Many dream of buying land, but getting a loan to finance it can prove difficult.
If you’re considering buying land with a USDA land loan, you may wonder about the requirements and qualifications.
USDA land loans were created to support rural communities and provide affordable financing. But what are the specific requirements for obtaining a USDA land loan?
This article will give you a complete overview of the USDA Land Loan Program, the requirements, and the application process. So, whether you’re a first-timer or a seasoned investor, we offer insights to help you make informed decisions about USDA land purchases.
Let’s get to it.
USDA Rural Development Loan Requirements
The USDA loan program helps low and moderate-income borrowers finance a home in eligible rural and suburban areas. To qualify for the loan program, there are some eligibility requirements that must first be met.
These are the most important ones to keep in mind.
- Credit rating: While USDA rural development loans do not have a particular credit rating, most lenders will require a minimum of 620. If you have a lower score, you can still be approved by providing extra documents or showing a positive payment history.
- DTI ratio: Loan lenders will consider your DTI ratio when determining whether you are eligible for a USDA Rural Development Loan. This ratio compares your monthly expenses to your monthly income. It should typically not exceed 41%.
- Property eligibility: Your property must be located within a rural region. The USDA maintains a map that shows eligible areas. You can access the map from their website to find out if your property qualifies.
Can USDA Loans Be Used for Land?
Yes, USDA loans can be used for land purchase, but only in certain circumstances. Let’s explore:
- A USDA loan can be used if you purchase a home that has a substantial amount of land and the value of the land is not more than 30% of the total value of the property.
- USDA loans are also available to purchase land if it’s being used to build your primary residence. You must confirm that the land is located in an eligible rural area.
To summarise, here are the land types that qualify for a USDA loan:
| Land Use | Eligibility |
|---|---|
| Agricultural land | Eligible |
| Residential land | Eligible |
| Commercial land | Ineligible |
| Undeveloped land | Ineligible |
| Income-producing land | Ineligible |
Note that the USDA loan program also offers financing for home building in rural and suburban areas through the USDA construction loan.
What Are the Steps to Apply for A USDA Land Loan?
The steps to apply for a USDA land loan are as follows:
- Confirm eligibility: The USDA has strict eligibility requirements, including income limits and location restrictions. Ensure you meet all the requirements before you apply.
- Gather information: You’ll need to provide detailed information about your farm or ranch, including its location, size, and intended use.
- Find a lender: Find a lender who participates in the USDA land loan program.
- Complete the application: Be prepared to provide detailed information about your financial situation, including income, assets, and debts.
- Wait for approval: Wait for your application to be processed and approved. The approval process takes several weeks or months, so be patient.
- Close the loan: If your application is approved, you must close the loan by signing the necessary paperwork and paying any associated fees.
How to Get a USDA Farm Loan?
The USDA Farm Loan is a loan program that supports farmers and ranchers in their agricultural operations. It provides financing for various purposes, including purchasing land, livestock, equipment, and other farm-related expenses.
You can apply for a USDA farm loan using the following these steps:
- Confirm eligibility: To qualify for a USDA farm loan, you must be a US citizen, a permanent resident, or a qualified alien.
- Find a lender: USDA farms loans are not issued by the USDA directly. Instead, they are issued by private lenders. Find a list of authorized lenders on the USDA site.
- Gather your documents: These typically include tax returns and financial statements as well as a business plan.
- Complete the application: Take your time to fill out the form completely and accurately.
- Apply for a loan: The lender will review your application and determine if it is acceptable. This process could take several weeks or even months.
- Close the loan: Once your application is accepted, you’ll need to close the loan. This normally involves signing a promissory note, and other loan documents, and providing additional documentation as requested by the lender.
USDA Farm Loan Credit Requirements
It’s important to understand how the USDA loan program works for a smooth loan application process and transaction. If you’re considering the Farm Loan, here are some requirements that determine your eligibility:
- Credit history: The USDA will examine your credit history to determine if you have a good track record of paying bills on time. This includes looking at your payment history, outstanding debts, and any bankruptcies or foreclosures in your past.
