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Owning Additional Property with a USDA Loan

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Many people wonder if they can own another property and apply for a USDA loan. Like a lot of things in the mortgage industry, the answer is: “It depends.”

The first thing to know about a USDA loan is that it must be used as a “primary residence,” which means that you cannot use it for a vacation home or an investment property, as in, one you are planning to rent out or farm.

But provided you are all set to live in the home, there are some cases where you may be able to own additional property and also obtain a USDA loan.

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USDA Requirements for Owning Another Property

If you plan to retain ownership of your current home and purchase another property with a USDA loan, you must meet all the following criteria:

  • Your current home can't be financed by a Rural Development guaranteed or direct Section 502 or 504 loan or active grant (meaning the grant agreement has not expired).
  • You must be financially qualified to own more than one house – but you also may only own one other single-family housing unit in addition to the one with the USDA loan.
  • You must occupy the home financed with the USDA loan as your primary residence through the entirety of the loan.
  • Your current home must no longer “adequately” meet your needs and you must be able to document the changes that led to this circumstance.

USDA’s Definition of “Adequate”

In the USDA's eyes, reasons the home might be inadequate include:

  • You are upgrading from manufactured home – specifically one that is not fixed on a permanent foundation.
  • You are relocating and be able to show that you are relocating for a new or existing employer, and the new location is outside of a reasonable commute.
  • You are experiencing overcrowding. Officially, this means your residence has more than 1.5 residents per room – counting every room in the home, less the bathrooms and entry. You also must provide proof of overcrowding for at least 90 days and that you expect the situation to continue for at least nine additional months.
  • You have a disabled household resident who cannot be accommodated at the current property – and you are able to show that the existing property would require a major retrofit for elements such as ramps or extra-wide doorways. Additionally, you must prove the new property is already set up to accommodate the disability.

USDA DTI Requirements

Even if you meet the criteria above, you also must show that you qualify from a “debt-to-income” ratio (DTI) perspective. And in the case of wondering about can you own another property and apply for a USDA loan, it’s important to note that borrowers must still qualify for a USDA loan with both housing expenses counting towards the DTI ratio.

To find that ratio, figure out how much you and your co-borrower (if you have one) make in a month – that is, your “gross” income before expense likes taxes, health insurance or retirement savings are deducted from your paycheck. You’ll use that to figure out the two ratios that the USDA considers – better known as 29/41.

The first is the ratio of your monthly housing debt to your gross monthly income, and the second is your overall debt-to-income ratio.

The 29% comes from your total monthly housing debt obligation (also called PITI - principal, interest, taxes and insurance) as a percentage of your gross monthly income. It should not be more than 29% of your pre-tax income, and again, that means you are adding both of your housing payments together in this case.

The bottom number, the 41%, includes all the fixed bills you pay each month, such as your mortgage, student loan payments, child or spousal support payments, car payments, etc. (You can read more about DTI ratios here.)

Can You Have Two USDA Loans at Once?

So, good news…you have figured out you qualified and that you can own additional property and apply for a USDA loan. Or do you? Don’t forget the most important requirement: Your current dwelling must not be financed with a 502 or 504 loan. If it is, you cannot get another USDA loan and you must sell the current USDA-backed home before getting another USDA loan.

Still have questions about can you get a USDA loan if you own another home? Check out Chapter 8 of the USDA Handbook (“Owning a Dwelling”) for further details.