An In-Depth Look at USDA Loan Occupancy Guidelines
August 22, 2022
Because they’re designed to spur growth in rural communities, as well as open the door to homeownership for lower-income Americans, USDA loans come with certain requirements other loan products might not have.
One of the most important? The occupancy requirement.
USDA Loan Occupancy Requirements
USDA loans come with what’s called an occupancy requirement – a rule that stipulates who can live in a USDA-funded property and when they can live there.
First and foremost, your USDA-financed property must be your primary residence. You also need to intend to move into the home within 60 days of your loan closing.
A few other stipulations:
Only the USDA borrower and their immediate family members can reside on the property
If the borrower or a family member needs regular or full-time care, the caretaker cannot live in the residence
Adopted children and exchange students may live on the property, as long as the borrower does not claim income off the child or receive compensation for their care
Lenders will view occupancy scenarios on a case-by-case basis.
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USDA Occupancy Scenarios
Under USDA loan occupancy requirements, there are a number of living situations that are allowed on the property.
These occupancy scenarios include:
Purchasing a built home – USDA borrowers purchasing an already built home need to abide by the general occupancy requirements of their loan. They’ll need to be on the property within 60 days of closing and live in the home as their primary residence.
New construction – Borrowers can use USDA loans to finance new construction. The new home must be completed within 12 months and all new construction documentation must be provided at the time of financing. The transaction will include two loan closings – one to finance construction in the interim and one to permanently finance the home. Not all lenders make construction loans.
Applicants who currently own a dwelling – USDA loans can be used on second properties as long as they have the financial qualifications to do so and they intend to use the USDA-financed home as their primary residence. Their current property must no longer fill the borrower’s needs for full-time living, and it cannot be backed by another USDA loan.
Active duty military applicants – Active duty service members must occupy the USDA-funded property as their principal residence. In the event they can’t occupy the property within 60 days, their immediate family can do so in their stead. The military member must express intent to meet their occupancy requirements as soon as they’ve been discharged from their service branch.
Student applicants – Students can secure a USDA-funded property if there are reasonable prospects of securing employment in the region after their graduation. They also must intend to make the home their permanent residence upon graduating. Policies and guidelines can vary by lender.
USDA Occupancy Expectations
In order to make the USDA loan closing process easier – as well as subsequent occupancy of the property – lenders expect borrowers to be clear, up front and honest as they go about the application process.
Borrowers should respond quickly to documentation requests and disclose any use of Powers of Attorney early on in the process to prevent undue delays. The lender has 90 days to close the loan, so preventing potential hurdles is vital to their success – as well as yours as a buyer.
For Americans looking to buy their primary residence – a place to put down roots and enjoy stability – USDA financing can help.
With low rates, no down payment requirements and looser credit and financial guidelines, they open the door to homeownership for buyers of all backgrounds and income levels.