what disqualifies a home from usda

What Disqualifies a Home from a USDA Loan

One key aspect that can disqualify a home from a USDA loan is the specific nature of the location. To be precise, only homes situated in eligible rural areas as classified by the USDA qualify for this kind of loan. Another barrier is the usage of the property. It is essential that homes financed through a USDA loan must serve as the borrower’s primary residence and not used for investment, farming, commercial, or rental purposes.

It is not just about the home, the borrower matters too. For instance, the borrower’s income must not exceed income limitations set by USDA, and having a minimum credit score of 600 is generally required.

Homes may be disqualified from USDA loans if they do not meet the specified requirements, such as not being the borrower’s primary residence, failing to have proper access or infrastructure, lacking essential systems like heating and plumbing, or being intended for income-generating purposes. 

If you have questions about whether a home may qualify for a USDA loan or if your income does, then reach out to us at 732-761-9041


USDA Property Eligibility Factors


When it comes to securing a USDA loan, your choice of property is crucial. To qualify, the property must meet specific criteria:

Rural Location

USDA loans are designed to support homeownership in rural areas, so the first condition that must be met is the property’s location. This means that the home must be situated in an eligible rural area as defined by the USDA. While this might sound restrictive, it’s essential to note that around 97% of the United States is classified as rural by the USDA.

For instance, if you’re eyeing a charming house with a sprawling garden just outside a small town or nestled amidst the countryside, chances are it falls within a region deemed eligible for a USDA loan. On the other hand, properties in densely populated urban areas typically do not meet this specific criterion.

Making sure your dream property meets these eligibility requirements lays down the groundwork for obtaining a USDA loan.  We can help you determine whether the home is eligible for a USDA loan. Just contact us here and we can let you know.


Disqualifying Property Conditions


When you are looking for a home, it’s not just about the location or how pretty it looks. If you’re thinking about getting a USDA-backed loan to buy your dream home, there are certain things you need to watch out for. The structure and safety of the property you want to buy play a big role in whether it can be approved for a USDA loan.

One major thing that can stop a home from being eligible is if it has significant structural issues. This means big problems that affect the base or frame of the house. If there are serious problems with the foundation or major damage to the structure, like the walls or roof, then the property might not meet USDA’s standards.

These guidelines and precautions are in place to protect buyers from purchasing a home that may have serious hidden damages. For example, if there’s a crack in the foundation of a house you’re looking at, that might be too much of a problem than USDA would allow. The cost to repair a problem like that could be extensive and potentially not affordable for you.

Another thing to watch out for is safety hazards. These hazards might include mold infestations, lead-based paint, or environmental contaminants. These problems don’t just make living in that house dangerous—they can also require a lot of money to fix.

Imagine this: If there’s mold in the house you’re thinking of buying, not only do you have to pay for someone to get rid of it, but you might also have to stay somewhere else while they’re doing that work.

Most homes located in a rural area have septic systems and a well for water. These will be inspected to make sure you have a waste system that is in working order, plus an ample and safe drinking water supply.

By being aware of these potential disqualifying property conditions, you can make an informed decision when looking for a property, ensuring that your dream home aligns with USDA loan eligibility requirements.

USDA Disqualifying Property Use

The USDA guidelines are clear that homes must be used for primary residence living purposes only. When a home resides in a rural area and potentially on many acres, it may be tempting to use the property for other purposes. The following property usages would disqualify the home from being financed with a USDA loan.

  • Used for Farming
  • Used as a rental property
  • Used for commercial purposes
  • Used for retail
  • Used to produce income of any kind

Although the property use guidelines are clear, there are some gray areas where you may be able to use the property as your primary residence and also earn some income. For example, if you are a remote worker, you can use the home as your primary residence and your home office. If you are operating a home online business, that would also be okay.

Bilil Gassett, founder of Maximum Real Estate Exposure provided insightful tips on what disqualifies a home from USDA Mortgages.

“Eric, over the years I have had several clients explore USDA loans only to find out they did not match their financing needs. Several things prevented my borrowers from using these loans. First, knowing these mortgages are only appropriate for use in rural areas is vital. Many urb an and suburban communities will not qualify of the population is greater than 35,000.

One of the things that eliminated this loan for my clients was the property’s condition. The house must be considered safe and sanitary and not have any significant structural issues. They must meet the USDA’s standards for livability. the home must also be a primary residence, not an investment property.  So, you cannot use this loan to buy a second home or a vacation property.”

Borrower’s Ineligibility Criteria

Applying for a USDA loan requires careful consideration of not only the property but also your individual eligibility. Referenced below are some of the circumstances that may disqualify you from obtaining a USDA loan.

Insufficient Credit Score

A key factor in determining your eligibility for a USDA loan is your credit score. There is no minimum credit score requirement set by USDA guidelines. However, lenders will set their own minimum credit scores. At this point, we can help with scores down to 600. We are unaware of any other lenders who are accepting lower scores for a USDA loan.

Your credit score reflects your financial behavior and integrity, giving lenders an idea of how likely you are to repay your debts on time. So, if you have a history of late payments, high debt, or even defaults, it may negatively impact your credit score and make you ineligible for a USDA loan.

Given this, it is crucial to review your credit report regularly. Address any errors or discrepancies and work towards improving your credit score by paying bills on time and reducing existing debt. Doing so will not only enhance your chances of qualifying for the loan but also open doors to better interest rates and more favorable terms for other types of financing in the future.

