Can You Rent Out Your USDA Financed Home?

The U.S. Department of Agriculture (USDA) offers home loan programs designed to assist low- and moderate-income individuals in purchasing homes within eligible rural areas. This mortgage program aims to foster homeownership and support economic vitality in these communities. A fundamental principle of the USDA loan program is that the financed property must serve as the borrower’s primary residence.

USDA Loan Occupancy Requirements

A core requirement for a USDA home loan is that the property must be the borrower’s primary residence. Borrowers typically must move into the home within 60 days of closing on the loan. This occupancy expectation continues throughout the entire term of the loan.

The USDA loan program is specifically structured to promote homeownership, not to facilitate investment properties or secondary homes. Therefore, the purchase of a property with the immediate intent to rent it out is generally not permitted under USDA guidelines.

Permissible Circumstances for Renting

While USDA loans are intended for primary residences, certain limited exceptions may allow a borrower to rent out the property. These situations typically arise from unforeseen life changes. One common exception is when a service member borrower receives official Permanent Change of Station (PCS) orders, requiring them to move for military duty. In such cases, the family of a military member may even fulfill the occupancy requirement.

Another permissible circumstance involves job relocation, where a borrower’s employment requires a move beyond a reasonable commuting distance from the USDA-financed property. Documented severe health issues or significant family emergencies that necessitate a temporary or permanent move may also be considered. The loan servicer may review other unforeseen, significant hardships on a case-by-case basis. For these exceptions, borrowers will typically need to provide official documentation, such as military orders, employer letters verifying relocation, or medical records, to substantiate their situation.

Seeking Approval to Rent

If a borrower believes they meet one of the permissible circumstances for renting, obtaining approval from their loan servicer is a mandatory step. Contacting the loan servicer should be the immediate first action to discuss the situation.

The servicer will typically require a formal written request or a specific application form detailing the reason for the desired rental. Supporting documentation, such as military orders or employer letters, must be submitted to verify the qualifying circumstance. The servicer will then review the request and provided documentation to make a decision, which may involve a specific timeline for approval. If approved, the servicer might impose conditions, such as a limited rental period or requirements regarding the lease agreement.

Consequences of Non-Compliance

Failing to adhere to the USDA loan’s occupancy requirements or renting out the property without proper approval can lead to serious repercussions. The loan agreement could be deemed in default if occupancy requirements are not met.

In cases of non-compliance, the lender may have the right to accelerate the loan, demanding immediate repayment of the entire outstanding balance. If the borrower cannot repay the loan, this could ultimately lead to foreclosure proceedings on the property. Furthermore, violating these terms could negatively affect the borrower’s eligibility for future government-backed loans.