The USDA loan is for low to moderate-income families that don’t have adequate housing and can’t secure any other type of financing. So what happens if you already own a home? Can you not use USDA financing?
The answer isn’t as cut and dry as you might think. Technically, USDA loans are for owner-occupied properties only. If you have another home, you cannot use USDA financing to buy an investment home or second home. You also can’t use it to buy the home to live in and then rent out your other property. USDA financing is meant to help borrowers that wouldn’t have a place to live if they didn’t have the USDA loan.
But there are exceptions to the rule. Keep reading to see if any of the exceptions apply to you.
Your Current Home is a Mobile Home
The USDA doesn’t consider a mobile home adequate housing. In other words, you can buy a single-family home, townhome, or condominium with USDA financing. You don’t have to sell the mobile home either. But, what you do have to do is prove that you can afford the payments on both ‘homes.’ This includes the taxes and insurance as well.
Your Job Relocated You
If you own a home now, but your job relocates you more than 50 miles away from your current home, you may be able to keep the home and buy a new one with USDA financing. As long as you can prove that you will live in the new home as your primary residence and that it’s located closer to the job, you may get it approved. The scenario is up to underwriter approval, though, and each situation is on a case-by-case basis.
Your Family Grew
It happens to the best of us – we buy a home that we think is perfect. Before long, though, you outgrow the house because your family size grew. The USDA may allow you to buy another bigger home with USDA financing and keep your current home.
Keep in mind that the USDA must approve whether you ‘outgrew’ the home. For example, let’s say you bought a 2-bedroom house and only had one child at the time. Fast forward a few years and you now have four children. That 2-bedroom home probably doesn’t suffice and the USDA will likely agree. The living space must be modest, but adequate for a family of your size.
When you Can’t Use USDA Financing Again
If the USDA doesn’t agree that any of the above exceptions apply to you, using USDA financing for another home purchase won’t work. You will need to sell the current home and then buy a new home. This doesn’t mean you can’t look for a new home while yours is on the market. But, you have to wait to close on the home until after you no longer own the first home.
If you do get approved for any of these exceptions, you must be able to prove that you can afford both mortgage payments. Again, this includes your real estate taxes and insurance on both properties. The USDA allows a maximum housing debt ratio of 29% and a maximum total debt ratio of 41%. You should keep those numbers in mind as you try to figure out if you can afford both loans.