Can You Qualify for a USDA Home Loan If You Already Own a Home?

By Michael Jensen, Mortgage and Finance Guru

Edited by Harry Jensen, Trusted Mortgage Expert with 45+ Years of Experience

Updated January 20, 2021

You can qualify for the USDA Home Loan Program if you already own a home but there are several guidelines that you must meet.  Simply put, the USDA does not want people using the program to acquire multiple properties so they do not make it easy to get approved but it is possible under certain circumstances.

You effectively need to demonstrate that the home you own no longer meets your housing needs and is inadequate based on your family size, job or other factors.  You must also show that you have the financial ability to afford to own two homes including the monthly loan payments and other associated costs.

In short, you can own a home and still be eligible for a USDA Home Loan but you must meet the requirements outlined below:

The home you currently own cannot have a USDA loan.  It is not possible to have two USDA Home Loans outstanding at the same time so the property you currently own must be financed with a conventional loan or other mortgage program.  If you currently have a USDA Home Loan you are not eligible for a second.

You must demonstrate the ability to afford the total monthly housing expense for both homes. This includes the mortgage payment, property tax, homeowners insurance, mortgage insurance, homeowners association (HOA) dues and other applicable housing-related expenses.  This can be tricky because the USDA Home Loan Program applies borrower income limits.  So you need to earn enough money to afford both homes but if you earn too much money you may not be eligible for the program.

Use ourUSDA HOME LOAN QUALIFICATION CALCULATORto determine the mortgage you can afford

You must occupy the new home you want to finance with a USDA Home Loan as your primary residence.  This means that you need to move out of your existing home and move into the one you want to buy using the USDA Program.  Please note that the program cannot be used for vacation homes or rental properties.  The good news is you may be able to rent out your current home and use the income to help you qualify for the loan but this requires a two year history of rental income according to your tax returns.

You must demonstrate that the home you currently own is not adequate for your housing needs.  This is a very important requirement because you must demonstrate that your current home is not livable based on one of the four criteria outlined below.  Examples of inadequate housing include:

a) Manufactured houses that are not attached to a permanent foundation. These homes are considered inadequate according to USDA Program guidelines even if they are livable and nothing is wrong with the home. So applicants who own manufactured homes may be able to keep their home and qualify for a USDA Home Loan.

b) Homes that are overcrowded due to the household growth.  If your family has expanded recently due to new additions, your current home may not be large enough reasonably house everyone.  The USDA Program applies a formula based on the number of rooms in the property and the size of an applicant's family to determine if a home is overcrowded and no longer livable.

c) Homes that cannot accommodate household members with disabilities.  If a home is not accessible to a family member with a disability then it is considered inadequate.  For example, if a home requires a wheelchair ramp but it is not feasible to install one, then the property likely meets this requirement.

d) If an applicant has relocated for work to an area that is not within reasonable commuting distance of the home she or he currently owns.  For example, if you are transferred to a new county or state for a new job then you should be able to keep your current home and be eligible for a USDA Home Loan to buy a new home where you move.  Borrowers should check with lenders to determine how "reasonable commuting distance" is defined.

If you do not meet the guidelines outlined above then you need to sell your current property to be eligible for a USDA Home Loan.  If you meet the requirements then you may be able to qualify for the mortgage assuming you satisfy other program guidelines for credit score, debt-to-income ratio, applicant income and employment.

Please note that the lender is required to document that you meet the specified criteria and include this information in your loan application so the process requires additional work on the part of both you and the the lender.  For example, if you are moving for a job you are required to provide the offer letter from your employer as verification.

We recommend that you contact multiple lenders in the table below to confirm the eligibility requirements for a USDA Home Loan.  It is important to determine if you qualify for the program before you apply, especially if you own another property that you want to keep.

Sources

"Chapter 8.2.A. Owning a Dwelling [7 CFR 3555.151 (e)]."  Single Family Housing Guaranteed Loan Program Technical Handbook.  U.S. Department of Agriculture, 2020.  Web.