USDA loans come with some big-time benefits, including $0 down payment and looser credit guidelines than other loan types. But not all homes are eligible for USDA financing.
USDA loans have property eligibility requirements rooted in the program's mission to boost rural communities nationwide. For a property to be eligible for a USDA loan, it must meet the basic eligibility requirements set forth by the USDA, which cover rural area designation, occupancy, and the physical condition of the home.
The good news is that most of the country is in what the USDA considers a qualified rural area. But it's important for prospective buyers to check a home's eligibility status before getting too far into the process.
Below we take an in-depth look at the USDA's rural property requirements, the USDA's map of eligible locations and the specific property requirements you must follow when using a USDA loan.
USDA Property Eligibility Index
- USDA Loan Property Eligibility Map
- Verifying Your Address for a USDA Loan
- What is Considered a "Rural" Area?
- Minimum USDA Property Requirements
- Specific USDA Home Requirements
- Other USDA Eligibility Requirements
USDA Loan Property Eligibility Map
You can use this interactive map to help determine if a home currently meets the USDA's property eligibility requirements. Areas in red are not currently eligible for a USDA-backed loan.
Property eligibility areas can change annually and are based on population size and other factors. This map is a helpful guide, but the USDA will make a final determination about property eligibility once there's a complete loan application.
Verifying a Home's Address for a USDA Loan
If your prospective home falls near or in an area that does not appear to meet the rural designation, a USDA-approved lender can verify the address through the USDA's online portal.
After entering the address, the property eligibility tool will show "Eligible," "Ineligible," or "Unable to Determine." If the property results in "Unable to Determine," your lender will speak directly with the USDA to receive a determination.
To verify your address for a USDA loan, it is best to speak with a USDA-approved lender. A USDA-approved lender can verify all properties you are interested in and ensure you don’t waste valuable time on properties that may not be eligible.
What is a "Rural" Area?
For a home to meet the USDA's rural definition, it must be in an area that's located outside of a town or city and not associated with an urban area
The USDA's guidelines on the definition of a qualified "rural area" includes:
- A population that doesn't exceed 10,000, or
- A population that doesn't exceed 20,000; is not located in a metropolitan statistical area (MSA); and has a serious lack of mortgage credit for low- to moderate-income families, or
- Any area that was once classified as "rural" or a "rural area" and lost its designation due to the 1990, 2000 or 2010 Census may still be eligible if the area's population does not exceed 35,000; the area is rural in character; and the area has a serious lack of mortgage credit for low- and moderate-income families.
These guidelines are generous in the sense that many small towns and suburbs of metropolitan areas fall within the requirements.
Minimum USDA Property Requirements
The USDA wants to ensure that the home you choose meets certain property requirements to protect the borrower's interest and well-being.
First and foremost, the home must serve as your primary residence. Fortunately, many property types are eligible for USDA loans apart from purchasing a pre-existing home, such as:
- New construction
- Manufactured or modular homes
- Condos and townhouses
- Short sales and foreclosed homes
USDA loans cannot be used for investment properties, meaning farms, rental or vacation homes, and other income-producing properties aren't eligible. However, a property with acreage, barns, silos and so forth that are no longer in commercial use may still qualify.
Specific USDA Home Requirements
The USDA requires the home to be structurally sound, functionally adequate and in good repair. To verify the home is in good repair, a qualified appraiser will inspect and certify that the home meets current minimum property requirements set forth in HUD's Single Family Housing Policy Handbook.
A few of these standards include:
- Access to the property: The property should be easily accessible from a paved or all-weather road surface.
- Structurally sound: The foundation and home must be structurally sound for the life of the mortgage.
- Adequate roof: The roof must prevent the entrance of moisture and provide sufficient minimum economic life.
- Functional heating and cooling: Heating and cooling systems will be assessed, regardless of design, fuel or heat source. Central air is not required, but if installed, it must be operational.
- Operational electric system: The electrical system of the home must be adequate and up to date, with no frayed or exposed wiring. The electrical system must also be able to support typical functions and appliances for the size of the home.
- Suitable plumbing and water flow: The home must have working plumbing and enough water pressure for waste removal.
USDA loans have a different appraisal process than other loan types in the sense that the appraiser is ensuring the property meets all standards set by the USDA in addition to determining the fair market value of the property. Keep in mind that appraisals are not as in-depth as a home inspection.
Other USDA Eligibility Requirements
On the same level of importance as the USDA property requirements are the USDA's credit and income requirements. While the USDA does not impose a credit score minimum, the program does enact income limits, adjusted for family size, to ensure all loans help the low- to middle-income families that the program was designed for.
USDA income limits count toward all adult household members, but vary by location and household size. The base income limits are:
- 1-4 member household: $82,700
- 5-8 member household: $109,150
While the UDSA property eligibility map shows a general idea of qualified locations, it's best to consult a USDA lender to ensure the location is in fact eligible. This is due to changes to what the USDA considers eligible as laws and populations change.