USDA Rural Housing loans have two primary requirements buyers should know about. One is the amount of income a household may earn in order to qualify. The USDA loan income requirements are based on the number of wage earners in the home. The other important requirement is where the property is physically located. The USDA requires the property to be located in an approved area. But how, exactly, does the USDA do that? What makes one area an approved zone and one nearby not?
Defining “rural” might seem pretty easy at first. If you live in a rural area and there are very few homes around you know you’re in a rural area. Few, if any people and even fewer homes. But there is a definition of rural the USDA program uses. The United States Census Bureau identifies rural areas simply by defining what is not rural. The Census Bureau identifies
- Urban Areas with more than 50,000 people, and
- Urban Clusters with at least 2,500 and less than 50,000 people
If a recognized area is not an urban area or an urban cluster, it’s rural. An urban area is also defined as having a population density of at least 1,000 people per square mile. The Census Bureau states, “Rural is defined as all population, housing, and territory not included within an urbanized area or urban cluster.” This information is taken from the national census taken every 10 years. Today, rural areas are using information from seven years ago.
Which brings us to an interesting point. An area can look nowhere near rural and even exceed an urban population density requirement and still be eligible for a USDA home loan due to what is known as suburban creep. As metropolitan areas grow there is a greater demand for housing. Typically, the more densely populated areas have higher housing costs. Developers then build communities just outside the metro area. If the new community is in an area that was once identified as rural, the USDA home loan can still be used until the Census Bureau updates its demographics which today wouldn’t be for another four or five years after the 2020 census is tallied.
This is why it’s surprising to many that a home that is eligible for a USDA home loan when it looks nothing like a “rural area” The USDA will at some point catch up with new data but in the meantime, taking out a 100% USDA home loan is a possibility. If you’re not sure about whether or not a home might be in an eligible area, contact us above as we are always happy to help.
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