Are you dreaming of owning a home in a rural area but unsure how to finance it?
Look no further than the USDA loan program!
This loan is specifically designed for those purchasing property in rural areas and offers many benefits.
However, navigating the property requirements can be overwhelming.
Don’t worry; we’ve got you covered!
In this article, we’ll guide you through all the important details you need to know to secure your dream home with a USDA loan.
What Are the Minimum Property Standards (MPS) for a USDA loan?
When it comes to applying for a USDA loan, you need to know that not all properties qualify for financing. To ensure the property meets the minimum safety and sanitation standards, there are certain requirements known as the Minimum Property Standards (MPS).
By understanding these requirements, you can be sure that the property you’re considering is structurally sound, safe, and up to code, allowing you to get the financing you need to make your homeownership dream a reality.
Some of the minimum property standards include:
Structural Soundness
- No visible signs of significant settling or sagging of the foundation, walls, or roof.
- No evidence of water intrusion, leaks, or damage to the structure.
- Adequate ventilation and natural lighting in living areas, kitchens, and bathrooms.
- Properly functioning doors, windows, and locks.
- No active infestation of pests or termites.
Safety
- Working smoke detectors are installed in each bedroom, in common areas, and on each level of the home.
- Handrails installed on stairs with three or more risers.
- No exposed electrical hazards, such as open junction boxes or exposed wiring.
- Properly functioning heating and cooling systems.
- Properly functioning plumbing systems with no leaks or water damage.
- No peeling or chipping paint in homes built prior to 1978, in accordance with lead-based paint regulations.
- Adequate water supply and water quality.
Sanitation
- Properly functioning septic or sewage system, if applicable.
- Properly functioning water supply system with safe drinking water.
- Adequate drainage and grading around the home to prevent standing water.
Energy Efficiency
- Proper insulation in walls, floors, and attics.
- Properly functioning doors and windows with weatherstripping.
- Adequate ventilation in attics and crawl spaces.
- Properly functioning heating, cooling, and water heating systems.
- Compliance with applicable energy efficiency standards.
Accessibility
- No accessibility barriers for persons with disabilities, in accordance with the Fair Housing Act and accessibility standards.
- Accessible entrances with no steps or barriers.
- Accessible electrical switches, outlets, and controls.
- Accessible bathrooms with grab bars, accessible fixtures, and adequate maneuverable space.
Remember that even though the MPS represents the bare minimum requirements, the appraiser may deem it necessary for the property to undergo additional repairs or not.
Appraisal Requirements for USDA Loan
If your property qualifies for the minimum property standards, there’s one more thing to do before you make an offer. The property will need to undergo an appraisal to determine its value.
This is a crucial step that ensures the property meets certain minimum standards and is worth the amount being financed.
Here’s what the appraiser will be looking for:
- The condition of the property’s foundation, roof, walls, and floors.
- The functionality of the electrical, heating, and plumbing systems.
- The property must have a safe and accessible entry and exit.
- Free from any potential health and safety issues, including but not limited to lead-based paint or mold.
It’s worth noting that the appraiser’s assessment is not equivalent to a comprehensive home inspection. A home inspection involves a more thorough examination of the property’s condition. While an appraisal is mandatory, a home inspection is optional but highly recommended.
USDA Loan Land Requirements
It’s not just the property that has to meet certain requirements, but the land as well. Don’t worry, we’ve got all the details you need to know right here:
- The land cannot be used for income-generating purposes, like farming or commercial use.
- The land cannot be worth more than 30% of the total property value.
- The land cannot contain hazardous materials like underground storage tanks.
It’s essential to note that if your property includes additional land, the appraiser will evaluate the value of that separately. If the additional land does not meet USDA requirements, you may have to provide a larger down payment to cover the difference.
Typically, USDA loans do not require a down payment, unlike the FHA loan, another government-backed loan with specific eligibility criteria. It only comes to play under circumstances like this.
Rural Development Loan Property Requirements
To own a home in a rural area, it’s also crucial to ensure that you meet specific eligibility requirements. One such criterion is property requirements.
Here’s everything to know about it:
- The property must be located in a designated rural area.
- Rural areas typically have populations of fewer than 35,000 people, providing a more peaceful living experience.
- You can easily check if a property is in a designated rural area by using the USDA’s property eligibility map.
- Your household income must not exceed the USDA’s income limits for the area where you’re purchasing a home to qualify for a USDA loan.
- Income limits vary depending on the number of people in your household and the property’s location.
- Certain deductions, such as child care expenses or medical bills, may help you meet the income eligibility requirements.
Note that the USDA, through the USDA construction loan, also offers to finance individuals who fancy building their own homes in a rural or suburban neighborhood. The requirements aren’t any different from the property criteria above.
Additional Requirements
We’ve given you the scope of the USDA loan home condition requirements. But before applying for a USDA loan, we recommend you learn how the USDA loan works. It involves meeting a few additional eligibility criteria besides the specific property requirements.
These include having a stable income and a credit score of at least 620. It’s also important to be a U.S. citizen or have legal permanent resident status.
Keep in mind that some lenders may have their specific requirements, so it’s always best to check with your lender to know precisely what their criteria are.
With these factors in mind, you’ll be well on your way to securing a USDA loan and finding your dream home in a rural area.
Frequently Asked Questions
What local codes and ordinances must I comply with for a USDA loan?
To be eligible for a USDA loan, borrowers must comply with all local codes and ordinances related to the property.
These codes may include zoning regulations, building codes, and environmental regulations. Your lender will work with you to ensure you meet all local requirements before approving your loan.
Are financing options available for repairs and renovations needed to meet USDA loan home condition requirements?
Yes, financing options are available for repairs and renovations needed to meet the minimum property standards (MPS) required for a USDA loan.
The USDA Section 504 Home Repair program and Rural Repair and Rehabilitation program can help cover the cost of repairs and improvements. The USDA Rural Repair and Rehabilitation program also provides grants to low-income homeowners to help cover the cost of repairs and improvements.
The USDA loan program also offers refinancing that allows you to find better payment terms on your loan payment down the road.
Bottom Line
Are you ready to turn your dream of home ownership in a rural area into a reality?
With a USDA loan, it’s possible! Just remember that your property must meet certain criteria. Fortunately, you don’t have to navigate this process alone.
A trusted lender and real estate agent can help guide you through the process and find the perfect home that meets all the requirements for a USDA loan.
So why wait? Give us a call, and let’s start your journey toward peaceful rural living today!
