Did you know that if you buy a home in a rural area that you might be able to get a loan with no down payment requirements? Did you also know that a large majority of the US is considered rural according to the USDA? That’s right, you don’t have to live next to the horse farm in order to qualify. The USDA has a liberal definition of the word rural, making it possible for many families to buy a home.
Not everyone will be eligible for a USDA loan, though. You must fall within certain income guidelines in order to use the program. Typically, this means that you are a low to moderate-income family. Just what does that mean and are you eligible? Keep reading to find out more.
The Income Limits
In order to be eligible for the USDA loan, you must meet the income limits. Yes, you can make too much money and not qualify for the loan. The USDA only guarantees the loans for borrowers that have a total household income that is less than 115% for their area.
Notice that we said ‘household income’? The USDA looks at more than just the income of you and your co-borrower. They want to know how much money your entire household brings in each month. They do this because they recognize that many multi-generational families live together and help one another with the bills today.
Luckily, the USDA does give a few allowances to help reduce your total household income:
- Children living with you that are under the age of 18 are worth $480 per month
- Children living with you that are over the age of 18 but go to school full time are worth $480 per month
- Disabled relatives living with you are worth $480 per month
- Elderly relatives living with you are worth $480 per month
You can figure out your gross household income by adding up everyone’s income (over the age of 18) and deducting the appropriate allowances. You can then compare your numbers to what the USDA says is the limit for your area.
Qualifying for the Loan
Now just because you pass the income limits and are eligible for a USDA loan, it doesn’t mean that you qualify for it. You still have to prove that you can afford the loan.
Now you won’t need your total household income – you can only use the income that you and your co-borrower make. You must then meet the following requirements:
- The lowest middle score between you and your co-borrower must be at least 640
- You must have a housing ratio that doesn’t exceed 29% of your gross monthly income
- You must have a total debt ratio that doesn’t exceed 41% of your gross monthly income
- You must prove that you have consistent employment and income
- You must not have a home anywhere else
- You must not be able to qualify for any other loan program
- You must use the home as your primary residence
As you can see, being eligible and qualifying for the USDA loan are two different things. It’s important to figure out first if you are eligible and then if you qualify. If you do qualify, shop around with various USDA lenders so that you can find the one that offers the best interest rate and closing costs for your loan.