key differences to expect:

• The lender must be approved by the USDA, so you’ll need to add that requirement as you search for a lender.
• Your required appraisal won’t just determine the fair market value of the home. As it goes for other government-backed loans, the appraisal will also need to ensure the home meets stricter guidelines. In this case, those guidelines are set by the USDA.
• Your home search will be narrowed down to homes in an eligible area.
• Approval for your loan may take a little longer since the loan needs to be approved by both your lender and the USDA.

What type of homes qualify for USDA loans?

To get a USDA loan, the property the loan funds must serve as your primary residence. It can’t be an investment property, farm, vacation home, second home or a home you rent out. Eligible properties can have what’s considered “income-producing” type buildings, such as a silo or barn, but they must not be used for commercial purposes.

The home must also be located in a USDA-approved area, which typically is outside of a city or other metropolitan area and has a smaller population. Some suburbs may also be included.

Upon appraisal, the home must also meet certain guidelines set by the USDA. Among them are:

• A structurally sound foundation
• A good roof
• Easy access from the road
• Functional heating and cooling
• Electrical and plumbing systems
• Adequate well and septic systems, if present

Homes of several types can be financed with a USDA loan, as long as they meet the aforementioned eligibility requirements. These homes include new construction and preexisting homes, manufactured homes, short sales, condos, townhouses and foreclosure homes.

How to find USDA-approved homes for sale

Now that you know more about what to look for, you can search listing sites with better filters in place. You may want to work with a real estate agent who’s well-versed in USDA properties and can help you find the best one for your needs.

Once you find a home you love that you believe meets all the requirements, you can see if it’s in an eligible area by entering the address on the USDA property eligibility map.

Keep in mind that the final determination on whether the home is an eligible property will be made by the USDA Rural Development department once it receives your application.

Applying for a USDA loan

For a Single Family Housing Guaranteed Loan, you’ll need to apply with a USDA-approved lender. This lender will handle the loan application process, working in conjunction with Rural Development.

For a Single Family Housing Direct Home Loan, you can submit an application to your local USDA state office.

The bottom line

USDA-eligible homes can be a great option for home buyers looking to make a purchase in a rural area. They’re especially popular because they require no down payment and typically come with a low interest rate relative to conventional loans.

Planning your next big move? Connect with one of our mortgage specialists today to explore your mortgage options.