Can You Buy an ADU Property with a USDA Loan?
Contrary to popular belief, USDA loans with zero down aren't limited to just single-family residences in rural areas. You can't purchase income-producing properties with second, third, or fourth units, but you can purchase properties with accessory dwelling units (ADUs). Although they are similar to rental units, it may be possible to finance ADU properties with USDA mortgages.
The key difference lies in the property's purpose and structure. The USDA mortgage program is designed specifically to help borrowers purchase a primary residence, not an income-producing property.
An accessory dwelling unit is permitted under this program as long as it supports and enhances the use of the property as a primary residence. In contrast, multi-unit properties such as duplexes, triplexes, or four-unit buildings are considered income-generating and are therefore ineligible.
According to the U.S. Department of Housing and Urban Development (HUD), an ADU “is a private space that is subordinate in size and can be added to, created within, or detached from a primary one-unit single-family dwelling, which together constitute a single interest in real estate.” In simpler terms, an ADU may be a basement apartment, a converted garage, an attic suite, or a separate small structure, but it remains part of a single-family property. It typically has its own entrance, bathroom, and cooking facilities, yet it functions as part of the same primary home.
By contrast, properties such as duplexes, triplexes, or four-unit homes include multiple fully independent living spaces, each capable of being occupied or rented separately. Purchasing such a property typically means owning at least one income-producing unit, which the USDA loan program does not permit.
In some cases, a home with a converted portion that includes a kitchenette or additional living area may still qualify, as long as the space doesn’t have a separate address or operate as a separate rental. Independent utilities, such as water, gas, or electricity, are also acceptable if they serve only household members.
Ultimately, while a USDA borrower can finance a single-family home with an ADU, they cannot finance a duplex or multi-unit property, since those structures are viewed as multi-family or income-generating rather than a single primary residence.
The USDA offers three main mortgage programs: the USDA Guaranteed Loan, the USDA Direct Loan, and the USDA Home Improvement Loan.
The USDA Guaranteed loan allows borrowers to benefit from low interest rates and down payments. Direct Loans are issued directly to the homebuyer by the government and have interest rates as low as 1%. Home improvement loans are available to qualified rural homeowners for making improvements or repairs to their homes.
Why should you consider a USDA loan? USDA loans:
Multigenerational households are very common. According to a 2022 study by the Pew Research Center, almost 60 million people lived with multiple generations of adults under one roof in March of 2021.
The USDA program can be used for multigenerational households. The program rules state that, “ADUs which function in support of the household members, such as multigenerational households, are consistent with the objective of this program; however, those designed to create a potential rental income stream are not.” However, income limits still apply
While multigenerational households are welcome, the income they generate may make USDA financing difficult. As the guidelines explain regarding the USDA Guarantee program, “annual income includes all eligible income sources from all adult household members, not just parties to the loan note. The annual household income will be used to calculate the adjusted annual income. The adjusted annual income determines if the household is eligible for a guaranteed loan.”
If you find that your income is too high for the USDA Direct or USDA Guarantee programs, then look into financing through a VA (open to qualified Veterans, requires zero down) or an FHA loan (as little as 3.5% down). Both FHA loans and VA loans allow financing of properties with one to four units, provided the borrower uses one of the units as their primary residence.
It is likely that more rural properties with ADUs will appear, which will mean more ADU purchases funded through the USDA loan program.
To offset the housing shortage, many jurisdictions are relaxing restrictions on single-family zoning. For example, a Zillow study estimated a housing deficit of 4.7 million in 2025.
As a result, entire states have adopted new regulations to facilitate ADU development, and more jurisdictions are likely to follow suit. However, some states continue to limit ADU development through single-family zoning, so be sure to check with your local jurisdiction to determine what is allowed.
Depending on the jurisdiction, a home may have more than one ADU. The USDA doesn't provide exact guidelines for the number of ADUs allowed on a property, so the best approach for multiple ADUs is to consult with a loan officer for more information.
An appraiser will determine whether a housing unit contains an ADU or should be considered a second single-family housing unit. The appraiser must document and consider all property characteristics, including utilities (if separate), when making this determination.
Buying a property with an additional unit may be a little unconventional, but it is certainly possible. You can apply for a USDA home loan through an approved lender. The lender will require a home appraisal confirming that the property meets USDA requirements.