- DTI ratio: The USDA will check your DTI ratio to determine if you have a manageable amount of debt relative to your income. Your DTI is calculated by dividing your monthly debt payments by your monthly income. Your DTI should be below 41%.
- Minimum credit rating: The USDA has a minimum credit rating of 620 to qualify for a farm loan. But, some lenders may have higher credit score requirements.
USDA Agricultural Loan Requirements
The terms “USDA Agricultural Loan” and “USDA Farm Loan” are often used interchangeably to refer to loans provided by the U.S. Department of Agriculture (USDA) to farmers and ranchers for various agricultural purposes.
Here are the basic requirements for USDA Agricultural Loans:
- Business plan: You must provide a detailed business plan outlining your agricultural operation and how you plan to use the loan funds to achieve your goals.
- Collateral: To secure a USDA Agricultural Loan, you must provide collateral, such as real estate or equipment, to guarantee the loan. The value of the collateral must be ample to cover the loan amount.
- Additional requirements: Depending on the specific USDA agricultural loan you are applying for, additional requirements may exist, such as participation in conservation programs or adherence to certain environmental standards.
When Will USDA Loans Be Available?
USDA loans are available all year long if you meet certain eligibility criteria. Contact an official USDA lender, such as Chase Bank or Bank of America, or check the USDA site for the latest information regarding their availability. Most of these lenders also offer refinancing with USDA loans to help you find better payment terms on your loan application along the way.
What is the Maximum Loan Amount for a USDA Land Loan?
The max loan amount for a USDA land loan depends on various factors, including the intended use, location, and land size. USDA land loans have a max loan amount of $600,000. But, the actual loan amount can vary based on your creditworthiness and the land’s appraised value. Before applying for a USDA loan, you may use the loan calculator to estimate how much you can borrow.
What is the Interest Rate for a USDA Land Loan?
USDA land loans’ interest rates vary depending on many factors such as creditworthiness, loan amount, and term. However, in the first quarter of 2024, the interest rates for USDA land loans ranged between 1.5% and 5.5%.
What Are the Repayment Terms for a USDA Land Loan?
Here are the repayment terms for a USDA loan:
- Fixed interest rate: The interest rate for a USDA land loan is fixed, meaning it will not change over the loan’s life. This gives you certainty and stability.
- Payment frequency: The payment frequency for a USDA land loan can be monthly, quarterly, semi-annually, or annually, depending on your preference.
- Prepayment penalties: USDA land loans do not have prepayment charges, meaning you can pay off your loan early without incurring additional fees.
Frequently Asked Questions
Can I combine a USDA land loan with other types of financing?
Yes, you can combine a USDA land loan with other types of financing. This is known as “stacking” loans. But, it’s worth noting that the USDA loan must be the primary lien holder on the property. This means that any other loans must be subordinate to the USDA loan.
Can I use a USDA land loan to buy farmland?
Yes, you can get a USDA land loan for farmland. The loan can help you buy, improve, construct, or improve buildings for farming and ranching purposes. It also allows you to make any other necessary improvements to the land.
Can I use a USDA land loan to buy land for a recreational or vacation property?
USDA land loans are only available for specific purposes. These include agricultural production, conservation, and improvements to farms. So you can’t use it for recreational or vacation properties, as they don’t meet the eligibility requirements for USDA loans.
Do I need to put down a down payment for a USDA land loan?
Yes, you require a down payment for a USDA land loan. The amount of the down payment will depend on various factors, such as the land’s purchase price and the loan program being used. Overall, USDA land loans have a down payment between 3% and 20%.
Note that USDA purchase loans come with 100% financing and do not require a down payment. Unlike the FHA loan, and other government-backed loan programs.
To Wrap Up
USDA land loans are a great choice if you want to buy land in rural areas. They make land ownership more affordable thanks to their competitive interest rates and flexible repayment terms.
So, if you’re considering financing a new land purchase with a USDA loan, it can be an excellent decision depending on your current financial situation and aspirations.
Don’t forget that we are available to help you if you’re interested in purchasing land in rural locations using USDA loans. We can help evaluate your application’s eligibility for a USDA Land Loan and provide a foolproof strategy for a smooth and successful loan application.
