Do USDA Home Loans Allow for Swimming Pools, Fixer-Uppers, or ADUs? The New Rules, Explained

Homebuyers daunted by the idea of amassing a huge down payment for a mortgage might be surprised (and relieved) to know that not all home loans set such a high bar. If you're shopping in rural areas outside of cities, a USDA loan can help you buy a house with $0 down and lower-than-average interest rates, too.

USDA loans are offered by the United States Department of Agriculture, in an effort to help lower-income homebuyers afford a house. While these loans come with many cash-saving benefits, the catch is they also come with more rules than a typical home loan.

The biggest restriction for USDA loans is that the home must be in certain, more remote areas and be "modest" in size—in other words, no mansions allowed.

But what about fixer-uppers? ADUs? Are you regulated to buying a home on a farm? And are certain amenities completely prohibited, like swimming pools? The rules are fairly straightforward, so let’s dive right in. 

Can you have a swimming pool with a USDA loan?

In the past, the USDA handbook stated that properties with in-ground swimming pools were not eligible for financing. 

However, in 2022, the USDA amended their handbook. Now, existing properties that include in-ground pools may be financed, provided the home meets the other dwelling requirements under the loan terms. 

Additionally, the pool has to be inspected by a qualified inspector and  in-ground pools with new construction or with properties which are purchased new are prohibited. 

That said, these rules only apply to in-ground pools. USDA loans do not prohibit the addition or purchase of a home with an above-ground pool, in any way. Why? Because above-ground pools typically have little impact on the value of a property and  rarely push a home beyond the USDA's "modest" threshold.

Can you finance a fixer upper with a USDA loan?

While homes eligible for USDA loans must not be too extravagant, they also can't be falling apart. This rule will come into play if you're considering a fixer upper.

“USDA loan lenders have some requirements when it comes to appraisals,” explains Jake Vehige, president of mortgage lending at Neighbors Bank. “They can have concerns when it comes to safe, sound, sanitary issues that sometimes don't exist to the same degree on a conventional loan.”

However, he concedes that’s typically “overblown,” and as long as the home is free from severe issues with elements like the foundation or roof, you should still be able to secure financing. 

So how much fixing up is allowed? In general, estimated renovation costs should not exceed 10% of your home loan amount. Plus, the renovations can't be so extensive that you aren't able to live in the house while the work is happening. The USDA also requires that renovations be completed within 180 days of closing.

These rules exist largely because USDA-eligible homes are supposed to serve as a homeowner's primary residence, rather than as a flip or investment. As long as you're simply fixing up a structurally sound house to make it more livable for you and your family, you're probably fine.

Are USDA loans only for homes with farms or barns?

While many people think that applying for a USDA loan means you have to buy a farm, ironically, that is exactly what you are not allowed to purchase with this type of financing.

According to the USDA's property requirements handbook, farm service buildings such as barns, silos, livestock facilities, or greenhouses are not allowed if they're still being used for agricultural, money-making purposes. However, if those same buildings are present but no longer used commercially, and are instead used for something like extra personal storage, they're okay.

Can USDA loans be used to buy duplexes, condos, or townhomes?

According to new USDA guidelines, one unit of a duplex may be eligible for a USDA loan as long as it's in a qualified rural area. However, the homebuyer cannot purchase both units of a duplex, because it would then be considered an income-producing property, which is absolutely not allowed.

Condos and townhomes also can qualify for USDA loans, even if they aren't standalone houses. That said, the purchasing rules follow the same logic in that you can buy one residence but not the whole building.

One thing to keep in mind, however, is that if the condo or townhouse is part of a Homeowner's Association (HOA), all HOA dues will be factored into your debt-to-income ratio during the underwriting process, affecting both your buying power and the monthly mortgage costs.

Are tiny houses eligible for USDA loans?

While manufactured homes are generally not eligible for USDA loans, a tiny home (typically around 400 square feet) might be approved if the USDA loan approval officer decides it meets the same property standards as other government-financed dwellings. 

However, tiny homes that are built on wheels or a trailer chassis (meaning they are not permanently affixed to real property) will be deemed ineligible, regardless of size.

If you’re looking at a home that has an ADU on the property, that should also be deemed eligible, though it could also prove problematic during the appraisal process.

"If you need the value of this ADU to support the value of the home, that could be an issue with the appraisal, because they would need to find like comps,” Vehige adds.

 Dina Sartore-Bodo contributed to this report.