USDA loans provide low to moderate-income families with 100% financing. It’s a great way to buy your first home or a subsequent home after losing a home in foreclosure. Without the need for a large down payment, you can buy a home sooner than you thought.
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The USDA has flexible underwriting guidelines making it easier for you to qualify for the loan. However, one area they are strict is the home condition requirements. Keep reading to learn what a home must have in order to qualify for USDA financing.
The Home Requirements
All USDA homes must have:
- Year-round street access – In any season, cars should be able to access your home from the street with easy driveway and sidewalk access.
- Walls in good condition – All walls, both interior and exterior must not have mold, rotting, or holes. They must protect the home adequately.
- Foundation in good condition – The foundation must not have any cracks, mold growth, or even the presence of moisture.
- All doors must be in good condition – This includes interior and exterior doors. Each door must be able to open and close properly, as well as lock.
- Flooring in good condition – All floors must be safe and without hazards; this includes all carpentry, laminate, hardwood, and ceramic floors.
- All windows in good condition – All windows must open and close properly as well as lock effectively. There should not be any moisture, mold, or mildew growth on the windows.
- The roof must be in good condition – The roof should have 3 -5 years of life left on it. There also should not be any defects, such as missing shingles or holes in the roof.
- All stairs must be in good condition – The stairs should not pose a hazard and should have a working handrail.
- All plumbing systems must be in working order – There should not be any issues with operation or leaks in any plumbing
- All electrical systems must be in working order – There should not be any safety or operational issues with the electrical systems
- No pest damage – There should not be any pest, termite, or any other type of infestation or damage
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Who Determines That the Home Meets the Requirements?
The USDA sets the home requirements, but it is the USDA-approved appraiser’s job to make sure the home meets the requirements. The USDA approves certain appraisers to work on their behalf, ensuring that the home meets the USDA requirements.
The appraiser has a lot of jobs when evaluating a home for USDA financing. First, he or she must make sure the home is worth as much as you bid on it. Then the appraiser must make sure the home meets all of the USDA guidelines. Finally, the appraiser must certify that the home is safe, sound, and sanitary. In other words, you must be able to move into the home right away and not be exposed to any hazards.
If the appraiser finds any issues with the above guidelines, the lender will likely require further inspections to determine if the home is eligible for USDA financing or not. For example, if the appraiser found mold in the basement, the lender may require a mold inspection. This more detailed inspection will let the lender know the depth of the damage and if it is something the seller can rectify or if the lender must cancel the loan.
The USDA Does Not Require an Inspection
Don’t confuse an inspection with what the USDA requires. The USDA requires an appraisal with a checklist showing that it meets the above guidelines. However, paying for an inspection is always a good idea as it helps you know the true condition of the home.
If your purchase contract has an inspection contingency on it, you can use this time to review the inspection report and decide if you want to move forward with the purchase. If the home has major problems, you may want to reconsider or re-negotiate with the seller to have him or her fix the issues before you move into it. This is especially important if you are going to pay for a USDA appraisal. If the issues are those that will interfere with the USDA’s requirements, the lender will put a halt on the loan anyway, until the seller resolves the issues.
The USDA has strict guidelines to ensure that low to moderate-income families do not buy a home that becomes a money pit. The last thing you need is to purchase a home that needs thousands of dollars in work done to it. This puts you, the lender, and the USDA at risk for default, which is what the USDA tries to avoid.