Written by - February 03, 2023
Introduction
The USDA (United States Department of Agriculture) home loan program is designed to help moderate to low-income families buy a home in rural and suburban areas. The good news is that the USDA home loan program has very flexible income requirements, making it easier for prospective homeowners to qualify.
Income Requirements Overview
The USDA has different income limits for different areas of the country, and the limits are based on the size of the household and the location of the home. Generally, income limits are 115% of the median income in the area, with an allowance for extra members of the household. For example, in some areas, a family of four can make up to $91,050 per year, while in others, the limit is $121,150.
Adjustments for High-Cost Areas
For areas where real estate prices and cost of living are high, the income limits for USDA loans are higher. High-cost areas are determined by the USDA and are based on the median home price in the area. An applicant looking to buy a home in a high-cost area should check the USDA's website to find out the income limits for that area.
Applicant's Income Calculation
When determining income eligibility, lenders will look at all the sources of income for the applicant and their household members. This includes income from wages, salaries, tips, bonuses, child support, alimony, and any government benefits received. If the applicant has income from a small business, the lender will look at the average net income for the business over the past two years.
Debt-to-Income Ratio
The next factor that lenders consider is the applicant's debt-to-income ratio, which measures the amount of debt that the applicant has compared to their income. The maximum debt-to-income ratio for a USDA home loan is 41%. This means that the applicant's monthly debt payments, including mortgage payments, credit card debt, and car loans, cannot exceed 41% of their monthly income.
Credit Requirements
While credit scores are not the main focus of USDA loan eligibility, lenders will want to see that applicants have a good credit history. Most lenders will require a minimum credit score of 640, but some will consider credit scores as low as 580 if the borrower can show other positive factors, like a stable income and a solid payment history.
Other Factors
In addition to income and credit requirements, there are other factors that lenders consider when evaluating an applicant's eligibility for a USDA home loan:
Conclusion
Overall, the USDA home loan program is a great option for families looking to buy a home in rural or suburban areas. The income requirements are flexible, and the program allows for low down payments and competitive interest rates. However, it's essential to work with a lender who has experience with USDA loans, like FHA loans Pro . FHA loans Pro has a team of experts who can guide you through the application process and help you get the best USDA loan possible.