USDA Income Eligibility | How Much Can You Make and Get a USDA Home Loan?

There is hope for borrowers who cannot get a conventional loan and have low to moderate income. The USDA loan program offers no-down-payment, 100 percent financing through a guaranteed loan for families buying a home in rural and suburban areas. To qualify, your household must fall within USDA income limits, which vary by county and household size.

What Is A USDA Guaranteed Loan?

The USDA offers two types of loans to encourage rural development, and the guaranteed loan is one of them.

The other USDA mortgage is a direct loan for low- and very-low-income households. The government makes these loans directly, and it can subsidize them down to an interest rate as low as 1 percent.

However, the guaranteed loan carries no subsidy and does not require a Congressional appropriation every year, said Joaquin Tremols. Tremols was director of the USDA Rural Housing Service’s Single Family Housing Guaranteed Program in Washington, D.C., before he retired. And recipients can still get a good interest rate.

“You have to apply with an approved lender. They take our training before we cut them loose,” he said.

Eligible applicants can use the guaranteed loans to build, rehabilitate, improve or relocate a dwelling, too, besides just buying a home in an eligible rural area. And you might be surprised what real estate meets the USDA loan program property requirements. Many suburban areas close to big cities qualify.

Because the U.S. Department of Agriculture backs the program, this loan program does not require private mortgage insurance (PMI). It does charge a 1% upfront guarantee fee and a 0.35% annual fee, which work like mortgage insurance.

How much USDA loan can I qualify for?

Unlike the FHA program, there are no loan limits for the USDA loan program. The program aims to help low- and moderate-income borrowers become homeowners. So USDA sets income limits for borrowers but no limits on the loan amount itself. Instead, the specifics of your financial situation, and the area where you’re buying, determine the size of your loan.

If your household’s adjusted annual income is below the income limit for the area and your finances show you can make the mortgage payments, you may qualify.

Your credit history, debt-to-income ratio, assets and savings, and monthly income determine the size of USDA loan you can qualify for.

Who Is Eligible for A USDA Loan?

According to the USDA Single Family Home Loan handbook, applicants may be eligible to receive a guaranteed loan if they

• Meet income eligibility
• Agree to personally occupy the dwelling as their primary residence
• Are U.S. citizens, U.S. non-citizen nationals, or qualified aliens
• Have the legal capacity to incur the loan obligation
• Have not been suspended or debarred from participation in Federal programs
• Are purchasing a property that meets all program criteria

How USDA Income Limits Vary by Location

Meeting the income test can be tricky because the figure includes so many things. Plus, the income limits are different depending on where you live and how many people are in your household.

According to the USDA loan program, moderate-income typically means you make 115 percent or less of the median income for your geographic region. As a basic example, if the median family income in your area is $50,000 per year, your family can make up to $57,500 per year and still be eligible.

USDA income limits vary by county and household size, and they tend to rise significantly around major metro areas.

Those interested in the USDA loan can easily check the current limit for their county with USDA’s income eligibility tool.

The USDA website also details property eligibility in areas all across the country.

“You can punch in an actual property address (in case you were looking at a certain home) and submit the information. It will tell you if it’s in the USDA loan rural area. It’s pretty nifty,” Tremols said.

If your income meets these requirements and you’re looking to buy in a qualifying area, then the zero-down USDA loan program can be an attractive loan option, especially for first-time homebuyers.

What Counts as Income According to USDA?

As for income eligibility though, the government counts income from all adults in the household who are 18 or older, not just parties who are signing the mortgage loan. Lenders must include their income in the annual income for eligibility purposes, according to the USDA guaranteed loan handbook.

For instance, the Social Security checks your live-in mother-in-law receives will also go towards that income eligibility. You also will have to count the first $480 of earnings for any adult full-time student who isn’t an applicant or an applicant’s spouse. That holds even if the student lives away from home temporarily during the year.

Other counted income includes:

• Employee housing or automobile expense allowances
• Military and self-employed income
• Alimony/child support
• Pension/retirement income
• Rental income
• Disability/social security checks
• Unemployment compensation

Income that Doesn’t Count Toward Your Eligibility Income

Some income types never count, according to the handbook.

For eligibility purposes, your household total leaves out

• Payments received for the care of foster children or foster adults in the home
• Earned income of a minor
• Employer-provided fringe benefit packages, unless the applicants’ pay statements report them as taxable income
• Section 8 housing vouchers
• Any student financial aid, including student loans
• Gifts of money or lump sum inheritances, capital gains or insurance payments under health, accident or worker’s compensation policies

Lenders can help potential buyers find deductions for their annual income to meet the eligibility requirements, Tremols said.

“Some people do benefit from these deductions,” he said. “The handbook shows many various examples in the handbook.”

USDA Income Eligibility Deductions

According to the USDA mortgage underwriting guidelines, the allowable deductions to determine an adjusted income can include:

• $480 for each minor child under 18
• A $480 deduction for each disabled or handicapped individual who is not the applicant or co-applicant on the loan
• $480 for each full-time student 18 years or older
• $400 once per household if an applicant is elderly (62 years of age or older) or disabled
• Unreimbursed medical expenses of an elderly or disabled household that exceed 3 percent of the household’s annual income
• Actual cost of child care for children 12 years and younger with full documentation of cost

“People like this loan because there is no down payment, and there is 100 percent financing,” Tremols said. “They are all simple 30-year fixed loans with no balloons, no interest-only or adjusted interest rate.”

USDA Income Limits vs. Your Qualifying Income

Remember that your total household income for eligibility purposes could be different than your qualification income. For instance, an elderly parent who will live in the home might have a job and earn income. For eligibility purposes her income counts, but you can’t count that income toward the income on your loan to help you qualify unless the elderly parent is on the loan.

Checking Whether You Meet USDA Income Limits

USDA income eligibility is lenient in that families can make up to 115% of the median income for the area and still qualify. Prospective home buyers should check all the requirements with an approved USDA lender to see if they are buying in an eligible area and whether they qualify.