The USDA provides 100% financing for borrowers that buy in a rural area and that have low to moderate household income. The USDA has designated rural areas that you may not think is rural at first glance, though. The USDA changes their boundaries approximately every 3 to 5 years with the new census tract.
The best way to tell if a home is in an eligible area is to use the USDA eligibility map. We will help you understand how to use this map so that you can choose homes in an eligible area.
Reading the USDA Eligibility Map
The USDA Eligibility map shows you the general rural areas. Once you click on the ‘property eligibility’, you must accept the disclaimer. Then you’ll see a map of the entire United States. From there, you’ll either enter a specific address or you can search a general area.
If you already have your eye on a property, you can enter that address in the address bar at the top of the map. You’ll know immediately if the home is eligible for USDA financing or not. If the home’s address is not eligible, you can search the areas nearby to find an area where you can focus your search for a home. You are able to zoom in or out on the map. Any areas shaded pink are ineligible, so you know not to focus your searches there.
If you don’t have a property in mind, you can search the map in general areas. Start by clicking on the state you want to live. From there, you can zoom in and zoom out on the map to find eligible areas. Once you find a street, you want to inquire about, click on the pushpin icon at the top of the map and then click on the street you want to live. It will tell you immediately if the area is eligible for USDA financing.
Taking it One Step Further
Don’t assume that if a home is on the map as ‘eligible’ that you’ll be able to secure USDA financing on it. The home has to pass the USDA appraisal. The USDA has what they call Minimum Property Requirements. These are standards each home must have in order for the USDA to approve the loan. The requirements include:
- The house must have street access year-round without any hazards or obstacles.
- The foundation must be in good condition without any visible cracks.
- The walls and other structural features of the home must be stable.
- There cannot be any mold or mildew growth in the basement or crawl space.
- The roof must be in good condition with at least five years of life left.
- All systems must be in good working order including the electrical, plumbing, and gas systems.
- If the home has well and septic, the systems must be in good working order.
- The home must have access to clean water
- All appliances must be working.
- All HVAC systems must be working.
- There cannot be any evidence of pest damage.
The appraiser will report back to the lender regarding the status of the house. His report will include a value, which the lender needs since USDA loans provide 100% financing. But his main job is to make sure the home is in good enough condition for the USDA to insure it.
The USDA’s Role in the Loan
It sounds like the USDA has a major role in your loan, and they do, but it’s likely different than you think. The USDA sets rules, but they appoint certain lenders to provide those loans. These approved lenders underwrite, close, and fund the loan. Before they can close on it, though, they must send a complete underwriting package to the USDA. The USDA then has the final say whether the loan deserves USDA financing.
If you are approved, the USDA provides the lender with a guaranty. This guaranty states that the USDA will pay the lender back a portion of the money they lose if you default on the loan. This is how the lender is able to get away with giving you 100% financing and having flexible guidelines.
Use the USDA map to find your eligible homes, but you also have to make sure the property is in decent enough condition for the USDA to approve it. The process can seem time-consuming, but it’s worth it in the end.