Can I have a rental with a USDA loan?

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Can I have a rental with a USDA loan?

Mike Hendrickson
Real Estate Broker · Battle Ground, WA · Member since 2017 · 14 posts · 14 votes
I currently live in my house in SW Washington that I purchased with a USDA loan in 2013. My wife and I are looking to move out and convert our house into an investment property. Can we have a USDA loan on an investment property? Or do we need to refinance out of a USDA loan? I heard I need to change my insurance as well, is there any other items I need to be aware of? Thanks for your help!!!
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Tyler RowlandBusiness Member
Lender · Cedar City, UT · Member since 2017 · 88 posts · 64 votes
7y

I know that this thread was over 2 years ago, but I did find it helpful.  Thought I would update it in case others are looking for answers to questions similar to this.  USDA does require the property to be your primary residence and meet the occupancy requirements for the property.  Must be occupied within 60 days of purchase, and must be considered the principle residence.  After 12 months you have met the intent required by USDA.  As mentioned above, USDA will not make you refinance into a loan if you want to rent out the property, but they do issue some warnings.
When a property is no longer occupied by the borrower as their primary residence it will affect their ability to refinance the mortgage with USDA or continue to be eligible for servicing and loss mitigation options. Borrowers will also be ineligible to obtain a new Section 502 direct or guaranteed loan until they have sold the current dwelling that is guaranteed by USDA.

[email protected]435-592-4002
Tyler Rowland with Intercap Lending 553 Reviews
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  • Bob Okenwa
    Real Estate Agent/Investor · Peoria, AZ · Member since 2016 · 2k+ posts · 2k+ votes
    9y

    You should always speak directly to the lender about this, but I believe the USDA loan can be left on the property and rented out if it is the Guaranteed Loan and not the Direct one. Don't quote me on that though. Still best to check with the lender or the USDA people on this one.

    0Reply
  • Julian Sibley
    Lender · Everett, WA · Member since 2017 · 104 posts · 59 votes
    9y

    @Mike Hendrickson USDA isn't going to make you refinance out of the loan, depending on your reason for moving out some underwriters will question your intent when you go to get your financing on the new home. Primarily when downsizing they question your occupancy intent (Claiming primary residence on a fixer upper for favorable LTV terms, with intent to convert to an investment in the short term) but everything can be worked out with proper documentation. Just be open about it with your lender and they will help you out.

    If you intend on managing the rental on your own, I'd recommend searching the forums for tips/tricks on dealing with renters. My favorite one is make sure they transfer utilities into their name BEFORE you give them keys. Good luck!

    1Reply
  • Tyler RowlandBusiness Member
    Lender · Cedar City, UT · Member since 2017 · 88 posts · 64 votes
    7y

    I know that this thread was over 2 years ago, but I did find it helpful.  Thought I would update it in case others are looking for answers to questions similar to this.  USDA does require the property to be your primary residence and meet the occupancy requirements for the property.  Must be occupied within 60 days of purchase, and must be considered the principle residence.  After 12 months you have met the intent required by USDA.  As mentioned above, USDA will not make you refinance into a loan if you want to rent out the property, but they do issue some warnings.
    When a property is no longer occupied by the borrower as their primary residence it will affect their ability to refinance the mortgage with USDA or continue to be eligible for servicing and loss mitigation options. Borrowers will also be ineligible to obtain a new Section 502 direct or guaranteed loan until they have sold the current dwelling that is guaranteed by USDA.

    [email protected]435-592-4002
    Tyler Rowland with Intercap Lending 553 Reviews
    WebsiteView Page
    7Reply
  • Adielle Rivera
    New to Real Estate · Winchester, VA · Member since 2021 · 6 posts · 1 vote
    4y

    @Tyler Rowland @Julian Sibley Hi! Do you all know what conditions would be allowable for turning a USDA loan into an investment property after fulfilling the 12 months and purchasing a new primary with a non-USDA loan?  @Mike Hendrickson Do you have an update on how it went? TY!

    0Reply
  • Tyler RowlandBusiness Member
    Lender · Cedar City, UT · Member since 2017 · 88 posts · 64 votes
    4y

    @Adielle Rivera You should be fine to carry out that situation you mentioned.  I know multiple people that have.  I know one investor that recently sold off one of his long term rental investment properties that still had a USDA Direct loan on it.  Which is a subsidized loan that has a recapture payment once the home is sold or refinanced out of a USDA Direct loan.  USDA loans stay in operation and are paid for by the Guaranteed fee that is associated with every loan they issue.  It is a fee that is paid up front, and monthly for the life of the loan.  

    With all that being said, USDA like every other loan program out there, can exercise the mortgage acceleration clause if you are not abiding by the terms of the contract.  Will USDA verify that you have been living in the house every year?  No.  Would I do a long term rental on a home with a USDA loan?  Yes, as long as I have fulfilled the 12 month primary residence requirement, I would certainly rent it out.  Would I do an Airbnb on a property with a USDA loan?  Probably not, because in some states would change the tax status of the property to Secondary which could be a red flag for USDA especially if they are the ones you are making the payments to, which is the case with USDA Direct loans. 

    Important to know the differences between USDA Direct and USDA Guaranteed loans which are supper easy to look up.  Difference between USDA Direct loans and USDA Guaranteed

    [email protected]435-592-4002
    Tyler Rowland with Intercap Lending 553 Reviews
    WebsiteView Page
    2Reply
  • Adielle Rivera
    New to Real Estate · Winchester, VA · Member since 2021 · 6 posts · 1 vote
    4y

    That is very helpful. What sort of terms would the USDA contract contain? 

    0Reply
  • Cate Hanna
    Member since 2022 · 2 posts · 2 votes
    3y
    0Reply
  • Justin BrickmanBusiness Member
    Realtor · San Antonio, TX · Member since 2021 · 502 posts · 274 votes
    3y

    "Intend to live in it" means yes you can haha

    [email protected]210-827-6020
    Justin Brickman Realty4.9143 Reviews
    WebsiteView Page
    1Reply
  • Cate Hanna
    Member since 2022 · 2 posts · 2 votes
    3y

    My Question regarding AirBnb when a home is USDA:

    I am planning on buying a home, using USDA, and am looking for one where I can easily create an Airbnb space. I will remain in the home but use that space for a short term rental (airbnb): as long as I'm occupying the home, an Airbnb space is fine, right?

    Thanks. Cate H.

    2Reply
  • Angelique Rivera
    Member since 2024 · 1 post · 0 votes
    2y
    Quote from @Tyler Rowland:

    I know that this thread was over 2 years ago, but I did find it helpful.  Thought I would update it in case others are looking for answers to questions similar to this.  USDA does require the property to be your primary residence and meet the occupancy requirements for the property.  Must be occupied within 60 days of purchase, and must be considered the principle residence.  After 12 months you have met the intent required by USDA.  As mentioned above, USDA will not make you refinance into a loan if you want to rent out the property, but they do issue some warnings.
    When a property is no longer occupied by the borrower as their primary residence it will affect their ability to refinance the mortgage with USDA or continue to be eligible for servicing and loss mitigation options. Borrowers will also be ineligible to obtain a new Section 502 direct or guaranteed loan until they have sold the current dwelling that is guaranteed by USDA.

    Hey Tyler, so if you wanted to go the airbnb route after 1 year of living in the home, it's still ok to have it under the USDA loan?
    0Reply
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