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Using a USDA Loan for a Condo

By Neighbors Bank Team October 20, 2023

New to the homebuying process, many first-time homebuyers realize a single-family home is beyond their budget, or they don't have time to maintain a large property. While it may not be your first thought, financing a condo with a U.S. Department of Agriculture (USDA) loan may be a great alternative.

USDA loans stand out because they require no down payment, offer competitive interest rates and feature more relaxed credit and income requirements than many traditional loan options.

These benefits appeal to first-time buyers or those without significant savings. While using a USDA loan for a condo can be an excellent option for homebuyers, it's essential to understand the eligibility requirements and application process ahead of time.

USDA Loans for Condo Property Requirements

When searching for a suitable condo to finance with a USDA loan, several requirements must be met.

As previously mentioned, the condo must be in an area designated as "rural" by the USDA. This might sound limiting, but many are surprised that large portions of the U.S., including areas near bustling cities, are designated "rural" by the USDA. Our property eligibility map can help determine if the condo is in a qualifying area.

The condo must also be safe and sanitary. In order for your lender to find the property acceptable, its condition must be certified as structurally sound by a licensed state home inspector.

Lenders also want to ensure they only pay for you and your family to live in the condo. Therefore, the property should be a detached single-family unit, which includes separation from shared garages or other detached structures.

Lastly, the condo must appear on at least one of the approved condo lists of FHA, VA, Fannie Mae or Freddie Mac, indicating that the property will meet all standards previously mentioned.

Condo Properties Ineligible for USDA Loans

Not all condo types will qualify for a USDA loan. Timeshares, investment properties and any condos that are not intended to be primary residences are ineligible. Additionally, condo complexes where an owner can hold the title to more than one unit are also excluded from USDA financing.

How to Apply for a Condo with a USDA Loan

Applying for a USDA loan for a condo is very similar to the procedure for other property types. Most importantly, your income must fall below the USDA-specified limit, and your debt-to-income ratio must be acceptable.

If the condo has a Homeowner's Association (HOA), all HOA dues should be factored into your debt-to-income ratio during the underwriting process. This can influence both the buying power and the eventual monthly mortgage costs.

The key difference when applying to use a USDA loan for condominiums is that your lender will need to perform an underwriting review of the condo to ensure it's been approved by FHA, VA, Fannie Mae or Freddie Mac and that it's in compliance with all USDA rural eligibility guidelines. If all is well, your lender will issue a certification to the USDA proving the condo project meets all requirements.

Getting a Condo with a USDA Loan

If using a USDA loan for a condo property sounds like a good fit for you, Neighbors Bank can help you start exploring your options. Specializing in USDA loans, the Neighbors Bank staff will be there for you throughout the entire application and purchase process. Get started by applying for a USDA home loan with Neighbors Bank today!

Written by:
Neighbors Bank Team
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