The popularity of the USDA loan program is justifiably increasing by the day. And for all the right reasons.
Zero down payment, low-income requirements, low interest, and mortgage insurance rates, no homeownership-counseling requirements. These are just a few of the endearing features that almost appear to be too good to be true.
But they aren’t.
Naturally, interested borrowers would seek clarification about certain USDA guidelines and eligibility criteria. One such requirement is the USDA Income Limits, which we’ll discuss in detail.
USDA Income Limits
- Up to 4 member households: $75,650
- 5-8 member households: $99,850
USDA Income Eligibility
The primary objective of the USDA Guaranteed Rural Housing Loan (one of the units of the United States Department of Agriculture, USDA) Guaranteed Loan is to help provide affordable housing to low- and median-income Americans in rural areas.
Moderate income refers to income that is no more than 115% of the area’s median income. The USDA income limits will vary by county. But you can’t whip out your calculator yet. The income limit also depends on the number of people in the household intending to purchase a home. And the USDA may push the limits higher in expensive counties.
To summarize, these are the qualities of the USDA income limit:
- 1. The USDA income limit is a “household” income limit. That is, the eligible income is the sum of all incomes received by individuals age 18 or older who will live in the home.
- 2. This household income MUST be less than 115% of the county’s median income. That is, the income limits in high-cost locales will be higher than the limit in low-cost locales.
- 3. The income limit depends on the number of people in the household—the higher the number of people in the household, the higher the income limit.
- 4. USDA income limits are based on gross income for W2 earners. Income calculations for the self- employed or 1099 earners are more complex—refer to your lender for assistance.
- 5. Rural development Income limits do not factor in future income or earning potential, only current income as at the time of closing.
- 6. Income limits are applicable for both purchase and refinance mortgages. Visit this link to check current SFH Guaranteed Income Limits.
How to Reduce Income Below USDA Income Limit
The Income Limit is absolute. If you’re above it, you aren’t eligible. End of story. Right?
Well, if you’re marginally above the income limit, then some deductions, within USDA guidelines, could drop your household income below the limit.
- 1. You may deduct $480 for each dependent. Dependents are persons under the age of 18.
- 2. If a full-time student is part of the household and they work, the max yearly income they can contribute is $480. However, if they are also dependent, they don’t have to contribute anything.
- 3. If an individual in the household is 18 years of age, but in school, you may be able to deduct $480. You’d have to obtain documentation from the school that the individual is enrolled full-time.
- 4. You may deduct any child care expenses. Child support and private school tuition (for kids in kindergarten through 12 years old) do not count as eligible child care expenses to deduct.
- 5. You may deduct some yet to be reimbursed business expenses
- 6. Deductions may apply to disability expenses. You’d have to complete a USDA Form RD1944-4 to verify disability or other evidence that supports disability claims for a member of the household.
Maximum USDA Mortgage Loan Limits and Additional Qualifying Requirements
The VA and FHA mortgage loans have loan limits. USDA Guaranteed Rural home loans do not have loan limits. Borrowers are only limited by their ability to repay. Borrowers would nonetheless have to meet certain eligibility and qualifying requirements.
USDA Eligibility Criteria:
- United States Citizenship or Permanent Residency
- DTI (debt to income) ratio should not exceed 41% of your income
- Monthly mortgage payments (principal, interest, insurance, and taxes) should not exceed 29% of your income.
- The USDA may consider higher DTI ratios if the borrower has good credit scores.
- The borrower’s income should be dependable- 2 years of consistent income.
- Minimum 640 credit score
Credit history should be hitch-free (for example, none of the borrower’s accounts should have been converted to collections within the previous 12 months). Unless when circumstances that were temporary or beyond the borrower (such as a medical emergency) caused the hitch.