Can I Buy Two Homes With a USDA Loan? Answering Common Questions

The USDA home loan program provides many benefits to eligible homebuyers in rural areas, such as low interest rates and no down payment requirement With the high costs of real estate today, USDA financing opens doors for low- to moderate-income families who want the stability and investment of homeownership

A common question I hear is, “Can I buy two homes with a USDA loan?” The short answer is no – you can only have one USDA loan at a time. However, you may be able to buy a second home through other financing if you meet certain criteria

In this article, we’ll dig into the details around owning two homes with a USDA mortgage. I’ll explain the program rules, whether it’s possible to buy another property, options for keeping your current home, and steps to take if you need more space. Let’s dive in!

USDA Loan Program Overview

First, a quick refresher on the USDA loan program. USDA stands for the United States Department of Agriculture, which guarantees these mortgages to promote growth and prosperity in small towns and rural areas.

There are a few types of USDA loans:

• Guaranteed Loan – Issued by approved lenders and guaranteed by USDA up to 90% of the loan amount. Most common type.

• Direct Loan – Funded directly by USDA offices for very low-income applicants unable to secure financing.

• Repair Loan – For renovations and improvements to existing USDA-financed properties.

No matter the type, USDA loans can only be used as your primary residence in eligible rural locales. They cannot finance vacation homes or investment properties.

Can You Have Two USDA Loans at Once?

Now to answer the question – no, you cannot have two active USDA loans at the same time. Even if you defaulted on the first loan, you cannot obtain a second until the initial USDA mortgage is paid off.

The USDA program is meant to help low-income families obtain their first home, not build real estate portfolios. Their rules clearly prohibit financing more than one property.

Some mistakenly think that if the loans are in different counties, it might work. But the USDA looks at loans on a statewide level. Exceeding one loan per borrower violates program guidelines in any location.

Options for Homebuyers with Existing Properties

Perhaps you have a current home but need more space. Or you’re moving to a new area but want to keep your first house as a rental. Is there any way to buy another home if you have a USDA loan?

You have a few options in this scenario:

1. Sell the Current Home

If you sell the existing property first, you can purchase another primary residence with a new USDA loan. This route is the simplest and ensures continuous program compliance.

Downsides are the burden of selling within your timeframe and the possibility of vacancies between closing on the new home and listing the old one.

2. Conventional Financing for Second Home

Some homeowners choose to keep their current USDA-financed house and buy a second with conventional financing. This avoids selling hassles and lets you test out the new area first.

You must qualify for the second mortgage based on your income and credit. And you cannot later convert the conventional loan home into your USDA primary residence.

3. Cash Purchase for Second Home

If you can pay cash from savings or other assets, you may purchase a second property outside of the USDA program. No financing means no loan guidelines to follow.

Again, you cannot claim the new home as your primary residence for USDA purposes. It must remain a second home or rental.

4. Release from Liability on First Mortgage

In some cases, the USDA may grant a release of liability on your current loan if you need to move. This takes you off the hook for repayment without selling.

Approval depends on specific circumstances like employment relocation or a health crisis. Make sure to check with USDA Rural Development early in the home search process about release eligibility.

Steps for USDA Borrowers Seeking More Space

If you’ve outgrown your current USDA-financed property, take these steps to navigate buying additional housing:

• Check income and credit – Ensure you qualify for conventional financing in case you keep the first home.

• Research USDA release – Ask if a release from liability is possible for your situation to avoid selling.

• List first house – If obtaining release isn’t feasible, get the existing home ready to list.

• Buy before selling – Close on the new place first if you can swing both mortgage payments to avoid gaps between properties.

• Sell old place – List the initial house once the new home is secured.

• Close out first USDA loan – Use sale proceeds to pay off the initial mortgage and obtain a discharge letter from USDA.

With the right preparation, homebuyers with a USDA loan can purchase suitable housing as their family or job evolves. Just be sure to fully close out the first mortgage according to program guidelines before moving into a new USDA-financed property.

Alternatives for More Space With a USDA Loan

Instead of buying a second home, here are a few options for gaining more room that comply with USDA guidelines:

• Add on – Construct an addition, convert the garage, finish the basement, or expand up into the attic space.

• Remodel – Knock down walls, convert unused areas into bedrooms or baths, build out a master suite.

• Trade up – Sell and purchase a larger USDA-eligible property.

• Rent rooms – Take on roommates or turn your basement into an accessory dwelling unit to rent out.

• Relocate – If the property simply can’t accommodate your needs, find a larger USDA home in a new area.

With creativity and USDA’s repair funding, you may be able to carve out more livable space without undertaking a complex second home purchase.

Key Takeaways on USDA Loans and Multiple Properties

While USDA financing provides a great opportunity for rural homebuyers, the program does limit you to one loan at a time. Here are the top things to remember:

• Only one USDA loan is permitted per borrower or household.

• You cannot use USDA financing on a second home or investment property.

• Consider conventional financing, cash purchase, or release from liability for a second place.

• Additions, remodeling, and trading up are ways to gain space with your current USDA home.

The USDA loan program opens doors to affordable homeownership for thousands of buyers each year. While you can only have one loan at once, alternatives exist for purchasing more real estate in the future if needed. Speak to a USDA-approved lender to discuss your specific situation. With the right approach, you can find solutions to grow your family, career, and homeownership goals.