{"id":90420,"date":"2017-07-15T11:00:24","date_gmt":"2017-07-15T17:00:24","guid":{"rendered":"https:\/\/www.biggerpockets.com\/renewsblog\/?p=90420"},"modified":"2024-02-17T12:56:42","modified_gmt":"2024-02-17T19:56:42","slug":"usda-drawbacks","status":"publish","type":"post","link":"https:\/\/www.biggerpockets.com\/blog\/usda-drawbacks","title":{"rendered":"4 Risks & Drawbacks to USDA Home Loans"},"content":{"rendered":"

The USDA loan includes a lot of really great features than can help you get into a home with almost nothing out of pocket. So why doesn\u2019t everyone do a USDA loan?<\/p>\n

Just as the VA loan is only for veterans, the USDA loan has a strict qualifier as well: rural single family homes only, for low- to moderate-income homebuyers. But what exactly is \u201crural\u201d and what qualifies as \u201clow to moderate income\u201d? You might actually be surprised, and chances are good that you could qualify for a USDA loan if you live outside a major city by any small distance\u2014you don\u2019t need to live 500 miles into the desert or deep in the Midwest farmland.<\/p>\n

Still, there are a few drawbacks. Let\u2019s look at a few of the specific negative characteristics of the USDA loan so you\u2019ll have a better understanding of whether you can use it.<\/p>\n

\"invest-rural-areas\"<\/p>\n

4 Risks & Drawbacks to USDA Home Loans<\/h2>\n

1. Location Specific<\/h3>\n

Perhaps the biggest drawback of the USDA loan is that many homes, because of their location, simply will not qualify, though a surprising number still will. Be sure to check the USDA website<\/a> to determine if your location would qualify for a USDA loan.
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\nRelated:<\/strong> USDA Rural Development Loan: The 100% Financing Loan That\u2019s Not \u201cJust for Farmers\u201d<\/a><\/em><\/p>\n

2. More Red Tape and Waiting<\/h3>\n

Just like the other loan programs we\u2019ve discussed thus far, you may have to deal with significant waiting, red tape, and other obnoxious paper problems when obtaining a USDA loan. I sold a home recently to a woman who used a USDA loan, and the loan took nearly four months to close because of a \u201cbacklog\u201d at the USDA. Be prepared for possibilities like this.<\/p>\n

3. Single Family Only<\/h3>\n

As the name of the loan would suggest, the USDA loan is eligible for use only on single-family homes, which means small multifamily properties such as duplexes, triplexes, and fourplexes are out of consideration. With that said, the USDA does offer a 10% down payment loan on multifamily properties in rural areas (for non-owner occupants). If you want more information on the Guaranteed Rural Rental Housing Program, visit USDA.gov.<\/p>\n

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\nRelated:<\/strong> A Look at the Rewards, Risks & Rules for Investing in Rural Rental Properties<\/a><\/em><\/p>\n

4. High Leverage<\/h3>\n

Obtaining a 0% down payment loan requires leveraging yourself to an exceptionally high degree, which could be a negative for some. We\u2019ve talked about this numerous times already, but leverage is not necessarily a bad thing if the deal is good enough. However, a 100% loan on a mediocre deal may result in a bad deal. Use caution any time you use a highly leveraged loan.<\/p>\n

[This article is an excerpt from Brandon Turner’s <\/em>The Book on Investing in Real Estate with No (or Low) Money Down<\/a>.]<\/em><\/p>\n

Would you invest\u2014or have you invested\u2014using USDA loans?\u00a0<\/em><\/p>\n

Let us know your experiences with a comment!<\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"

The USDA loan includes a lot of great features than can help you get into a home with almost nothing out of pocket. So why doesn\u2019t everyone do a USDA loan?<\/p>\n","protected":false},"author":710,"featured_media":86343,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[7384],"tags":[],"class_list":["post-90420","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-politics-policy"],"acf":[],"comment_count":0,"_links":{"self":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/90420","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/users\/710"}],"replies":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/comments?post=90420"}],"version-history":[{"count":0,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/90420\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media\/86343"}],"wp:attachment":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media?parent=90420"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/categories?post=90420"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/tags?post=90420"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}