USDA Income Limits – USDA Homes
How USDA Loan Income Limits Work
If you’re in the market for a mortgage, a USDA (United States Department of Agriculture) loan may be a viable choice, but there are certain guidelines all borrowers must follow.
This loan is designed to give homebuyers with a modest income the opportunity to become a homeowner.
In order to qualify, there are specific USDA income limits that you must meet. Read on to learn more about this type of loan and how the income limits might affect your borrowing power.
Current USDA Income Limits
When considering a USDA loan, your household income will need to be at or below the limits set forth at the time of the loan guarantee. These limits are typically set based on your area, but there are a few other important factors at play, too.
If your income is at or below the limit and you can prove your ability to repay the loan, it’s likely that you meet the eligibility requirements. The most recent guidelines for these USDA loan income limits were set forth on May 4 of 2020.
The current standard USDA loan income limits for a household of one to four people is $90,300. For a five to eight-member household, the limit is a bit higher at $119,200. While you cannot exceed these limits to be eligible, the amount may vary depending on your location in order to account for the cost of living.
Before May 4, the income limits were $86,850 for a one to four-person household and $114,650 for a five to eight-person household. While these limits are put in place as a guideline, the amount can vary significantly depending on where you live. If you live in a high cost area then income limits can go up to $196,100 for households of 5-8.
If you have a large household of over eight people, you’ll receive eight percent of the four-person limit for each additional member of your household. This percentage will be considered part of the total household income.
USDA Loan Qualifications and Calculations
The USDA uses your annual household income as a guide for the loan’s qualifying limits. They also consider the amount you expect to earn for the remainder of the year or future income.
Your household income is any income you receive, as well as any income the other adult members of the household receive. This amount is considered even if the others in your household are not going to be applicants for the loan.
Let’s say you share a home with your spouse and a sibling. If all three of you are employed, the USDA will account for the annual income from all three people, even if you’re the only person applying.
Your lender will need to estimate your total household income for the next 12 months. This amount is calculated using W2 forms and your most current pay stubs.
In terms of calculating the income limits, the gross income is what’s considered. Your gross income is the amount of money you make before any type of payroll deductions (taxes, insurance, etc.). In addition to your salary, things like overtime, bonuses, and tips are also considered.
It’s important to note that if you or any member of your household is a farmer or a small business owner, the USDA will apply the net income of operations. Certain lenders may have additional guidelines in place, so check with a USDA lender to confirm what their rules are regarding employment and income limits.
Some Types of Income Do Not Count towards USDA Loan Limit
In some cases, the USDA offers an exception to income that’s counted toward your USDA loan income limit. For example, if your minor child has a job, their earned income will not be counted.
If there is an adult full-time student in the home, the USDA does not count income in excess of $480. For those who receive the earned income tax credit, this amount is not calculated either.
An inheritance, capital gains, or life insurance policy payouts also don’t count toward the income limit. If you receive housing assistance payments (such as Section 8), these payments are not counted as income. And finally, any income of live-in aides like nurses are also not considered.
There may be a few other instances where your income won’t count toward the USDA income limit. Most lenders will look at the big picture to determine your total repayment income. This amount is different from the annual income limit that the USDA has established for loan eligibility. It’s best NOT to try to determine your income on your own. Let a mortgage lender that specializes in USDA loans calculate your income for you.
Maximum Loan Amounts
Since the USDA loan program is geared toward those with a low to moderate household income, you may think there’s a limit on what home you can purchase. However, the USDA does not have loan limits in terms of the purchase amount, but they do base the maximum loan amount on what you’re able to qualify for.
Just like any other mortgage, your loan amount will depend on several different factors. In addition to your income, your lender will look closely at your current debt and credit score.
The lender may also look at any savings you have as well as any current assets in your name. They’ll also check your previous rental or mortgage payment history to confirm that you’re a reliable borrower.
Start Your Home Buying Journey
Once you understand how these loans work and the current USDA income limits, you can determine if this type of loan is right for you. If you’re a first-time homebuyer or do not have other primary residence, a USDA loan can be an excellent choice.
If you’re interested in discussing a new mortgage or need more information, be sure to visit our website to find out more today.