Contact us to see whether you qualify. One of our loan officers with experience with USDA loans will discuss your options.

Income Restrictions

Your income plays a significant role in determining your eligibility for a USDA loan. Each geographical area has specific income limits set by the USDA, and borrowers must ensure that their income does not exceed these predetermined limits. These limits are based on family size, with larger families having higher income limits.

Calculating your household income and comparing it with the limits set by the USDA for the specific area will provide clarity on whether you meet this criterion. When seeking an approval for a USDA loan, we will also weigh your income against the debt that appears on your credit reports. Car payments and monthly minimum credit card payments will reduce the loan amount you can get approved for.

U.S. Citizenship or Permanent Residency

The eligibility for a USDA loan extends exclusively to U.S. citizens and individuals holding permanent residency status. Non-citizens without lawful residency status are deemed ineligible for USDA loans.

If you’re currently not a U.S. citizen or don’t have permanent residency but are interested in homeownership, there may still be alternative options available to explore. If you have an ITIN, a USDA loan is not available to you but you can get an ITIN loan.

Overcoming Qualification Obstacles

When it comes to property condition requirements for a USDA loan, sometimes the home may need some fixing up to meet the criteria set by the program. Here are a couple of options borrowers can consider:

Repair and Renovation

If the home you’re interested in doesn’t currently meet the structural or safety standards required for a USDA loan, seeking repair and renovation services might be your next step. This involves identifying any issues that make the property non-compliant and then addressing these to bring it up to standard.

Typical structural and safety issues that need attention might include things like unstable flooring, broken windows, or damaged roofing which need to be fixed. Safety issues could also encompass matters such as termite damage or mold infestations which can compromise the habitability and safety of the home.

Seek Alternative Financing

Sometimes, despite your best efforts, a property may not be suitable for a USDA loan due to property condition requirements. In such cases, borrowers might want to explore what other mortgage options are available that are better suited to the property’s conditions.

For example, if significant repairs are needed that cannot be covered by the USDA loan, they might choose to look into renovation loans or other alternative financing options that allow them to purchase and renovate the property in one convenient package.  One of those programs is the FHA 203k rehab home purchase loan.

By considering these two avenues, borrowers can increase their chances of successfully navigating the qualification obstacles associated with USDA loans. These solutions provide flexibility and actionable steps for individuals looking to secure financing for their dream home.


usda property requirements

Alternative Home Financing Options

If the home doesn’t meet the requirements for a USDA loan, there are other financing options you can consider that might be a good fit for your situation. Let’s take a closer look at two of the most popular alternatives:

FHA Loans

The Federal Housing Administration (FHA) offers loans specifically designed to help people with lower credit scores and a smaller down payment get approved for a mortgage. These loans are backed by the government, making them attractive to lenders who might otherwise be more hesitant about lending to certain borrowers.

One significant advantage of FHA loans is their more flexible eligibility criteria. This means that if your property does not qualify for a USDA loan, it may still meet the standards for an FHA loan. Even if your credit score is not perfect or your down payment is more modest than what is typically required for conventional loans, FHA loans could be a worthy consideration.

For example, let’s say you found a home you love, but it doesn’t meet the strict property requirements for a USDA loan. With an FHA loan, you might have the opportunity to secure financing for that home without having to drastically change your plans. The difference would be the 3.5% down payment requirement for an FHA loan.

Conventional Loans

Conventional loans are another option to explore when considering alternative financing. These types of loans are offered by private lenders and are not insured or guaranteed by the federal government like FHA or USDA loans.

With conventional loans, borrowers often need higher credit scores of at least 620 and larger down payments compared to other loan programs. However, they also offer homeownership opportunities for properties that may not meet the specific requirements of a USDA loan.

To illustrate, if the property you have your heart set on doesn’t qualify under USDA guidelines, a conventional loan from a private lender could provide you with the necessary funding to purchase it. While they typically require better credit and larger down payments, they provide flexibility in terms of property eligibility.

Understanding these alternative home financing options opens up new possibilities for purchasing your dream home, even if it doesn’t meet the stringent criteria of a USDA loan. Each option has its unique advantages and considerations, so it’s essential to weigh them carefully before making a decision.


Dealing with Disqualification


Discovering that your property doesn’t meet the USDA loan requirements can certainly be disheartening. However, there are concrete steps you can take to overcome this setback and still secure the necessary financing for your new home.

The first action is to seek guidance from a seasoned mortgage specialist or broker who possesses in-depth knowledge of the mortgage landscape. They can provide invaluable assistance in identifying alternative financing options and help navigate the complex home loan process effectively.

Their expertise can be instrumental in clarifying the reasons for disqualification, thereby presenting actionable pathways to move forward.

FAQ – USDA Loan Disqualification

Why would you get denied for a USDA loan?

You may get denied for a USDA loan if the property does not meet the USDA standards, or if the income does not qualify.

What do USDA underwriters look for?

When submitting a loan application for a USDA loan, underwriters look for property and income eligibility, job stability, and a good credit history.

Can my boyfriend live with me if I have a USDA loan?

When you purchase a home with a USDA loan, you can choose to live with your boyfriend, relative, or anyone else. There are no restrictions on who you choose to live with.