Can You Get a USDA Loan for a Second Home?

USDA loans come with great benefits, but not all homes are eligible. All homes financed by a USDA loan must first meet the minimum property standards set out by the Department of Housing and Urban Development.

These ensure borrowers are getting a functional, safe and sound home to live in. Let’s look at the requirements more in-depth.

The USDA loan program provides many benefits for eligible homebuyers, including no down payment requirement, low interest rates, and flexible credit guidelines. A common question is whether you can qualify for a USDA loan on a second or vacation home. Here is what you need to know about using a USDA loan for a second property.

Overview of USDA Loan Program

The USDA Rural Development Single Family Housing Guaranteed Loan Program, also known as the Section 502 program, helps low-to-moderate income buyers purchase homes in eligible rural areas. Some key features of USDA loans include:

Requires no down payment.
Offers below-market interest rates.
Does not require private mortgage insurance (PMI).
More flexible credit requirements than conventional loans.

To be eligible, homebuyers must meet income limits based on the location of the property and have sufficient stable income to make the monthly mortgage payments. The property itself must be located in an eligible rural area as defined by the USDA.

USDA Guidelines on Second Homes

The USDA loan program is intended for the purchase of primary residences not second homes or investment properties. However the USDA guidelines provide some flexibility for borrowers who already own other real estate.

According to the USDA handbook HB-1-3550, borrowers can retain ownership of another dwelling and still qualify for a USDA-guaranteed loan on a new property, provided certain criteria are met:

The current home must not have USDA financing.
The borrower must occupy the new home as their primary residence.
The borrower must be financially qualified to own multiple homes.
The current home no longer adequately meets the borrower’s needs, such as a growing family needing more space.

The rules state that applicants are limited to owning just one USDA-financed single family home at a time. But it is possible to have a USDA loan on a primary residence while retaining ownership of another non-USDA financed property.

Tips for Qualifying for a USDA Second Home

If you already own a home but want to buy a second home or vacation property with USDA financing, here are some tips:

Make sure your current home does not have a USDA mortgage lien. You can only have one USDA loan at a time.
Document that the new property will be your primary residence where you spend most of your time.
Show sufficient income and assets to comfortably afford both mortgage payments.
Explain why your current home no longer fits your needs, like a growing family or job relocation.
Pick a second home in an eligible rural location as defined by USDA property eligibility tools.
Work with an approved USDA lender who understands the guidelines around second homes.

As with any mortgage, loan qualification is based on your specific financial situation and ability to repay the loan Strong credit, adequate income, and modest debt help demonstrate you can manage two mortgage payments.

Alternatives to USDA for Second Homes

If your current residence has a USDA loan or the second home is located in a non-eligible area, the USDA program will not be an option. Some alternatives for financing a second or vacation home include:

Conventional loans – Require higher credit scores and down payments but offer flexible terms for second homes.
FHA loans – Allow second homes with just 3.5% down. Need full-time employment and minimum 580 credit score.
VA loans – For qualifying veterans, no down payment is required. 620 minimum credit score.
Portfolio loans – Non-conforming loans held by banks may offer more flexible second home programs.
All cash purchase – Avoid financing by purchasing second property entirely in cash.

If owning both a primary home and second home is your goal, be sure to explore all mortgage options to find the right loan program to fit your needs.

The Bottom Line

The USDA rural housing loan program is designed for primary residences, but can be an option for a second home if certain qualifications are met. Work closely with an approved USDA lender to evaluate your financial situation and determine if you can qualify for USDA financing on a second or vacation home property. With proper documentation, flexible income guidelines, and knowledge of the USDA second home rules, you may be able to achieve your goal of owning two incredible homes.

USDA Loan Minimum Property Requirements

USDA loans can only be used when the home is the borrower’s primary residence. You can’t use the USDA loan program to buy a vacation house, second home, or rental/investment property.

Beyond being your primary residence, the house also needs to meet these USDA loan property requirements:

They must be accessible: You must be able to access the property from a road, street, driveway, or another route. There should be no hazards blocking access to the home.
They must have functional heating, cooling, and electric systems: All systems must be installed, operational and support all home functions including major appliances. No exposed wiring allowed.
They need to be structurally sound: The home’s foundation must be free of major cracks or moisture issues. There must also be enough life expectancy in the foundation to last the life of your loan— if not longer.
They must have adequate roofing: The home’s roof must have at least two years of life left. There can be no apparent holes, leaks or missing shingles allowing moisture into the dwelling.
They must have access to adequate water supply and plumbing: Plumbing, water, and waste removal systems must be functional.
They need functional doors and windows: All exterior and interior doors must be installed and be working. All windows must be in good condition and free of cracks, leaks or visible mold.

Income-producing properties are ineligible for the USDA home loan. If your property contains a barn, livestock facility, silo, or greenhouse that is no longer in commercial use, there’s a chance it may qualify. Discuss the situation with a USDA lender first to be sure.

What types of properties are eligible for USDA loans?

USDA property requirements may not allow for investment properties or second homes, but there is flexibility in the type of residence you can buy. These mortgages can be used to finance new construction, manufactured homes, modular homes, condos, townhomes, and other alternative properties. Foreclosed homes and short sales are also eligible.

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FAQ

Can USDA loan be used on Fixer Upper?

Can I buy a fixer-upper with a USDA loan? Yes, you can use a USDA loan to buy a fixer-upper, but there are rules. The estimated renovation cost can’t be more than 10% of your loan amount. The home must also be in livable condition.

Can my girlfriend live with me if I have an USDA loan?

USDA Loan Occupancy Requirements First and foremost, your USDA-financed property must be your primary residence. You also need to intend to move into the home within 60 days of your loan closing. A few other stipulations: Only the USDA borrower and their immediate family members can reside on the property.

What disqualifies a home from the USDA financing quiz?

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.

What are the requirements for a USDA loan in Ohio?

Anyone who meets minimum credit guidelines (Min. 640 Credit Score) and local area income requirements can qualify for a Ohio USDA loan. In some cases, no credit score required. A Ohio USDA home loan is an affordable and great option for low-to-moderate income families, and first time home buyers.

Can a USDA loan be used to buy a second home?

Answer: USDA can only be used to purchase a primary residence. Second homes and investment properties are not permitted. Debt Service Coverage Ratio loans are popular with Real Estate Investors, learn more about DSCR Loans here. Question: I have determined that my area is eligible for USDA housing.

Does the USDA offer a direct loan?

The USDA also offers the Single Family Housing Direct loan through the Section 502 Direct Loan Program. These loans are meant to help low-income families buy, build, or fix up small homes in rural areas. The USDA, rather than private lenders, provides funding for direct loans as opposed to guaranteed loans.

Where can I get a USDA mortgage?

Although the USDA backs this program, it typically isn’t the one lending money. Instead, private lenders are authorized to offer USDA loans. That means you can get a USDA mortgage from many mainstream banks, mortgage lenders, and credit unions. The application process for a USDA mortgage works just like any other home loan.

Can I have two USDA loans at the same time?

Is a non-occupying co-owner or co-borrower on another mortgage loan and wants to purchase their own dwelling. Therefore, while it is not possible to have two USDA loans at the same time, it is possible to already own a home that is not financed by another USDA loan and still qualify for a new USDA loan on the property being purchased.