USDA Loans and Land Value to House Ratio

UPDATE: Rural Development updated guidelines on 12/1/14 as of today there is no limit to the land value of a property as long as it is common in the area.

The Old Guideline
When you have your property appraised the appraiser will assign a monetary value to the home, and to the land your home sits on. The value of the land cannot be worth more than 30% of the total value of the land and the home combined.

Example: An appraiser reviews comparable sales of homes in your neighborhood and finds that the total value of your home and land is $100,000.

He then finds that the home structure itself has a value of $75,000 and the land has a value of $25,000

In this example the land value to house ratio is 25% and thus eligible for USDA home loan financing

Are there exceptions to this rule?

Yes.

Rural Development Guidelines State:

The amount of land associated with the residential purchase is limited by 7 CFR 1980.313(d) which indicates “Generally, the value of the site must not exceed 30 percent of the total value of  the property.”  If the site exceeds 30 percent of the total value of the property, two additional tests must be met to ensure the property is eligible:  1) the value of the site must be typical for the area, as evidenced by the appraisal; 2) the parcel cannot be subdivided into two or more sites.  The additional tests are applicable when the site value exceeds 30 percent of the total value of the property.  The regulation does not support imposing limitations on the area of land associated with the dwelling purchase.  State Offices cannot impose arbitrary acreage limitations, such as 2 acres, 10 acres, 15 acres, etc.

To learn more contact our USDA Loan Experts or call (855) 900-USDA (8732)