A common question pertaining to the USDA Rural Development Loan Program is about owning another home and still qualifying for a USDA loan.
The simple answer is that the USDA does not currently allow buyers to own another “adequate” property and buy another home with USDA. The USDA Rural Development Loan Program was designed for those buyers who cannot qualify for other financing and do not have adequate housing.
The USDA’s Definition of “Adequate Property”
There are certain circumstances that USDA will allow you to keep the other home:
- Do you currently own a mobile home? The USDA does not view mobile (manufactured) homes as adequate property so if you own a mobile home you can still buy a new home with USDA as long as your income can support the payments for both homes and the taxes and insurance on both homes.
- Are you required to move because of work? Another exception is if you are required to move for your employment over 50 miles away from your current home. You may be allowed to keep the home and buy a new one using the Rural Development Loan if your new job or position will relocate you too far from your current home. This needs to be documented to the underwriter.
- Has your household grown? In some cases if you can prove your current home is no longer adequate for your family size, an exception can be made. For example, if you own a 2 bedroom, 900 square foot home and the home was originally purchased for a single person and that person got married and had 2 kids, it could be argued that the home is no longer adequate based on family size. When you have doubled your family size and there are not enough rooms in the home for the family this could be a reasonable argument. PLEASE NOTE – this also needs to be verified and be logical. If you own a 1200 square foot home and you want to purchase another 1200 square foot home this will not be acceptable.
What happens if the USDA determines your current property to be adequate?
If you own a home and do not meet any of the exceptions, you would need to sell your current home in order to close on a new home with a USDA loan. You are able to put your current home on the market and look for your new home while selling your current home. We are able to get you approved for the new home while owning the current home. You will not be allowed to close on the new home until the old home is sold and we can verify the home is no longer in your name.
There are some cases where you may be able to keep your current home and buy a new one with no money down using the USDA Rural Development Loan but because this can be a tricky situation, it is always best to discuss your exact situation with one of our knowledgeable and experienced loan officers. The final say in granting an exception will be from the underwriter, which is why discussing your case with one of our loan officers will be the best option.