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USDA Explains What’s an Acceptable Outbuilding

Finally, USDA has given us some rules about what outbuildings they’ll accept and which ones they won’t.  If you are planning to offer USDA financing options on rural properties with outbuildings, you may want to read this to see if they are eligible.

USDA is in the business of providing financing for residential properties.  Farms, buildings intended for business or commercial use or income producing land does NOT qualify. 

Farm Service Buildings – Any structure used in farming operations include

·         Building to house farm workers/families

·         Buildings to house livestock, barns, shelters

·         Buildings to house machinery & equipment

·         Buildings to store crops such as gain silos

Farm Use of Land – If land has been used for farming in the past, it’s ineligible

·         Growing crops

·         Raising or breeding domestic animals

·         Other types of farming involving water (oyster, catfish or trout farms)

Related Buildings – Buildings that are allowed

·         Garages

·         Storage sheds (for personal use)

·         Basements

·         Semi-basements

·         Underground shelters

·         Summer kitchens

·         Garden sheds

·         Carports

·         Pump houses

·         Recreational structures (exercise rooms, game rooms, craft/hobby rooms)

·         Non-commercial buildings

·         Workshops

Income-Producing Properties – These types of properties are NOT eligible for financing.

·         Warehouses

·         Bed & breakfast

·         Boarding homes

·         Buildings with mechanical equipment remaining from a prior business

·         Horse riding arenas

·         Non-residential buildings – Office, commercial, storefronts with residential space

Limitations to Size of Land – USDA does not have any limit to the size/acreage of the land.  However here are some other limits.

·         The value of land should account for 30% of the total value of the property

·         Can exceed 30% if typical for area

·         Appraisal report to determine the home to land value

·         Site cannot be subdivided into two or more sites

Call me if you have questions about out buildings, income producing buildings or the value of the land so we can check with Rural Housing prior to offering USDA financing.

Downpayment

Fannie/Freddie Source of Funds: My customer wants to take a $200,000 loan from his business for his down payment. Would this be an acceptable form of down payment?

No -- an unsecured loan is not allowed. Any loan for funds to close or down payment must be secured with an asset the borrower owns (401k, car, home, etc.). A valuation of the asset may be needed with full documentation of the terms of the loan, and the borrower must qualify with the loan payment.
The borrower may use business assets toward a down payment, but will need to fully document with account statements (explaining and sourcing all large deposits) and a letter from the CPA that the use of the funds will not be a detriment to the business. Underwriters are typically hard on this funding source.

Did you know?

Fannie DU Refi Plus Ineligible: I am working with a past client on a DU Refi Plus loan. I was told that she didn't qualify because of the risk pool it is packaged in. Can this be true?

Yes it is possible for a loan to show-up on the list as Fannie owned but not be eligible. You would not know this until you run the loan through DU and get an ineligible finding. Loans sometimes will lose eligibility due to a repurchase or indemnification by the lender or due to the loan having utilized a variance from the standard guide when it was originally closed.

These loans are just not eligible for the program -- I have had a loan that was eligible at application, but by the time we were finalizing underwriting, the loan had been repurchased by the original lender due to a documentation problem in the original loan. We were not able to close the loan under the DU Refi Plus program.