One frequently asked question about USDA mortgages is whether you can use this type of government-backed loan to purchase an investment property. The answer is no, you cannot use a USDA loan for an investment property.
USDA Mortgages are for Primary Residences
The purpose of USDA mortgages is to help borrowers affordably purchase primary residences in rural areas. That means that you cannot use a USDA loan to buy a second home, vacation home, or investment property. If you want to buy one of these types of properties, you would need a different type of mortgage.
Alternative Ways to Earn from Your Rural Property
Many borrowers gravitate toward USDA loans because these mortgages have relaxed credit requirements, affordable rates, and zero down payment.
Let’s say you are in a scenario where you were thinking of getting an investment property to bring in extra income from a tenant. It is worth exploring the possibilities for doing this using your primary residence. Here are a couple of ideas.
- Rent out a room in your home. One option is to buy a rural home with a USDA mortgage, move into it as your primary residence, and then rent out one of the rooms to a tenant. The home is now bringing in rental income, just as an investment property would. You are sharing your space with your tenant to some extent, but this is a great way to hack your mortgage. Rural homes are especially suited to this purpose, because they often take the form of spacious farmhouses. If you rent out a room in a wing of the house you seldom use for other purposes, you can minimize your interaction with your tenant. When you combine the rental income with the money you are saving by taking out a USDA mortgage rather than another loan type, you can keep ownership affordable.
- Build a secondary structure. Another possibility is to erect a secondary structure on your rural land. So, you would buy the property with a USDA mortgage, and move into the main house as your primary residence. But you would then build a secondary structure such as a tiny house as an accessory dwelling unit (ADU). You then have the option of renting out that ADU while you continue to reside in the main house. The benefits are the same as renting out a room in your house, except your tenant has more autonomy, and you can interact with them even less. They will have their own kitchen and bathroom. Just keep in mind that you will need a different form of financing if you need a loan for the ADU. You also have to make sure that the property is zoned correctly for an ADU, and that they are permitted in your county. The nice thing about an ADU is that it is easy to repurpose later. If you do not want to keep renting it out forever, you can eventually convert it to serve some other purpose. For example, it could become a guest house or a backyard studio.
Apply for a USDA Mortgage in Virginia
Even though you cannot buy an investment property with a USDA loans, a rural home is still an investment in your future. There are also still ways you can leverage it for extra income. To buy a rural home with a USDA loan, please give us a call at (540) 838-5868. If you do want to buy a rural investment property, we can also help you look into other mortgage options.
