USDA Home Loans Farm Rules
Check the property up-front to see if USDA considers it a farm
USDA will not allow a property to have income producing buildings or land such as for farming. You would think that US Department of Agriculture would be fine with this but they are not for their Rural Development program. In recent conversation with USDA, it was mentioned that USDA will normally go by what the appraiser expects but if the reviewer see something different, they could require more documentation or even reject the property. So here are the actual USDA guidelines when the property has a farm characteristic.
USDA GUIDELINES SITE REQUIREMENTS [7 CFR 3555.201(b)]
Sites must be modest and developed in accordance with any standards imposed by a State or local government. Therefore, the lender must verify that the following requirements are met at the time of application.
- Site size. The site size must be typical for the area. (Some acreage is fine as long as it is normal and the appraisal has comparable sales with similar acreage)
- Income-Producing Buildings. The property must not include buildings designed and to be used principally for income-producing purposes. For example barns, silos, greenhouses, or livestock facilities used primarily for income producing agricultural, farming or commercial enterprise are ineligible. However, barn, silos, livestock facilities or greenhouses no longer in use for a commercial operation, used for storage, and outbuildings such as storage sheds are permitted if they are not used primarily for income producing agricultural, farming or commercial enterprise. A minimal income-producing activity, such as maintaining a garden that generates a small amount of additional income, does not violate this requirement. Home-based operations such as childcare, product sales, or craft production that do not require specific features are not restricted. A qualified property must be predominantly residential in use, character and appearance.
- Income-Producing Land. The site must not have income-producing land that will be used principally for income producing purposes. Vacant land or properties used primarily for agricultural, farming or commercial enterprise are ineligible. Sites that have income-producing characteristics (e.g. large tracts of arable land ready for planting) are considered income-producing property. However maintaining a garden for personal use is not in violation of this requirement. A minimal income-producing activity, such as a garden that could generate a small amount of additional income does not violate this requirement. A qualified property must be predominantly residential in use, character and appearance.
- Site Specifications. The site must be contiguous to and have direct access from a street, road, or driveway. Streets and roads must be hard surfaced or all weather surfaced and legally enforceable arrangements must be in place to ensure that needed maintenance will be provided.
- Utilities. The site must be supported by adequate utilities and water and wastewater disposal systems.
Tips to follow when a property looks kind of like a farm
So if you are looking at a property that has some outbuildings, barns, or excess land, do some research.
- Talk to us about the property – sometimes we can get an opinion from USDA up-front
- Look on Google earth and online places to see what the pictures look like (are there crops or rows in the pictures?)
- Ask the seller for some type of verification that the property has not been an operating farm