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. A mortgage that may provide you with 100% financing, below-average mortgage rates and lower mortgage interest payments.
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.
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 Income Limits
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 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. They are not going to back mortgages to households which make significantly higher incomes compared to their area’s median. 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.
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. 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.
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