Can I Use a USDA Loan To Purchase a House When I Already Own a House?

Date: August 19, 2012

The USDA Rural Loan is designed to assist moderate income households, in rural communities, purchase a house. The USDA Loan assumes a very conservative perspective on financing homeowners who already own a home, unless the borrower can prove that the current home is not adequate or suitable for the borrower’s needs. Factors that can determine when a house is not suitable include the following:

Household size change in which the borrowers family size now exceeds the living quarters (i.e. bedrooms) of the current house. The assumption being made here is that there must be one bedroom for the Parent(s), each child, and any other family member living in the house.
In the case of divorce, where the borrower remains on the mortgage loan, but the Courts have awarded the house to the ex-spouse.
Job transfer in which the borrower has relocated more than 50 miles away from the current residence.
Manufactured houses (i.e. doublewides) not on a permanent foundation.
The current house isn’t suitable due to documentable health and safety related issues.

Under no circumstances will the borrower be able to obtain another USDA Loan if the existing home is already financed using a USDA Loan.

When qualifying for a USDA Loan and the borrower already owns another house the costs associated with the current house, include the mortgage payment, property taxes, homeowner insurance, condo or Homeowner Association Fees, and lot rent in the of a manufactured home will be considered a liability to the borrower when calculating their debt-to-income ratio. If the borrower has two years of rental history, as documented on their tax returns, then the liability can be offset by the rental income. Also, in the case of a court ordered divorce settlement, if the borrower can document 12 months of mortgage payments being made by their ex-spouse, the liability can be excluded.

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