How to Get a Condo with a USDA Loan
Wondering if USDA can help you buy a condo in today’s market? Here's how it compares to other low- or no-down-payment loans.
Condominiums can be a good choice for many homebuyers. They may have lower price points than traditional single-family homes, allowing you to buy a house sooner, or, depending on the housing market in your location, they may be the best way to secure a home near work, school, or other amenities.
And the best part? You might not need to make a down payment either.
That’s because some condos, at least those in certain rural and suburban areas, are eligible for USDA loan financing. These loans have low interest rates, no mortgage insurance, and, most importantly, no down payment minimums.
Are you thinking about using a USDA loan to buy a condo? Here’s what you need to know.
A condominium community, or condo for short, is a property where the building is divided into many living units. These can then be sold individually to many different buyers across the property.
The owner maintains their own unit, while a property owners association (POA) or homeowners association (HOA) controls the shared areas and community as a whole. They handle maintenance on hallways, parking lots, elevators, etc. They also control amenities like pools or dog parks. All condo owners pay the POA or HOA a fee to handle these duties.
Condominiums are similar to apartments, except you can buy them instead of renting them. They slightly differ from townhomes, which are typically larger properties (think two floors, in many cases) with a small yard attached.
The biggest benefit of buying a condo with a USDA loan is that you can skip the down payment, which most loan programs require. This might allow you to buy a home sooner than you originally planned (no need to save thousands of dollars), so you can start building equity and wealth.
USDA loans also tend to have low interest rates, which can reduce your monthly and long-term costs as a homeowner, and you’ll enjoy lower maintenance and upkeep requirements since your HOA or POA will handle a large portion of those.
On the downside, only certain condos are eligible for purchase with USDA loans, and you must buy in an eligible market and fall under that area’s income thresholds to qualify for the loan. The property’s HOA or POA must meet some requirements, too.
Finally, just the presence of an HOA or POA can pose an issue since it can add hefty monthly fees and affect your debt-to-income ratio (DTI) when applying. Your debt-to-income ratio shows how much of your monthly income your debts take up, and in most cases, USDA lenders require a 41% DTI or lower.
| Pros | Cons |
|---|---|
| No down payment | Not all condos are eligible |
| Lower home price | Must be in an eligible rural or suburban area |
| May be able to buy a home sooner | Must fall under certain income thresholds |
| Low interest rates | HOA/POA must meet certain requirements |
| Lower maintenance requirements | HOA/POA fees can affect DTI when applying |
The USDA loan program has many eligibility requirements, especially when buying a condo.
For a condo to be eligible for USDA financing, it must:
As a USDA buyer, you must also fall under a specific income threshold. These limits depend on the county the condo is in.
Getting approved for a USDA condo loan isn’t difficult, but your loan will follow a distinct process, and there may be a few small differences in the underwriting process along the way.
Here’s what getting a USDA condo loan looks like, step by step:
How long the process takes depends on your lender, as well as how responsive you are to information and document requests, but you can generally expect a USDA loan to take anywhere from four to eight weeks for approval.
You can use many types of mortgage loans to buy a condo, but each one differs a little. See below for a chart comparing the most common condo financing options.
| Loan Type | Down payment requirements | Credit Score | DTI | Other requirements |
|---|---|---|---|---|
| USDA | None | 640 | 41% | Must buy in an eligible rural or suburban area. Must fall under the income threshold for your county |
| FHA | 3.5% to 10% | 500-580 | 43% | Must be used for your primary residence |
| Conventional | 3% | 620 | 45% | Can be a primary residence, second home, or investment property |
| VA | None | 620 | 41% | Borrower must be a qualifying military member, Veteran, or spouse of one. Must be used for your primary residence |
Yes, you can use a USDA loan to buy a condo, but the condo must be located in a USDA-eligible area. The property must also be approved by either the FHA, Fannie Mae, Freddie Mac, or the VA for mortgage financing.
It’s not hard to qualify for a USDA loan, but your income must fall below a certain income limit for your county. You must also have a 41% debt-to-income ratio or less and buy a home in a USDA-eligible rural or suburban area.
The big disadvantage of using a USDA loan is that it limits where you can buy a house. Additionally, only low- and moderate-income earners are eligible.
Yes, if you already own a condo financed with a USDA loan, you may be able to refinance it to secure a lower rate or better terms. The USDA offers both USDA streamlined and non-streamlined refinance options, though the condo must still meet USDA eligibility rules, including being in a qualified area and approved by FHA, VA, Fannie Mae, or Freddie Mac. You’ll also need to continue meeting income limits and occupancy requirements, just like with your original loan.
Condos can be a smart way to buy a home for those on a tight budget or who want a lower-maintenance property. If you use a USDA loan, you can do so without any down payment, too.
