Are you thinking about buying a home with a USDA loan? If so, you'll want to familiarize yourself with these loans' income limits. In this blog post, we'll provide an overview of the USDA income limits and explain how they work. We'll also discuss some of the exceptions to these limits so that you can determine if you are eligible for a USDA home loan. So, let's dive right in!

What are the USDA-guaranteed loans?

USDA-guaranteed loans are a type of home loan that helps people with low-to-moderate incomes purchase or build a home in rural and suburban areas. These loans offer attractive interest rates, no down payment requirements, no private mortgage insurance (PMI), and the option for fixed or adjustable interest rate terms.

The USDA has set income limits based on the median household income for each county in the United States. The USDA loan program is designed to assist low and moderate-income households in purchasing a home with little or no down payment.

USDA Eligibility Requirements

Basic USDA loan requirements include:

• Clean credit: No recent bankruptcy or foreclosure, or late payments

• Low-income and rural area

• Be a U.S. citizen, have a valid Social Security number, and be 18 years or older

• Have a credit score of 620 or higher

• Requirements for funds: Limits on household income vary by region; typically $91,900 for a household with 1-4 members 

• Employment: Borrowers must have a steady employment history and gross monthly income. Work from home is allowed.

• Necessities of the location: You must own a home in a rural area that is eligible for the program. You must have a single-family home as your primary residence. 

• Type of loan: A 30-year fixed-rate mortgage is the only option.

Income Limits for USDA Home Loans

The USDA home loan income limits are based on the household size and the median income of the area you are looking to purchase a home. Generally speaking, your total annual household income must be at most 115 percent of your region's median. This means that if you have a larger family, the income limits increase. For example, the maximum loan limit for a family of four is usually slightly higher than the limit for a single person or couple buying a home.

In addition to meeting the income limits, you must also have a good credit score and demonstrate that you have sufficient funds available for a down payment. You must also meet specific requirements related to your employment history, debt-to-income ratio, and other factors.

Want to know how USDA Income Limits Work?

USDA loan income limits serve as a threshold for eligibility. You are eligible to apply for the USDA zero-down loan program if your household's total income is less than the limit set by the USDA.

The USDA sets new limits every year in the spring, usually in May or June. These limits can't exceed 15% of the area's median household income.

As of 2022, the following are the standard income limits for the Single-Family Housing Guaranteed Loan Program:

• 1-4 member households increased to $103,500

• 5-8 member household increased to $136,600*

In regions with higher living costs, income limits are higher.

Are there Exceptions to USDA Income Limits?

Yes, There are! There are exceptions to the USDA income limits that may allow for higher income levels. For example, if your household's income is slightly over the limit, you may still be eligible for a USDA loan. Additionally, some state and local government grants can assist borrowers who have incomes exceeding the limit.

Also, you may qualify for additional benefits and exceptions if you are a veteran or active military personnel. An experienced USDA loan specialist can help you understand the eligibility requirements for these exceptions so that you can determine if you are eligible for a USDA home loan.

Know the maximum loan amounts that USDA lenders set

Regardless of whether applicants are obligated on the loan, the USDA evaluates them based on each adult household member's income. To get a sense of where you stand, add each adult's annual income to get your household's total annual income.

Use the following formula to determine your annual income if you are paid by the hour:

(Hourly Rate x Number of Hours Per Week) x 52 = Total Annual Income

USDA lenders use these income calculations to determine your ability to repay the loan

1. Repayment income (adjusted annual total from supporting documentation) 

2. Total annual household income (from all adult household income earners) 

3. Projected annual income for the following year (from supporting income documentation and third-party employer verification)

The following documentation is used to calculate and verify each income:

• Paystubs

• W-2s

• Outsider business confirmation

USDA lenders look at these additional financial factors to determine your ability to repay after verifying your income:

• Assets and savings 

• Asset-to-income ratio 

• Previous rental or mortgage payment history

• Credit score

The buyer's ability to repay the loan amount helps USDA lenders determine the buyer's affordability. Simply put, your lender determines your maximum USDA loan amount. However, not all types of income are eligible. 

The most typical types of income that do not qualify for USDA benefits are as follows:

• Earned income from a full-time adult student earning more than $480

• Earned income from a minor 

• Earned income tax credit Lump-sum allowances from inheritances, capital gains, or life insurance policies 

• Housing assistance payments, also known as the Section 8 Homeownership Program, Earned income from caregivers, such as live-in nurses

This list is not exhaustive, and only some applicants' circumstances will conform precisely to these fundamental guidelines. In those instances, lenders might ask for a thorough analysis of the applicant's income in relation to other important factors for qualifying.

Check your USDA eligibility today to determine if you qualify for a USDA loan. With experienced specialists and flexible terms, it's never been easier to make your dream of homeownership come true. So get started today!