Can You Use a USDA Loan for Investment Property?
If you're hoping to break into real estate investing with a USDA loan, you might wonder, “Can I use a USDA loan for investment property?” The short answer is no, but the full story is a bit more nuanced.
USDA loans are designed to help low- and moderate-income homebuyers afford safe, sanitary housing in rural and suburban areas. Because of this goal, USDA loans have specific occupancy and property use requirements that generally rule out investment properties, including rentals and vacation homes.
However, that doesn’t mean you're out of options. This guide will explore why USDA loans don’t allow investment properties, what is allowed under USDA rules, and which loan types might better suit your investment goals, including short-term rentals like Airbnb.
The U.S. Department of Agriculture backs the USDA loan program, and it was created to encourage homeownership in eligible rural areas. To keep the program affordable and accessible, USDA loans come with several restrictions, including:
In other words, you cannot use a USDA loan for investment properties like a second home, vacation rental, or traditional rental property. The loan is strictly for people intending to live in the home full-time.
An investment property is any real estate purchased to earn a return, either through rental income, future resale, or both. Examples include:
Because USDA loans are not meant for income generation, any of the uses above would disqualify a property from USDA loan eligibility.
Although you can’t buy an investment property with a USDA loan, some scenarios offer more flexibility than you might think:
You can buy a home with a USDA loan, live in it as your primary residence, make improvements, and later sell it. As long as you meet the occupancy requirement (usually living in the home for at least one year), this strategy, known as a live-in flip, is permissible.
Running a small business from your USDA-financed home is allowed, as long as the business doesn’t require structural changes or significantly affect the residential character of the property. Examples include freelance writing, online shops, or home offices.
Buying land with barns, silos, or greenhouses may be allowed only if those structures are for personal use rather than income. For example, a greenhouse used to grow food for your household is fine; one used to grow crops for sale is not. However, there are USDA farm loans that can allow you to live on land with income-producing features like livestock or crops.
If you want to buy land with a home and start a small farm, you can use a USDA farm ownership loan. Loans specifically meant for livestock or crop materials, such as seed or equipment, are called USDA farm operating loans.
To ensure the program supports homeownership rather than real estate speculation, USDA loans come with strict occupancy rules:
After that period, some borrowers explore other uses, such as renting out the home.
If you’re looking to invest in real estate, whether for long-term rentals, Airbnb, or flipping, a USDA loan probably won’t be your best option. Instead, consider these alternatives:
Conventional loans offer even greater freedom because they are not backed by the government and therefore do not impose strict occupancy rules. These loans can be used for vacation homes, long-term rentals, or short-term rentals such as Airbnbs.
The trade-off is that they require stronger credit and higher down payments. While some conventional loan programs allow as little as 3% down for a primary residence, investors should expect to put down 15% to 25% when financing an investment property. This higher barrier to entry makes them best suited for borrowers with solid financial reserves who want the flexibility to expand into true income-generating real estate.
Unlike USDA, FHA loans allow for the purchase of up to a four-unit property as long as you live in one of the units as your primary residence. This is often referred to as “house hacking,” since the income from the other units can help offset your mortgage. FHA loans also feature low down payment requirements, as little as 3.5%, and credit flexibility that makes them accessible for many first-time buyers who may not qualify for conventional financing.
VA loans are another option, but only for eligible Veterans, active-duty service members, and surviving spouses. Similar to USDA, VA loans do not require a down payment, but they offer more flexibility for investors who want to purchase multi-unit housing. A Veteran can buy a two- to four-unit property, live in one of the units, and rent out the others. This makes VA loans one of the few programs that combines no-down-payment financing with income potential, though the occupancy requirement still applies.
| Feature | USDA Loan | FHA Loan | VA Loan | Conventional Loan |
|---|---|---|---|---|
| Use for Investment Property | Not Allowed | Allowed (if you live in one unit of a multiunit property) | Allowed (if you live in one unit of a multiunit property) | Allowed |
| Occupancy Requirement | Must be primary residence | Must be owner-occupied initially | Must be owner-occupied initially | Not required |
| Down Payment | 0% | 3.50% | 0% | 3%, but may require higher (15–25%) for investment properties |
| Credit Score Requirements | 640+ (recommended) | 580+ | 620+ | 620+ |
| Income Limits | Yes | No | No | No |
For experienced investors, DSCR loans can be an attractive alternative. These loans are underwritten primarily on the property’s projected rental income rather than the borrower’s personal income.
That means self-employed borrowers or those with higher existing debt may find it easier to qualify. DSCR loans are particularly popular for short-term rental operators and investors looking to scale a portfolio since they allow for financing based on cash flow rather than traditional income documentation.
The USDA does offer a Multifamily Housing Loan program, but it is not designed for individual homebuyers or small-scale investors. Instead, these loans are reserved for local governments, nonprofit organizations, federally recognized tribes, and certain eligible for-profit entities such as LLCs.
The program is focused on financing the construction, improvement, or rehabilitation of properties with five or more units in rural areas, with the requirement that rents remain affordable based on local income levels.
While this makes the program an important tool for expanding affordable housing in rural communities, it does not provide a path for individuals looking to purchase investment properties. For developers and organizations, however, USDA multifamily loans can play a significant role in supporting long-term rural housing solutions.
Yes, you can rent out a USDA-financed home, but only after fulfilling the occupancy requirement. USDA guidelines require you to live in the home as your primary residence for at least 12 months, and all co-borrowers must also occupy the property during that time. After that period, renting is generally permitted, especially if you relocate for work or family reasons. What’s not allowed is applying for a USDA loan with the pre-planned intent of turning the home into a rental, as that would be considered mortgage fraud.
Occasional short-term rentals, such as renting out a spare room while you continue to live in the home, may be permitted depending on your lender and local zoning laws. However, converting the entire property into a full-time Airbnb or vacation rental is not allowed, as USDA loans require the home to remain your primary residence.
Yes, USDA loans can be used to purchase a duplex, but you must live in one of the units as your primary residence. The other unit cannot be purchased solely for the purpose of generating rental income at the time of purchase. This makes duplexes eligible only when they primarily serve your housing needs rather than a pre-planned investment strategy.
While you can’t use a USDA loan for a rental or investment property directly, it still offers an incredible opportunity for homebuyers, especially those with limited savings and modest income or first-time homebuyers. If your goal is to build long-term wealth through real estate, understanding when and how to use the USDA loan strategically and when to pivot to other financing options can set you up for success.
If you are looking for a passive income source, an investment property is a great place to start. There are many paths forward, but it may not be with a USDA loan. Just be sure your financing aligns with your investment goals and the rules of your chosen loan.
Find out more about your USDA loan eligibility today!
