Property Eligibility: These property types are NOT eligible for a USDA loan
USDA property eligibility is a must know, but many times it’s easier to know what causes a property to be ineligible.
In today’s video I will explain what property types are NOT eligible for a USDA loan and help keep your USDA property search headed in the right direction!
USDA Property Eligibility
USDA guidelines specify that the property being purchased must be located in a USDA eligible area.
Also, general USDA guidelines state that “a qualified property must be predominately residential in use, character, and design” which means that the following criteria can cause a USDA property to be ineligible:
1. Income-Producing Property
USDA guidelines state that the “purchase or improvement of income-producing land or buildings that will be used principally/specifically for income producing purposes is not allowed. Vacant land or properties for agricultural,
farming or commercial enterprise are ineligible.”
However, “minimal income-producing activity, such as maintaining a garden that generates a small amount of additional
income, does not violate this requirement.”
2. Income-Producing Buildings
USDA property eligibility requirements do not permit income-producing buildings on the land.
“The property must not include buildings principally used for income-producing purposes. Barns, silos, commercial greenhouses, or livestock facilities used primarily for the production of agricultural, farming or commercial enterprise are ineligible.”
With that being said, there are a few exceptions that still qualify for USDA property eligibility under this category:
- Barns, silos, livestock facilities, and greenhouses are allowed if used for storage and no longer used for a commercial operation.
- Storage sheds, workshops, and other non-commercial outbuildings are permitted if they are not used primarily to produce income.
What about Property Size?
Often times, USDA property eligibility is thought to be determined by the size of the land, but this is not true. In fact, USDA loans do not have a limit on acreage provided the property is similar in size to properties in the area.
“There is no specific limitation to the size/acreage of the site. The appraiser must provide an explanation in the addendum of the appraisal to explain adjustments to comparable properties, how the subject compares to other properties in the area, etc.”
As a USDA Approved Lender in Florida, Texas, Tennessee, and Alabama, we are known for our expertise in USDA property eligibility. We are able to maximize the full potential of a USDA loan within the rural communities that we serve.
As always, make it a great day and I look forward to seeing you on the next USDA Loan Pro tip of the week!