The USDA has been clear about a “ modest, but also decent, safe and sanitary” home to be eligible for its direct loans. What are relevant USDA direct loan minimum property requirements to meet this eligibility? Is the home you’ve been eyeing qualified for a USDA direct loan under these standards?
USDA Direct Loan Minimum Property Requirements
Essentially, the USDA qualifies a modest home as what is considered modest for that rural area and its market value within that area’s loan limit, its square footage of standard and prohibited features it has none.
Pursuant to Chapter 5 of the USDA Direct Loans Handbook, a modest site is defined as not large enough to be subdivided per local subdivision regulations. Its value must not exceed 30% as-improved, although this value could be exceeded per certain limitations.
Your home must not have an in-ground swimming pool and removal of which before or after the loan closing will not make it financeable. The USDA will also not finance a property with farm service buildings as they may be used for agricultural or commercial purposes. It does allow for smaller farm outbuildings used for storage, like sheds.
The agency is also fine with home-based operations like product sales, craft production or child care. What’s important is that the home has no features that can be used for an income-generating enterprise.
Decent, safe and sanitary dwelling
To be eligible for a USDA direct loan, already existing homes must be “structurally sound and functionally adequate” and be in good repair condition as it is or after required repairs are made.
You will be required to engage the services of a state-licensed home inspector who will certify the structural soundness of the home. The inspector will confirm that the home has adequate major systems — heating and cooling; electrical; plumbing; water and wastewater systems that meet the RD Instruction 1924-A.
The inspector’s certification will also confirm if the home meets the agency’s standards with respect to termites and other pests, which may require a separate inspection.
Home inspection special cases
It is however possible for the termite inspection to be waived if no active signs of infestation are established and that state laws don’t require one. But this would have to be done by the state director in the form of a state supplement to be submitted for prior approval.
The major systems of a home securing a USDA direct loan less than $7,500 and repayable in less than 10 years may not be subjected to a state-licensed inspection. Nonetheless the home must still be able to meet the needs of its occupants and represents a decent, safe and sanitary dwelling once all repairs financed by the loan are done.
Newly constructed homes are subject to the same standards of RD Instruction 1924-A.
Survey, Flood Insurance
Prior to loan closing, a survey has to be obtained for properties not yet financed by the USDA. This is to ensure that any existing or to be built structures are or will be on the site. You might be allowed to use an existing survey if it meets the title insurance’s requirements.
A flood insurance is required if the property is located within the 100-year floodplain. This requirement is not applicable if the property is granted a FEMA exemption and a flood insurance is in place as part of the area’s floodplain management.