Are you thinking about purchasing land to build your dream house or for agriculture? A USDA loan could be the perfect financing option! Although they’re often associated with home purchases, they can also be used to purchase land.
This article will explain the ins and outs of using a USDA loan to purchase land. We’ll cover eligibility, the process for buying with this type of financing, as well as any limitations that apply.
By the end of it all, you’ll know if it’s suitable for your current financial situation. Ready? Let’s deep-dive!
What are USDA Loans?
Before we discuss how to purchase land with a USDA loan, let’s first go over how the loan program works.
USDA loans provide affordable financing options for homebuyers in eligible rural and suburban areas. They are intended to promote rural development and help moderate to low-income households achieve homeownership.
With numerous benefits such as 100% financing, flexible credit terms, and low-interest rates, they are ideal for borrowers who fancy a home in a rural or suburban neighborhood. Yes, unlike the FHA loan, the USDA loan has strict requirements on the location of the property.
Do these count for land purchasing with a USDA loan? Let’s explore this further.
How to Get A USDA Loan for Land
Just like there are requirements for USDA home purchase, there are also specific eligibility criteria to be met to qualify for a USDA loan for land. But first, let’s go over the procedure of the USDA land purchasing loan application.
Here are the steps to getting a USDA loan for land:
- Locate an eligible property: It must be situated in a USDA-designated rural area and meet specific criteria such as being used solely for residential purposes rather than income-producing activities.
- Satisfy income and credit requirements: Your credit rating must be at least 640, while your household income cannot exceed 115% of the area’s median income.
- Apply for pre-approval: This will provide an estimate of how much you can borrow, helping narrow down your search results.
- Submit an offer on the land: Be sure to include any conditions like financing or inspection in your offer.
- Obtain a USDA appraisal: Once your offer is accepted, you’ll need to secure an appraisal from a USDA-approved appraiser. This appraisal will assess the land’s value and guarantee it meets all necessary criteria for taking out a USDA loan.
- Close the loan: Once your appraisal is satisfactory, you can close the loan. To do this, you’ll need documentation of your income, assets, and liabilities as well as signatures on a promissory note and mortgage.
- Use the funds to purchase land: Once the loan is closed, funds will be disbursed and can be put towards purchasing your desired piece of property.
Are There Any Restrictions on the Type of Land I Can Purchase with A USDA Loan?
For home purchasing, there are strict restrictions on which homes the USDA loan would finance or refinance. And that is, they must be located in a rural or suburban neighborhood. What about lands?
Here are some of the limitations:
- Land location: To be eligible for a USDA loan, the property you plan to purchase must be situated in an eligible rural area as defined by the USDA. Using their online property eligibility tool, you can quickly and easily determine if your intended purchase falls within this criterion.
- Land size and value limits: The USDA has set size and value limits for properties eligible to receive a USDA loan. Generally speaking, these should not exceed 10 acres in area and valued no higher than the loan limit set out for that loan type.
- Land use: USDA loans are primarily designed to assist low- and moderate-income families in purchasing a primary residence. While certain agricultural properties may qualify for a USDA loan, the land must primarily be used for residential purposes.
What Is the Maximum Amount of Land I Can Buy With A USDA Loan?
There is no maximum acreage limit when using a USDA loan to buy land. Your eligibility depends on several factors, including its location and value.
For instance, if you are purchasing a home on a larger parcel of land, your loan amount may only cover the value of both the house itself as well as any surrounding lands.
How Long Does It Take to Get Approval for A USDA Land Loan?
The approval process after applying for a USDA loan depends on certain factors. These include:
- Accuracy of your loan application: For the approval process to move forward quickly, all information in your application must be accurate and up-to-date.
- Land condition: If the land has issues such as environmental contamination, additional review, and evaluation may be required before approval for a loan.
- Lender’s workload: During busy times, such as the end of a fiscal year, lenders may take longer to approve your application due to an overwhelming volume of requests.
Overall, the process should take between 30 to 60 days; however, in some instances, it may take longer. To guarantee a faster and smoother journey, have all your paperwork organized before submitting your application.
Frequently Asked Questions
Are there any additional charges or fees associated with a USDA land loan?
Yes, some additional costs and fees may apply when taking out a USDA land loan. Examples of these charges include:
- Appraisal fee: An appraisal is typically necessary to establish the value of the purchased property, and typically, this cost falls on the borrower.
- Loan guarantee fee: A fee is mandatory for all USDA loans and is currently set at 1% of the total loan amount. It can be paid in full upfront or rolled into the loan amount.
- Survey fee: A survey may be necessary to guarantee property boundaries are correct, and typically the borrower pays for this fee.
Can I build a house on the land I purchase with a USDA loan?
Absolutely! The USDA offers an exclusive type of loan called the USDA Rural Development New Construction loan or the USDA construction loan that can be used to construct your dream home on qualified rural land.
Can I use a USDA loan to buy land in any state?
Yes, you can use a USDA loan to purchase land in any state. Keep in mind though that not all areas of every state qualify for USDA financing; they have designated certain geographic areas as eligible for their loan programs – typically rural or semi-rural.
Do I need a down payment for a land purchase with a USDA loan?
A down payment is necessary when purchasing land with a USDA loan. The exact amount varies based on several factors, including the land’s appraised value and your credit history.
However, generally speaking, the USDA requires at least 3.5% of the purchase price as a down payment. Please be aware that USDA does offer some flexibility regarding down payments when it comes to amounts required.
What are the interest rates for USDA land loans?
Your interest rate on a USDA land loan will depend on several factors, including your credit rating, loan amount, and term. On average, USDA loans offer competitive interest rates compared to other loan programs. Furthermore, whether you select either a fixed or adjustable-rate mortgage may affect your rate as well.
Summary
Purchasing land with a USDA loan is possible if you meet the eligibility requirements and the land meets the necessary criteria. Although applying for this loan can take some time, the effort is worth it in the end.
Be sure you understand the requirements and regulations, and have all the necessary documentation at hand to ensure a smooth loan process.
Got questions? Give us a call to learn more about purchasing land with a USDA loan. We are more than willing to assist in planning and achieving success in your land ownership endeavors.
