My Girlfriend Moved In – How Will This Affect My USDA Loan Eligibility?

As a first-time homebuyer, I was excited to learn that I may qualify for a USDA loan. The prospect of getting into homeownership without any down payment requirement seemed too good to be true.

But then a potential complication arose – my girlfriend recently moved in with me

This development made me worry whether her income could jeopardize my USDA loan eligibility. In this article, I’ll share what I learned about how co-habiting significant others can impact the USDA loan income limits and approval process.

Overview of USDA Loan Income Limits

First, a quick refresher on how USDA loan income limits work. The USDA rural housing program sets maximum income thresholds based on the area where you want to buy the home.

The income limits vary by county and are adjusted for household size. For example, the income limit for a family of 4 in my county is $98,000.

For USDA loans, lenders must count all household members’ income, even if they aren’t on the loan application. This includes anyone living in the home at the time you apply.

So if my girlfriend moved in and we exceed the income limits as a household, I would no longer qualify for the USDA mortgage.

Reporting a Change in Household Size

As soon as my girlfriend moved in, I knew I had to report this change to my loan officer.

Failing to disclose all members of the household is considered misrepresentation of information and could lead to denial of the loan application.

Even if my girlfriend didn’t have any income, I still needed to report her as a new member of the household. All family members over the age of 18 must be counted.

Fortunately, my loan officer assured me that as long as our combined income remains under the limit, her moving in wouldn’t be an issue.

Providing Documentation of Income

Since my girlfriend does earn an income, my loan officer requested documentation to verify her earnings. This included:

• Copies of her two most recent pay stubs
• Her W-2 from the prior year
• A written verification of employment from her HR department

We needed to provide third-party documentation rather than just relying on a stated amount she earns. The loan underwriters want concrete proof of all household income.

Avoiding Potential USDA Denial

Even though our household income remained eligible after adding my girlfriend’s earnings, I learned that there were a few scenarios that could have led to denial of a USDA loan:

• Unable to prove separate living arrangements – If my girlfriend had previously lived with me earlier in the year but moved out right before I applied, I would need to provide documentation verifying she had established her own separate residence for at least 3 months.

• Pushing household income over the limit – Even an extra $100 a month over the limit from my girlfriend’s income could have made our household ineligible. The income thresholds allow very little wiggle room.

• Planning to add other occupants – If I knew additional people like my girlfriend’s daughter planned to move in with us after closing, I would have needed to count their incomes as well upfront.

Meeting the rural housing income limits as a household is an absolute requirement, and the underwriters scrutinize these details closely.

Considerations for Unmarried Partners

For unmarried couples, the USDA guidelines create some unique scenarios to consider:

• Only one partner applies – This allows the single applicant to potentially stay under income limits alone. However, the non-applicant’s income will still be counted fully once they occupy the home.

• Living separately until closing – An unmarried couple could consider maintaining separate households until after closing on the USDA loan to exclude the partner’s income. But any plan to immediately move in together after closing is usually problematic.

• Getting married after closing – You likely cannot hide imminent marriage plans from underwriting. Upcoming marriages that will impact household size or jointly filed tax returns need to be disclosed upfront.

There are certainly ways to try to work around the strict income rules as an unmarried couple, but none come without risks if not approached carefully and ethically.

My Strategy for USDA Approval

In my situation, I was completely upfront with my loan officer from the start about my girlfriend moving in.

We collected all needed income documents for her and showed that our combined income still fell under the limit. This demonstrated that our changed household size would not impact my USDA eligibility.

However, I made sure not to discuss any plans about marriage or adding additional occupants after closing. I did not want to raise any red flags that could put my approval at risk.

How Roommates Impact USDA Loans

The USDA guidelines also extend to roommate situations, even if they are not romantic partners. Here is how roommate income is handled:

• Income from existing roommates at the time you apply must be counted in full. All occupants’ incomes get added to the total household income calculation.

• However, you can provide documentation that a roommate plans to move out once you purchase the home. For example, you may supply a signed letter from the roommate regarding their departure.

• If a roommate already moved out within 12 months of applying, you must provide evidence they now have their own separate living arrangements.

The rules aim to capture all income that can be reasonably expected to be part of the household within the next year.

Why USDA Loans Consider All Household Income

At first glance, the USDA income guidelines seemed unnecessarily strict and invasive to me. But I soon understood the rationale behind the approach.

The main reason all household income must be counted is because the USDA loan program exists to provide affordable home financing for low- to moderate-income rural residents.

The loans are not meant for higher-income households exceeding established income limits for an area. The household income rules help direct these 100% financing loans to applicants actually in need of the assistance.

So while the limitations seemed inconvenient for my situation, I recognized that they ultimately serve an important purpose for the goals of the USDA home loan program.

Weighing Options for Other Down Payment Programs

If your household income exceeds USDA limits, either initially or due to the imminent addition of a partner, you may qualify for other down payment assistance options like:

• FHA loans – Allow household income up to 115% of area median and only need 3.5% down payment.

• VA loans – No income limits but have to be eligible veteran with full entitlement. No down payment required.

• Conventional 97 – No income limits and allows 3% down payment. Must be first-time buyer.

• Down payment assistance grants – Local programs could provide grants or forgivable seconds to assist with down payment funds.

While you lose the zero-down payment perk, these alternatives help income-restricted buyers still get into a home.

My Key Takeaways From the USDA Home Loan Process

Going through the pre-approval process for a USDA loan taught me several valuable lessons I’ll keep in mind if I do end up buying a home:

• Report any change in household occupants to your lender immediately to avoid issues down the line.

• Thoroughly research the income eligibility limits in your target area upfront when considering loan types.

• Have all documentation like pay stubs and tax returns ready for any non-applicant household members.

• Check for any state or local first-time homebuyer grants that you may qualify for.

• Build up savings for a down payment in case your income or household size impacts USDA approval.

While every homebuyer’s situation is unique, understanding the USDA loan requirements around household income can help you take the right steps during the mortgage process. Being informed and proactive ultimately improves your chances of a smooth approval and successful transition into homeownership.