Rural Development has clarified its stance on ‘income producing properties’. USDA loans offer 100% financing for borrowers in suburban communities and have grown in popularity in recent years due to the low fixed rates and the no money down option that the loan program offers.
USDA Rural Development defines an income producing property as one that has the potential to earn revenue or income. Common examples would include a property that has an apartment (or in-law suite), a barn with horse stalls, a garage with bays, farm service buildings, or any type of a working farm.
USDA guidelines state that if any of these items exist that the property would not be eligible for USDA financing even if you do not intend to use it as an income producing property. If you have found your dream home and it does include any of these items we have other loan options that you might be eligible for.
On December 1, 2014 Rural Development issued a guideline change for outbuildings. With the new change outbuildings do not need to have their value separated and excluded from the loanable value of the property. Please note if an outbuilding has income producing potential then it would not qualify for a USDA Loan.
Below is the old guideline for USDA Loans and outbuildings.
Rural Development guidelines state that outbuildings that are not deemed income producing are allowed for USDA financing. However, the value that is assigned for the outbuilding (from an appraiser) must be deducted from the loanable value of the property.
Appraised Value $100,000.
Outbuilding Value $5,000.
Maximum Loan Amount $95,000.