It's a common myth to believe that you can only buy an existing home with this loan program. In reality, you can even buy land with it. However, you will need to have plans for that land. You will have to build a home on it pretty much right away in order to qualify for USDA financing.
Finding the Right Land
Just like buying a house with USDA financing, you have to find the right one. Just as the USDA requires homes to be modest in nature, the same is true for any lot you purchase. It must be within the average size for the area. It can be smaller than that, but it cannot be larger or considered luxurious. The USDA program is to help low to middle income families buy the land and home they need. It's not meant for investment purposes or to help the wealthy buy their homes.
The USDA Land Loan
The USDA land loan works a little differently than the loan you would use to buy a home. First, you must prove you are building a home on the land. If you don't have plans to build a home or will not start right away, the USDA loan isn't an option. You have 180 days to complete the home on the lot purchased with USDA funding. When you are done, the USDA loan will cover the home and the land it is on. Even better, you won't have to put any money down and you can wrap your closing costs into the loan. You will have to pay the upfront guarantee fee, unless you wrap it into the loan as well, though. Read more