If you plan to live in a rural area and your income doesn’t exceed 115% of the average income for the area, you may be a good candidate for USDA financing. The good news is that you can get 100% financing – you don’t need a down payment. The bad news is that the USDA does have maximum loan limits.
They don’t do so in a matter of fact way, though. The USDA has a maximum amount of household income your total household can make in order to be eligible for the USDA loan. If you have household income higher than that amount, you won’t qualify. If you do fall within the parameters, you must meet the program’s debt ratio guidelines, which will limit your loan amount.
The Income Limits for 2019
The USDA recently increased the maximum amount of income a family with 1-4 members can make. The new limit is $82,700. If you have a household of five or more members, you can have a total household income of $109,150 and still qualify.
Keep in mind that these limits are for all household members. This includes household members that are not on the loan. The USDA uses the total income for the entire household when determining your eligibility. They do take into consideration certain costs, such as caring for children, the elderly, or the disabled.
These limits aren’t set in stone – they can change at any time, but the USDA typically changes income guidelines once at mid-year and then again at the end of the year.
If we use the USDA maximum housing debt ratio of 29%, you’d see that your maximum mortgage payment could be $1,998 for families of 1-4 and $2,637 for families of 1-5. This includes the principal, interest, real estate taxes, homeowner’s insurance, and mortgage insurance.
How to Qualify for a USDA Loan
The numbers we spoke about above are just for ‘eligibility’ for the USDA loan. It doesn’t mean that you automatically qualify. In order to qualify for a USDA loan, you must meet the following requirements:
- 640 credit score or higher
- 29% housing ratio
- 41% total debt ratio
- Stable income and employment for the last 2 years
- Proof that you can’t secure any other type of financing
- Proof that you’ll live in the home as your primary residence
- Proof that the home is located within the USDA’s boundaries
In order to prove that you qualify for the loan, you’ll need to provide your paystubs, W-2s, taxes (if applicable), asset statements, proof of income, and your credit score. The USDA lender will evaluate your qualifications to decide if you are a good candidate for the loan.
If the lender approves you for the loan, then they send your file to the USDA for final approval. This process does add a little time to the loan process, but not too much. As long as the lender sends a full underwriting package with all of your information, you should be in good shape.
How much you can borrow with a USDA loan depends on your total household income and your other debts. Basically, you determine how much the USDA will allow you to borrow. It’s a good thing that the USDA has these caps because it prevents you from borrowing more than you can afford.