Qualifying For A Second USDA Home Loan

We were recently asked about getting a “second home” financed with a USDA Home Loan.  In North Carolina we have many folks who move here with rental property in other States.  We’ve made several “Second Home” loans, even if you currently have one USDA Loan and rent that property out.  Let’s be clear, by Second Home, I’m not talking about a Vacation home. I’m talking about having a home you own in another location and rent out.

USDA Loans are only for  owner occupied, primary residences.

The Income used, when determining if you are over the Maximum Income Limits for the “Second” (new) USDA Home Loan will include the property that you are currently renting out.  So your gross household income will be calculated with the income from renting out your “old” rented out home, plus your gross income from your employment, with any allowed Adjustments.

On the flip side, you will need to show 2 years of tax returns with that income for us to use the rental income to help qualify you for your new USDA Home Loan.  If you have depreciated items, or you pay a rental agency to manage the property, we may only count part of the income when QUALIFYING you for your new home, and offsetting the “rental property” mortgage payment.  This “qualifying Income” is referred to as “Eligibility Income” in the USDA Home Loan Guidelines.

I know I’m being redundant here, but the USDA Loan Underwriter looks at Income from two different perspectives:

• USDA Loan Adjusted Income – This is the applicant’s eligibility income less the total of any of the following deductions applicable to the loan. Income from all household members must be included in the total adjusted income. This adjusted income must not exceed 115% of the median household income for the area.
• USDA Loan Eligibility Income – Includes all income (salary, tips, bonus, overtime, alimony, child support, etc..) received by the applicant and co-applicant(s). This income is used to calculate qualifying ratios.

USDA Home Loan Guidelines about Second Homes

Many loan officers will tell you that USDA Loans Guidelines state that you can only have ONE loan at a time.  So what I was just talking about seems to go against the Guidelines.  In actuality,

The USDA Home Loan Guidelines state:  The applicant must:

(a) Be a person who does not own a dwelling in the local commuting area
or owns a dwelling which is not structurally sound, OR functionally adequate.

In NC, the USDA Home Loan Underwriters use 50 miles as an indicator. Meaning your current (RENTAL) residence can not be less than 50 miles from your current job.  If you’ve moved from State to State that might not be an issue. We recently had a borrower who lives in Johnston County, and accepted a transfer with her company to a plant in North Durham.

To qualify her for an additional loan, we had to count her current mortgage as a debt, count the income she was to receive as income to show she was not over the Income Limits, and we had to prove that her home in Johnston County (near Princeton) was more than 50 miles from her new job in North Durham.  The Underwriters also required us to get a pay stub from her new position.

We’ve also helped folks get a second USDA Loan when their current residence was too small for a largely expanded or (blended) family. In one case, the couple had a home they’d lived in for 3 years, with a USDA Home Loan.  The house had 2 bedrooms, and about 1100 square feet.  They had 2 children – and then had triplets. To ask 7 people to live in a 2 bedroom house was determined to be inadequate. We had to wait until the birth of the triplets to make it work.

If you are considering a USDA Home Loan, and you have more questions about qualifying for a second USDA Home Loan –> please call Steve and Eleanor Thorne , 919-649-5058 Connect with us on Google Plus or Facebook!