The USDA loan’s purpose is to help homebuyers with a modest income purchase a home. In order to satisfy this goal, the USDA requires that lenders certify the applicant’s household income, at the time of the guarantee, does not exceed the income limit for their area.
More simply put, if an applicant’s income is at or below the income limits for their area and they have the ability to repay the loan, they likely meet the income eligibility requirements for the USDA loan.
Many automatically assume that since the program is meant for low to medium income borrowers, there is a limit on what homes they can buy. This is incorrect. The USDA does not have set loan limits as with VA or FHA loans, but bases the maximum loan amount on the borrower's ability to qualify.
USDA loan income limits vary by location and household size with a base income-limit for the entire U.S.
The base USDA income limits are:
Households with 1-4 members have different limits as households with 5-8. Similarly, applicants living in high-cost counties will have a higher income limit than those living in counties with a more average cost of living.
For example, the limit for a homebuyer in Irvine, CA is $125,700 for households of 1-4 and $165,900 for households of 5-8.
If a household exceeds eight members, the applicant receives eight percent of the 4-person limit for each additional member.
The USDA uses annual household income for the limit measurement and takes into account the expected income for the coming year. Household income includes income received by the applicant and all adult members of the household regardless if the household member is on the loan.
For example, if the applicant, applicant’s spouse and applicant’s adult brother share a home, annual wages from all three will be included in the calculation.
The USDA requires lenders to project household income for the coming 12 months using historical data, such as W2s and current pay stubs.
The USDA income limit goes off gross income, which is the amount prior to any payroll deductions. This income includes salary, overtime, commission, tips, bonuses and any compensation for services. Income may also include housing allowances and cost of living allowances.
If a member of the household is a small business owner or farmer, the net income of operations will be applied.
Mortgage lenders can have their own additional guidelines regarding income and employment.
The USDA provides certain exceptions to income that is counted towards the USDA loan income limit.
A few of the more common income categories that are never counted towards the USDA’s max income limit include:
There are other scenarios where income does not count towards your USDA loan’s income limit. Further, lenders will look at different factors to determine your repayment income, which is different from the annual income limit used to determine USDA eligibility.
Many automatically assume that since the program is meant for low to moderate income borrowers, there is a limit on what homes they can buy. This is incorrect. The USDA does not set loan limits as with FHA loans, but bases the maximum loan amount on the borrower's ability to qualify.
As mentioned above, there is no maximum loan limit with the USDA Guaranteed Loan. This means that your preapproved loan amount will be determined by several factors, including:
You should speak with a home loan specialist to determine if you meet the USDA’s income requirements.