can you buy a multifamily home with a usda loan

Yes, it is possible to buy a multifamily home with a USDA loan. USDA loans, also known as Rural Development loans, are designed to assist low to moderate-income borrowers in rural areas by providing affordable mortgage financing options. While primarily intended for single-family homes, USDA loans can be used to finance multifamily properties under specific circumstances.

Eligibility Requirements

In order to use a USDA loan to purchase a multifamily home, certain eligibility requirements must be met. These include:

  • The multifamily property must be located in an eligible rural area, as defined by the USDA.
  • The borrower must meet the income requirements set by the USDA for the specific area.
  • The property must meet USDA’s minimum property requirements, including safety and livability standards.

Property Occupancy

When using a USDA loan to buy a multifamily home, there are rules regarding property occupancy that must be followed:

  1. At least one unit must be occupied by the borrower as their primary residence.
  2. For properties with two to four units, the borrower can choose to rent out the remaining units.
  3. Income from the rental units can be used to help qualify for the loan.
  4. Properties with more than four units are not eligible for USDA loans.

Loan Limits

USDA loans have specific loan limits that vary based on the area’s median income and property prices. These limits may affect the size of the multifamily property that can be purchased using a USDA loan. Borrowers should consult with a USDA-approved lender or the USDA’s website to determine the applicable loan limits for their desired property.

Benefits of Using a USDA Loan for a Multifamily Home

Utilizing a USDA loan to purchase a multifamily home can offer several advantages:

  • Low or no down payment: USDA loans often require little to no down payment, making them an attractive option for borrowers with limited funds.
  • Competitive interest rates: USDA loans typically offer competitive interest rates, helping borrowers save money over the life of the loan.
  • Flexible credit requirements: USDA loans have more lenient credit requirements compared to conventional loans, making them accessible to borrowers with lower credit scores.
  • No private mortgage insurance (PMI): Unlike FHA loans, USDA loans do not require private mortgage insurance, resulting in lower monthly payments.

Understanding USDA Loan Guarantee

It’s important to note that USDA loans are not directly provided by the USDA. Instead, approved lenders issue the loans, and the USDA provides a guarantee to the lender against borrower default. This guarantee encourages lenders to offer favorable loan terms to eligible borrowers.

USDA loans are a viable option for those looking to invest in a multifamily property in eligible rural areas. By meeting the eligibility requirements and following the guidelines, individuals can secure financing for a multifamily home through a USDA loan.