USDA Income Requirements
The USDA loan program was specifically designed for people living in rural areas with low to moderate incomes. Obviously, how that income is measured depends on where you live. As such, the United States Department of Agriculture and Rural Development has put together a comprehensive list showing the homes your income will qualify for in a given area. This list also includes a full listing of which areas qualify as rural for eligibility in the loan program.
You can find the full list of USDA eligibility and income limits and information by location here.
Debt-to-Income Ratio and Gross Income
In addition to meeting the income requirement, USDA also has a debt-to-income ratio threshold of 29/41. This ratio means the monthly loan payment can be no more than 29% of your gross monthly income, and with it and all other expenses, you cannot have more than 41% of your income allocated to set expenses, such as car or student loans and credit card debt.
The criteria for determining gross income is set up in two tiers, one for 1 to 4 people and one for 5 to 8 people. The number of people used for income eligibility is the number of people residing in the house, not just the individuals named on the loan application.
For purposes of qualifying, anyone applying for a USDA loan will be required to submit recent pay stubs and two years of tax returns. This enables lenders to verify that you meet the income requirements, as well as do an accurate debt ratio assessment.
For those worried their income may be too high, there are options. For each person under age 18 living in the home or for any full-time college students residing there, you will be able to deduct $480 from your annual income. This offset of income can often drop the gross income below the threshold line and make you eligible for the program. The USDA also allows for income adjustment for some child care expenses and for handicapped children.
USDA Loan Credit Evaluation
Assuming you meet the gross income and debt ratio requirements and live in designated areas accepted by the program, you will also have to meet credit requirements. A USDA lender will perform a comprehensive credit evaluation to ensure you meet the requirements and to see if you have any disqualifying instances on your credit. All of this works in conjunction with the income qualifying to ensure you’ll not only make the loan payment but be able to handle your other expenses as well.
Benefits of USDA Loans
A USDA home loan comes with many benefits for those who meet the income, credit, and location requirements. USDA loans are cheaper than traditional or FHA loans, they can have little or no home mortgage insurance, and they have no restrictions on prior home ownership. Unlike most loan programs, there is also no lending limit on refinancing. The only cap to the loan amount is based on a fair appraisal of the property. As long as the loan amount falls within 90% of the appraisal, and you meet the income, credit, and debt requirements, you can receive that full amount necessary for your home.