If you are in the market for a home and it is within rural boundaries as determined by the USDA, you might be eligible for USDA financing. One catch to the program, however, is if you wish to purchase a home that the bank owns, otherwise known as a foreclosure. Sometimes, you are eligible to purchase a bank owned home with USDA financing, but it has to pass certain conditions in order to get approved. So the final answer regarding whether or not you can purchase a foreclosed home with a USDA loan is that it depends on the exact circumstances of the home.
Conditions must be Met
The biggest hurdle you will meet with when you wish to purchase a foreclosed home in a rural area with USDA financing is the condition of the home. The USDA has strict requirements regarding the property in order to protect its investment since they insure the loans that they approve. The property requirements are as follows:
- The home should not be larger than 2,000 square feet or be considered modest for the area
- The utility costs for the home are typical for the area
- There is no in-ground pool
- There are no commercial portions to the property
- The property is structurally sound
- The property is properly functioning
- There are no major repairs that need to be performed
- There are no termites or termite damage
- The plumbing is in good condition
- The heating and cooling units are in good condition
- The electrical systems are in good condition
Basically, the USDA is looking for a home that is safe and sanitary to live in and does not require extensive repairs.
Purchasing a Foreclosure
Purchasing a foreclosure does not always mean that the home is in complete disrepair – some homes are just lost due to unfortunate circumstances and were kept up just fine. In this case, USDA financing would be completely acceptable as long as the home meets the above conditions and is located within the rural boundaries the USDA set. On the other hand, if the home was completely destroyed or not kept up because it sat vacant for a long period of time, using USDA financing might not be an option. Typically, if you purchase an existing home from a seller that lives there currently, you can negotiate the repairs that need to be done; obtaining proof of the repairs for the USDA and closing on the loan. With a foreclosure, however, this is not an option, which could leave you without the option to use USDA financing.
Searching for the Right Home
If you want to take advantage of USDA financing because you know you will purchase a home in a rural area and do not want to put any money down, you must search for homes that are in good condition. You will not know whether or not a home is in proper condition until the official inspection and appraisal are completed, but using a realtor that is experienced in USDA loans can help you get as close to possible as getting the right answer up front. The realtor will be able to know if certain conditions on the home exist that the USDA would not allow. In addition, using a lender that is experienced in USDA loans will help as well. Just having the expertise of these two professionals on your side will help the process go as smoothly as possible without wasting your time.
USDA Homes for Sale
There are numerous USDA homes for sale in counties throughout the United States. These homes come from borrowers that defaulted on their original USDA loan and the home now belongs to the government agency. Finding the homes for sale is as easy as going on the USDA homes for sale website and searching for homes they own. You can find all of the pertinent information on the home as well as the amount they are asking for it in order to get started. Typically these homes are between 25 and 40 percent off of the value because the bank just needs to make its money back and to get the home off of its books.
The New Boundaries
The good news is that even though USDA boundaries changed recently due to the new census if the USDA foreclosed home is not within those boundaries, it gets grandfathered into them. This means you can still obtain USDA financing for the foreclosed home despite its location outside of the new boundaries. This gives you a greater region to search in the state you wish to live.
How to Search
Searching for USDA homes for sale is simple. You go to the website and choose the state and then the county you wish to live. If no homes pop up in that particular county, it might be beneficial to search surrounding counties to see what is available. Remember that you might only find a handful of homes for sale on this website in each county because of the lucrative financing terms the USDA offers consumers. Because of this, foreclosure rates are the lowest among any program, so you might have to be a little more flexible in the areas you wish to purchase a home if you want to purchase a USDA foreclosure.
Take your time in searching for a realtor and lender when you wish to use USDA financing to purchase a foreclosure. Understanding the conditions the home must be in as well as the requirements you must meet will help you make the most of your time. USDA financing is a great way to purchase any type of home, including a foreclosure, but knowing the conditions that must be met regarding the property and the loan application will help you be the most successful in your quest to become a homeowner.