The single family housing guaranteed loan program referenced as “USDA”, has certain property restrictions that are often a surprise to the average Borrower planning on financing their home with a USDA loan.  With a fundamental objective to “finance a residence and related facilities for an eligible household.  Financing farms, functional farm service buildings, buildings designed or intended for business or commercial enterprises, or income-producing land do not meet the fundamental objective.”

By definition, the property must be predominately residential in design, use and character.  Farm related property cannot be acquired using a USDA loan which is often a surprise to the consumer.  USDA considers a farm service building to be any structures typically used in farming operations such as livestock barns and shelters; machinery-and farm supply storage buildings; buildings and facilities for crop storage, including fodder; and special-purpose structures such as grain silos.  A barn structure is typically designed to house livestock and feed and if a barn exists on subject property and can be used for this purpose without significant repair, regardless of the Borrower’s intended use of the structure, it must be considered a functional farm service structure making the property ineligible for USDA financing.

However, with the updated USDA outbuilding guidelines, should the property be non-income producing and typical for residential properties in the area, such structures may be approved after careful review by an Underwriter.  If the structure adds value to the appraisal, any value must be deducted before the final loan amount is calculated.

Example:

Appraised value of site and structures                                         $150,000

Contributory value of the functional farm service structure   $10,000

Net value adjustment                                                                       $140,000

Maximum loan amount for guarantee is                                     $140,000*

*plus any amount of the up-front guarantee fee that is financed.

If there is a farm service structure on the property that is not functional without significant repair and the appraisal assigns no value to it, the property is not disqualified based on the structure.  i.e.  Dilapidated barns not suitable to house livestock but usable for storage would be allowed.

As with any loan product, when in doubt, give me a call!