The United States Department of Agriculture (USDA) provides special mortgage financing to promote homeownership in small towns and rural areas. These government-backed loans have excellent benefits, but you must meet income eligibility requirements based on where you want to buy.
Overview of Income Restrictions for USDA Loans
To qualify for USDA rural housing loans, your total household income must be below a certain threshold for your county. These income limits vary across the country and are adjusted annually. Currently for 2024, the standard cap is:
- $110,650 for households with 1-4 people
- $146,050 for larger households of 5-8 members
So a family of three looking to buy a home in a rural Midwest county would need a total income under $110,650 to potentially qualify for USDA financing The income caps tend to be higher in more expensive real estate markets like coastal cities
Why Income Limits Exist for USDA Home Loans
USDA’s mission is to promote homeownership among moderate to low income groups in small town and rural areas. The income thresholds ensure that USDA mortgage assistance goes to applicants who truly need the help.
If your income exceeds the limits in your county, it means you may have access to conventional financing and assistance is less necessary. The caps aim to direct USDA loans to the families that would benefit most.
How USDA Determines Income Eligibility by Location
USDA income limits are based on a percentage of the median household income in every county around the U.S. For 2024, the standard threshold is
- 115% of county median income for 1-4 person households
- 115% of county median income for 5-8 person households
So the limit adjusts up or down based on incomes in each local area. The median is the midpoint of incomes in the county. USDA updates the caps annually to align with current economic trends.
You can check the exact income limits for your specific area using USDA’s eligibility website. Just enter your address and household size to see the applicable cap.
Calculating Total Household Income for USDA
To stay under the income restrictions for USDA rural housing loans, you’ll need to carefully calculate and document your complete household earnings. Here’s what gets counted:
- Gross wages and salaries from all jobs
- Net income from self-employment or farming
- Retirement and Social Security benefits
- Child support and alimony
- Veteran, disability, and public assistance payments
- Income from assets like interest, dividends, and capital gains
All sources of income for any adult household members are included. You’ll need pay stubs, tax returns, and asset statements to verify income. Work closely with your USDA lender to ensure you accurately calculate total household earnings.
Options to Meet USDA Income Requirements
If your current income slightly exceeds the limit for your county and household size, you may still have options:
- Apply in a lower income rural area with higher caps
- Add non-working household members like elderly parents
- Deduct qualified expenses for childcare or disabled family members
- Wait for higher limits when USDA adjusts caps next year
With proper planning, you may still potentially qualify for a USDA home loan even if you are slightly over the standard income thresholds. Explore all possibilities before assuming you are ineligible.
Benefits of Meeting USDA’s Income Criteria
While staying under the income caps can seem restrictive, doing so allows you to enjoy the many advantages of USDA rural housing loans:
- Requires no down payment or as low as 1% down
- Offers below-market fixed interest rates
- Has flexible credit score requirements as low as 640
- Features low mortgage insurance premiums
- Provides payment subsidies to reduce monthly costs
- Allows loan amounts up to $647,200 in some areas
In addition, USDA loans require no required cash reserves after closing. Meeting the income limits is necessary to access these benefits.
How Changes in Income Can Affect USDA Eligibility
Your income eligibility is based on your current household earnings when you apply for a USDA home loan. However, it’s important to note that increases in your income after getting a USDA mortgage will not affect your existing loan.
There are no ongoing income monitoring requirements to retain a USDA loan. You also will not have to refinance to a conventional loan if your earnings eventually exceed the USDA limits down the road. The income caps only determine your initial eligibility.
Finding an Affordable USDA Mortgage
The income thresholds for USDA rural housing loans aim to direct this government assistance to the families most in need. Take time to accurately calculate your total household income and learn your county limit. If you fall under the caps, connect with USDA lenders to explore your options and apply for an affordable mortgage.
USDA mortgage insurance requirements
The USDA single-family housing guaranteed program is partially funded by borrowers who use USDA loans.
Through mortgage insurance premiums charged to homeowners, the government is able to keep the USDA rural development program affordable.
USDA last changed its mortgage insurance rates in October 2016. Those rates remain in effect today.
Today’s USDA mortgage insurance rates are:
- 1.00% upfront fee, based on the loan size (can be rolled into the loan balance)
- 0.35% annual fee, based on the remaining principal balance
As a real-life example of how USDA mortgage insurance works, let’s say that a home buyer in rural Franklin County, New York is borrowing a loan amount of $200,000 to buy a home with no money down.
The buyer’s mortgage insurance costs include a $2,000 upfront mortgage insurance premium, plus a monthly $58.33 payment for mortgage insurance.
Note that the USDA upfront mortgage insurance is not required to be paid as cash. It can be added to your loan balance to reduce the funds required at closing.
USDA eligibility for 2024
Eligibility for a USDA loan is based on a combination of household size and geography, in addition to the typical mortgage approval standards such as income and credit score verification.
USDA eligibility for a 1-4 member household requires annual household income to not exceed $91,900 in most areas of the country, and annual household income for a 5-8 member household to not exceed $121,300 for most areas.
Whether you want to buy a home or refinance via USDA, this program tends to be accessible and affordable.
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Pros and Cons of a USDA Loan | All You Need to Know About USDA Home Loans EXPLAINED
FAQ
How does USDA calculate household income?
What are the DTI limits for USDA loans in 2024?
What is the USDA limit for 2024?
What are USDA loan income limits?
USDA loan income limits are set at 115% of your area median income (AMI). That means your household income can’t be more than 15% above the median income where you live. Verify your USDA loan eligibility. Start here
What are the requirements for a USDA home loan?
The property must be in an eligible rural area as the USDA defines it, and borrowers must meet household income requirements that vary depending on location and household size. The USDA also offers the Single Family Housing Direct loan through the Section 502 Direct Loan Program.
Do you need a down payment for a USDA loan?
Along with no need for a down payment, USDA loans have another advantage: You could qualify for a low, fixed interest rate if you have low income. Some drawbacks, though, are that the property must be located in a USDA-approved area, and borrowers cannot exceed income limits. Who is eligible for a USDA loan? USDA eligibility requirements include:
What are USDA eligibility requirements?
USDA eligibility requirements include: The borrower must be a U.S. citizen or permanent resident with a track record of stable income. The home must be in a rural area designated by the USDA. The borrower’s household income must be limited to 115 percent of the median income in the county where the property is located.