Can You Buy a Multifamily Home With a USDA Loan?

If you’re looking to purchase a multifamily property as an owner-occupant, you may be wondering if you can use a USDA home loan to finance it. The short answer is yes, in many cases you can buy a duplex, triplex, or quadplex with a USDA mortgage, as long as you meet the eligibility requirements.

As an investor just starting out, being able to put less money down while living in one unit and renting out the others can be a great way to get into real estate. USDA loans offer this opportunity to buyers in rural areas or small towns.

In this article, we’ll go over everything you need to know about using a USDA loan to buy a multifamily home, including:

• What types of properties qualify
• USDA mortgage eligibility requirements
• The pros and cons of USDA loans
• How to find and analyze a USDA-eligible multifamily property
• The process of getting a USDA loan approved

Let’s dive in!

What Types of Multifamily Properties Can You Buy With a USDA Loan?

The USDA Single Family Housing Guaranteed Loan Program can be used to purchase a duplex triplex or quadplex, as long as you live in one unit as your primary residence. The other units can be rented out to generate income.

Specifically, here are the multifamily property types eligible for USDA financing

• Duplex – A property with two units. This is the most common type of multifamily home financed with USDA loans.
• Triplex – A property with three units.
• Quadplex – A property with four units.

The USDA considers these properties “single family housing” because one unit is occupied as a primary residence. Their loans cannot be used to purchase larger apartment buildings or complexes.

USDA Loan Eligibility Requirements

While USDA home loans offer flexible financing, they do come with borrower, property, and location eligibility requirements. You’ll need to meet certain criteria to qualify:

Borrower Eligibility:

• Sufficient income – The USDA does not publish specific income limits, but you must have enough stable income to repay the loan.
• Good credit – Minimum 620 credit score. The USDA offers some flexibility for credit issues.
• Low debt-to-income ratio – The USDA has no set DTI limits, but most lenders require 36-45% or less.
• First-time homebuyer status – The USDA does not require first-time homebuyer status, though it can help with eligibility.
• Principal residence – You must occupy one unit of the property as your primary residence.

Property Eligibility:

• Location in an eligible rural area or small town – The property must be located in an area designated as rural or suburban by the USDA property eligibility website. Most small towns and remote areas qualify.
• Modest home – Existing homes must not exceed 140% of the median home value in your county. Newly built homes have no value limit.
• Minimum housing quality standards – An appraisal is required and the home must meet HUD minimum property standards.
• No in-ground swimming pools

Where You Can Use a USDA Loan:

• Rural areas with populations up to 25,000
• Designated rural census tracts in metropolitan areas, cities, or larger towns
• Most small towns and remote locations (check eligibility map to verify)

If the property meets these requirements, you should be able to use USDA financing to purchase it as a multifamily home.

The Pros and Cons of USDA Loans

USDA home loans offer some nice perks for buyers, along with a few potential drawbacks:

Pros of USDA Loans:

• Low down payments – Only need 3.5% down, waivable on some loans
• No monthly mortgage insurance (MIP)
• Low interest rates – USDA loans often have lower rates than conventional loans
• Flexible credit requirements – Minimum 620 FICO score, with exceptions possible
• Low or no upfront fees – The 1% guarantee fee can be rolled into the loan
• No recurring annual fees
• 30-year fixed rate terms available
• Assumable financing – Subsequent buyers can take over your loan

Potential Cons:

• Must meet location and property eligibility requirements
• 1% upfront guarantee fee, rolled into loan balance
• Strict income and debt-to-income limits
• Potential for deferred maintenance issues on older homes
• Limited inventory that qualifies in some very rural areas
• Loan process can be lengthy due to added reviews and paperwork

For buyers who qualify, the pros generally outweigh the cons of using a USDA loan program. But you’ll want to consider both when deciding if it’s the right financing option for your multifamily purchase.

How to Find a USDA-Eligible Multifamily Property

Searching for a duplex, triplex, or quad that both meets your investment criteria and is eligible for USDA financing in your area takes some legwork. Here are some tips for locating qualifying multifamily properties:

• Check the USDA Property Eligibility Site – Verify if the areas/towns you’re considering fall into eligible rural or suburban zones.

• Search Multifamily Listings in Small Towns – Look on MLS, Zillow, Realtor.com, etc. in rural areas or small towns in your state.

• Find a Specialized Real Estate Agent – Work with an agent experienced in both USDA loans and investment properties.

• Drive Target Neighborhoods – Check for “For Sale by Owner” signs in likely rural locations. Some don’t list online.

• Talk to Local Lenders – Ask if they know of any USDA-eligible multifamily listings coming soon.

• Look for Expiring USDA Loans – When an existing USDA loan expires, the property often qualifies again for a new buyer.

• Check Auctions – Auction sites like Auction.com include some USDA-eligible investment properties.

With persistence, you should be able to find listings that meet both the USDA requirements and your investment goals.

Analyzing a Prospective USDA Multifamily Property

Once you’ve located a few candidate multifamily homes that seem to qualify for USDA financing, you’ll need to dive into your due diligence to analyze the properties.

Follow the same process you would for any rental property investment:

• Crunch the Numbers – Calculate your total monthly expenses, projected rents, cash flow, cap rate, CoC return, etc. Consider maintenance and repairs.

• Assess Location – Drive the neighborhood. Research prices, rents, vacancy rates, appreciation trends, and demand drivers.

• Evaluate Condition – Get a professional inspection report. Look for deferred maintenance, required repairs, and any dealbreakers.

• Run Comparables – Look at recent sales of similar multifamily homes nearby to estimate value and rents.

• Consider Expenses – Account for your monthly mortgage payment, insurance, taxes, utilities, maintenance, Capex, and more.

Aim for at least 1% rent per square foot, 2% CoC return, and strong projected cash flow after all expenses. Make sure the numbers work before moving forward.

Getting a USDA Loan Approved

The process of getting approved for a USDA mortgage is similar to other loan programs, with a few extra steps:

• Get pre-approved – Work with a USDA approved lender to assess your eligibility and get a pre-approval letter.

• Make an offer – Make an offer once you find a qualifying property. Request a financing contingency.

• Appraisal – The lender will order a USDA certified appraisal to ensure home standards are met.

• Verify income & assets – Document your income, employment, and assets to confirm you can repay the loan.

• Final underwriting – The lender will do a full credit check and underwrite your final loan application.

• Conditional commitment – The USDA will review your file and issue a conditional commitment if approved.

• Closing – Schedule a closing date once all conditions are cleared. Bring your down payment and closing costs.

Then you’ll get the keys to your new multifamily investment property!

The Bottom Line

Yes, buying a duplex, triplex, or quadplex with a USDA loan is possible, as long as you live in one unit and meet all eligibility criteria. These mortgages offer flexible credit requirements and low down payments on rural properties.

Just be sure to run the numbers thoroughly, research USDA guidelines, find a qualified property, vet it carefully, and work with an experienced lender to give yourself the best shot at approval. Used strategically, a USDA loan can be a great way for new investors to purchase their first multifamily rental property.