Understanding USDA Approved Homes: A Financial Guide to Eligibility and Benefits

October 15, 2023

Understanding USDA Approved Homes: A Guide to Agricultural Property Financing

When it comes to financing agricultural properties, one option that can be particularly beneficial to homebuyers is USDA approved homes. The United States Department of Agriculture (USDA) offers a unique loan program specifically designed to help individuals and families purchase homes in rural areas. In this comprehensive guide, we will explore what USDA approved homes are, the benefits of USDA loans, eligibility requirements, the application process, and key considerations to keep in mind.

What are USDA approved homes?

USDA approved homes, also known as USDA eligible properties, are residential properties that meet the criteria set forth by the USDA Rural Development program. These properties are typically located in designated rural areas where the USDA aims to promote rural development and provide affordable housing opportunities. USDA loans are designed to assist low- to moderate-income borrowers who may not qualify for conventional financing.
USDA-approved homes can include single-family homes, townhouses and condominiums, as long as they meet the program’s requirements. To be eligible, the property must be located in an eligible rural area, which is determined by the USDA based on population size and density. It’s important to note that USDA loans are not limited to agricultural properties; they can be used to finance primary residences in rural areas.

The benefits of USDA loans

USDA loans offer several benefits to homebuyers, making them an attractive option for those seeking affordable financing for rural properties. Some of the key benefits of USDA loans include

1. No down payment: One of the most significant benefits of USDA loans is that they do not require a down payment. This can be particularly beneficial for individuals and families who may not have substantial savings or may have difficulty saving for a down payment.

2. Competitive interest rates: USDA loans often come with competitive interest rates that can help borrowers save money over the life of the loan. These rates are typically lower than those offered by conventional loans.
3. Flexible credit requirements: USDA loans have more flexible credit requirements than traditional mortgages. While a good credit score is still important, the USDA considers other factors such as payment history and debt-to-income ratio to determine eligibility.

4. Lower mortgage insurance: USDA loans have lower mortgage insurance premiums compared to other loan programs, making them more affordable for borrowers. This can result in significant savings over time.

Eligibility Requirements for USDA Loans

To qualify for a USDA loan and purchase a USDA-approved home, applicants must meet certain eligibility requirements. Here are some of the most important requirements:

1. Income Limits: USDA loans are designed to help low- to moderate-income borrowers. Specific income limits vary by location and family size. Generally, household income should not exceed 115% of the area median income.

2. Citizenship or legal residency: Applicants must be U.S. citizens, non-citizens, or qualified aliens with legal right to reside in the United States.
3. Credit score: While USDA loans have more flexible credit requirements, applicants should still have a reasonably good credit history. Typically, a minimum credit score of 640 is required, although exceptions may be made in certain circumstances.

4. Occupancy Requirement: USDA loans are available for primary residences only. The borrower must intend to live in the property as their primary residence.

The USDA loan application process

Applying for a USDA loan involves several steps, and it’s important to be prepared and organized throughout the process. The following are the general steps involved:

1. Find a USDA-approved lender: Start by finding a lender that participates in the USDA loan program. These lenders have experience and knowledge of USDA loan requirements and can guide you through the application process.

2. Gather documentation: Prepare the necessary documents, including proof of income, employment history, bank statements, tax returns, and identification. The lender will provide a detailed list of required documents.
3. Complete the loan application: Fill out the loan application provided by the lender. Be thorough and accurate, as any discrepancies or missing information could delay the approval process.

4. Wait for loan approval: Once the application is submitted, the lender will review the information and determine if you qualify for a USDA loan. This process can take several weeks.

5. Closing and moving in: If your loan application is approved, you will proceed to the closing stage. During closing, you will sign the necessary paperwork and pay any closing costs. After closing, you can move into your USDA-approved home and begin enjoying the benefits of homeownership.

Important Considerations for USDA Loans

While USDA loans offer many benefits, there are some key considerations to keep in mind:

1. Property Eligibility: Ensure that the property you are interested in purchasing is located in an eligible rural area according to USDA guidelines. The USDA provides an online mapping tool to verify property eligibility.
2. Funding Availability: USDA loans are subject to the availability of funds. It’s important to check with your lender or USDA office to determine if funds are currently available for the loan program.

3. Mortgage Insurance: Although USDA loans have lower mortgage insurance premiums compared to other loan types, they still require mortgage insurance. This insurance protects the lender in the event of a default and is an additional cost to consider when budgeting for homeownership.

4. Prepayment penalties: Some USDA loans may have prepayment penalties, which means you may be charged fees if you decide to pay off the loan early. Be sure to review the terms and conditions of the loan to understand if any prepayment penalties apply.

5. Refinancing Options: If your financial situation improves or you want to take advantage of lower interest rates in the future, it’s worth exploring refinancing options. Refinancing a USDA loan can potentially save you


What is USDA approved homes?

USDA approved homes are properties that meet the eligibility criteria set by the United States Department of Agriculture (USDA) for financing through their Rural Development Guaranteed Housing Loan Program. These homes are typically located in rural areas and are designated as eligible for USDA loans.

What are the eligibility requirements for USDA approved homes?

To be considered USDA approved, homes must meet certain criteria, including:

  • Location in designated rural areas as defined by the USDA
  • Meeting the property requirements set by the USDA, such as being modest in size, structurally sound, and in compliance with local building codes
  • Being intended as the primary residence for the borrower

What are the benefits of buying a USDA approved home?

There are several benefits to buying a USDA approved home, including:

  • No down payment requirement: USDA loans offer 100% financing, allowing buyers to purchase a home without making a down payment.
  • Low-interest rates: USDA loans often have competitive interest rates compared to other loan programs.
  • Flexible credit requirements: USDA loans may be accessible to borrowers with less-than-perfect credit scores.
  • Affordability: USDA loans are designed to help low- to moderate-income individuals and families achieve homeownership.

How can I find USDA approved homes?

To find USDA approved homes, you can visit the USDA’s Rural Development website or contact a local USDA-approved lender. These resources can provide information on eligible areas and help you find homes that qualify for USDA financing.

Can USDA approved homes be used for investment or rental purposes?

No, USDA loans are specifically designed to assist individuals and families in purchasing homes for their primary residence. They cannot be used for investment or rental properties.

What happens if a USDA approved home no longer meets the eligibility criteria?

If a home that was originally USDA approved no longer meets the eligibility criteria, the homeowner may still be able to keep their USDA loan. However, they will need to contact their loan servicer or the USDA to discuss their options and determine if any changes need to be made to the loan terms.