What Are The USDA Loan Income Requirements?
USDA Guaranteed home loan income requirements have been set to help ensure that borrowers under the program will be successful in paying for the home of their dreams.
USDA home loans are intended for individuals and families who have low or moderate income.
If you are buying a property in a designated rural area and you intend to live there full time, then you are a long way down the path to qualifying for your USDA loan!
However, to make sure that you qualify, you need to meet certain basic income requirements. The income requirements are based on the total amount that you will be borrowing, which in turn is based on the property you are trying to purchase.
Although it may seem complicated, it's much simpler than you might think. Let's look at some of the basics behind the USDA income requirements and what you will need to know.
USDA loans are very attractive because they offer you the opportunity to achieve 100% financing on a qualifying property. Not only that, but you may even be able to finance other fees and expenses, such as closing costs.
Many people are attracted to USDA loans because they provide you with the chance to get a new home funded without putting any money down. This is unique even among federal loan options.
There are some basic requirements that everyone should know:
- You must have medium or low-income relative to the income levels in the area
- You must not exceed a calculated debt to income ratio of 29/41 (it can be lower)
What are the reasons that income requirements could be adjusted? Adjustments can be based on the number of dependents in your household, people in the household who are disabled, and more.
Remember these basics:
- 29% or less of your gross (not net!) monthly salary can go to housing-related expenses
- You can't have more than 41% total indebtedness when compared to your income
- Gross income is determined in part based upon the size of your household
There is one form of gross income calculation for households with four people or less and a slightly different one for households with up to eight people. Be sure that your loan professional and real estate agent are both aware of your total household size.
Private lenders distribute the USDA home loans according to strict standards set by the U.S. federal government. However, the loans are backed and funded entirely by the government.
When you are working with a USDA home loan, you will be eligible for 100% funding of your home. This allows you to finance your closing costs.
What are the basic requirements that you will always need to meet?
- You must be living in a qualified area and not exceed a certain income based on the area
- You cannot qualify for a loan that causes more than 29% of your gross pay to go to housing
- The total amount of debt that you must pay, including housing, can't exceed 41% of income
What happens if you are in a situation where you make too much money to qualify for the USDA loan? Your income limits may be adjusted due to several different factors:
- The number of people in the household who are under 18, dependents, or full-time students
- Qualifying childcare expenses and expenses related to the care of handicapped children
Once you have been found to meet the guidelines for total income, you will also have to submit to a credit check. Virtually all lenders require a minimum score of 640.
We can help you to qualify for favorable terms for your USDA Guaranteed home loan. The loan provides you with a few great features including no down payment, low premiums for mortgage insurance, and the ability to use your loan on a second house.
The amount that you can borrow is based on the appraised value of the home and your own ability to pay.
Can only people with low incomes qualify for the USDA loan?
USDA home loans are intended to help buyers with either low or moderate income to buy homes in qualifying rural communities. There are USDA income limits by state and by county.
What income limitations are involved?
The income limits vary by location. However, if you do find that you are above the income limits, you might be able to acquire a USDA home loan based on adjustments. The adjustments are made based on the number of dependents and other factors.
If you cannot qualify for a USDA loan under any circumstances, then you may still be able to qualify for an FHA home loan, which is another very attractive federal government program.
What earnings are counted when determining income?
In most circumstances, all household income is included. However, adjustments will be made on the basis of household size, number of dependents, number of full-time students, and those who are disabled.
What are the key qualifications for the loan program?
Your debt to income ratio must not exceed 41% unless there are compensatory factors. You must have a fair credit history with a minimum credit score of 640 to be considered by most lenders and cannot have housing expenses exceeding 29% of gross income.
Are there any other eligibility requirements?
The borrower must be at least 18, must be a U.S. citizen or qualifying alien, must not own adequate habitation in the local area, must intend to occupy the property on a permanent, residential basis, and must not qualify for conventional loan financing.
Do I need perfect credit?
A credit score of 640 is considered desirable. Exceptions can be made for lower scores and no score based on an absence of credit history, but not based on past irresponsible credit behavior. Credit waivers are possible.
Does a bankruptcy make getting this loan impossible?
You may be eligible for a USDA loan if you have made all payments on a Chapter 13 bankruptcy for at least 12 months or have been discharged from a Chapter 7 bankruptcy for 36 months or more.
Other Valuable Information
- United States Department of Agriculture Housing & Community Assistance Office
- Overview of Rural Development Funding and Programs for Home Ownership
- United States Department of Agriculture Assistance Programs
Our team of experts can help you assess your eligibility for a USDA loan easily. Contact us today.
We Are The USDA Loan Experts
Find out what USDA loan program your scenario or property is eligible for.