We are continuing our discussion on USDA home loans. This step covers the income limits you must meet in order to be eligible for a USDA mortgage. USDA loans do not have a maximum loan limit, which is a common confusion with other loan types. The USDA program provides financial assistance for home buying, particularly appealing to low to moderate income individuals, and includes benefits such as zero down payment options. A mortgage that may provide you with 100% financing, below-average mortgage rates and lower mortgage interest payments, often without requiring a down payment.
In case you missed the first step in this guide, check it out below:
Step 1: What is a USDA Home Loan?
Who Qualifies for a USDA Loan?
USDA loans are not available to all borrowers and they are not available in all housing markets. We will cover location and property eligibility later on in this series. Right now, we want to focus specifically on the income limits. USDA home loans are for home buyers with low-to-moderate income for their areas. USDA loans have specific income limits based on household size, known as the total household income limit.
The eligibility threshold determines who can apply for USDA loans, ensuring that only those who meet the income criteria are considered.
The United States Department of Agriculture (USDA) offers this loan program to provide 100% financing and great mortgage rates to borrowers who need more help than those with higher incomes. As they put it, these loans are reserved for those with “modest means.” The USDA will not guarantee a mortgage loan for any household that exceeds a maximum income level for the area where they are buying a home. USDA lenders use income calculations to assess various income sources.
The maximum loan amount is determined by the borrower’s ability to repay. Additionally, a person’s credit history is a significant factor in determining eligibility for USDA loans.
To be eligible for a USDA home loan, a household’s annual earnings cannot exceed the median household income for the area by more than 15%. There are allowances for larger households, though. The income limit for a household with eight people will be 8% higher than it is for a household with less than four people. In other words, 23% above the median income. The limits are based on the median household income for the area. For example, a home buyer in an eligible suburban Atlanta community will have a higher income cap than a borrower in rural Georgia. USDA requirements must be met to qualify for these loans.
Future homebuyer USDA eligible criteria include meeting household income limits and ensuring the property is in a USDA-designated rural area.
USDA income limits also have a floor that is based on household size:
- 1 – 4 member household must have a minimum annual income of $86,850.
- 5 – 8 member household must have a minimum annual income of $114,650.
To look up USDA income limits in your specific state and county, check the USDA income eligibility website.
What You Need to Know About USDA Income Requirements
Because the terms on USDA loans are so favorable, the USDA is very strict about income qualifying requirements. Supporting income documentation is crucial in determining applicants’ repayment ability. They are not going to back mortgages to households which make significantly higher incomes compared to their area’s median. Determining factors include an in-depth review of various financial aspects beyond just income. The goal of USDA home loans is to make rural housing more affordable to those who may not otherwise be able to afford buying a home. FHA loans also help first-time home buyers with low-to-moderate income, but they do not offer 100% financing. Interest rates and private mortgage insurance (PMI) fees are also usually higher than with USDA loans.
Understanding Household Income
Household income plays a significant role in determining eligibility for a USDA loan. The USDA considers the total household income, which includes earnings from all adult members of the household, regardless of whether they are on the loan application. The income limit is based on the median income of the area, not the borrower’s individual income. These USDA income limits are adjusted annually to reflect changes in the median income and cost of living across the country. For instance, the 2025 standard USDA loan income limit is $112,450 for 1-4 member households and $148,450 for 5-8 member households. It’s essential to check the specific USDA income limits for your area to determine your eligibility for a USDA loan.
Debt-to-Income Ratio
The debt-to-income (DTI) ratio is a critical factor in determining eligibility for a USDA loan. The DTI ratio compares your total monthly debt payments to your gross monthly income. The USDA considers two types of DTI ratios: the front-end ratio, which includes housing expenses, and the back-end ratio, which includes total debt payments. To calculate your DTI ratio, add up your total monthly debt payments and divide by your gross monthly income. The USDA typically requires a DTI ratio of 29% or less for the front-end ratio and 41% or less for the back-end ratio. Understanding your DTI ratio is essential in determining your eligibility for a USDA loan and ensuring that you can afford the monthly payments.
Conclusion
USDA loans are mostly for first-time home buyers, but some repeat home buyers will be eligible if they haven’t owned or occupied their own property in the past three years. USDA lenders use income calculations to assess various income sources. The maximum loan amount is determined by the borrower’s ability to repay. USDA lenders play a crucial role in calculating household income to establish an appropriate loan amount. Income documentation must verify various types of income to ensure accurate calculations.
In our next article, we will talk about credit score requirements for USDA home loans.
If you are interested in buying a house in a rural area and think you might be eligible for a USDA-backed loan, contact us today to see if you qualify, and learn if a USDA loan is right for you and your family.