What Are the Income Requirements of a USDA Loan?
Published by Contour Mortgage on September 25 2017

What Are the Income Requirements of a USDA Loan?

Topics: USDA

When seeking a home mortgage, you might have heard mention of a USDA loan. At first thought, you may think this type of loan is meant for farmers and others living way out in the country, far removed from city or even suburban life. But in actuality, even though the loan is backed by the U.S. Department of Agriculture, it is meant for anyone purchasing a home in any eligible rural or suburban area.

USDA loan is a great mortgage option for many people, especially first-time homebuyers, because you do not need to pay a substantial down payment as you would with other traditional mortgages. Additionally, rates are still pretty low. These two factors help thousands purchase a home. However, there are some requirements, including those involving your income, which you must meet in order to be approved for a USDA loan.

USDA Loan Income Requirements

In order to qualify for a USDA loan, you must meet a certain income requirement dependent upon the area you wish to purchase a home and the size of your family. The income requirements will vary by state—a complete breakdown of USDA loan income requirements is available for review.

It should be noted that just having the required income doesn't necessarily mean that you will be approved for a USDA loan. The amount of the mortgage you are seeking can also play a role. Typically, USDA loan rules require your monthly payment, including the principal, taxes, interest and mortgage insurance, to not exceed 29 percent of your monthly income.

Additionally, if you have other debts, such as credit card debt and car loans, the total monthly payments for these debts cannot exceed 41 percent of your monthly income. However, some exceptions may be made if you have a particularly high credit score (anything above a 660).

Lastly, your monthly income must also meet the USDA loan income requirements for your area for at least two years.

Additional Requirements

While income is definitely one of the most important criteria for being eligible for a USDA loan, there are a few other requirements, as well. For starters, the home you are intending to purchase must be for the purpose of owner occupation. You cannot purchase a home with a USDA loan for the purpose of renovating it and selling it to another party.

Additionally, you must have a good credit history. A low credit score might not necessarily affect your eligibility, but it will be to your benefit to ensure that there are no negative notes on your credit report, such as accounts that were sent to collections, bankruptcies, etc. A low credit score will probably mean that you will need to submit a lot more paperwork and face a lot more scrutiny from underwriters. Here are some common reasons your credit score may not be as high as it could. 

To learn more about USDA loans and their requirements for approval, speak to a mortgage lender today who is experienced in USDA loans. Not every lender will have ample experience in this type of loan, so it is important that you do your due diligence when seeking a mortgage lender in order to ensure a smooth mortgage process.

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