USDA Guaranteed Loans: What You Need to Know for 2022

No down payment with the USDA Guarantee loan. Do you qualify?

Two story house with a sold signMost loan officers agree that the USDA home loan is one of the easiest mortgages to qualify for. After all, there is no down payment, 100% financing! Here are some of the requirements for a USDA home loan:

USDA  credit underwriting guidelines

The USDA does not have a minimum credit score requirement, but most lenders offering USDA-guaranteed mortgages do, and 640 is the minimum credit score requirement to meet the automated loan underwriting analysis. Automated underwriting is a software program that analyzes the borrower's application and helps lenders determine whether the application should be approved. Home buyers with a credit score below 640 can still be approved for a USDA loan through manual underwriting. This means that a human being will evaluate the application.

What is the income requirement for a USDA loan?

To be eligible for a USDA home loan, your total household income cannot exceed the county USDA income limits. The current USDA base loan income limit is:

1-4 member households is $91,900.
5-8 member households is $121,300.

USDA loan limits in certain areas in the United States are increased due to the cost of living. You can determine the maximum income limit for single family housing by visiting: Single Family Housing Income Eligibility.

Each year, the USDA sets income limits for the mortgage program.

USDA counts income from all adults who will occupy the home and are 18 years old or older, not just the loan applicants. The household income must be included in the income analysis for eligibility purposes. I know, it doesn't sound right. Why should grandma's social security be considered if she will not be on the mortgage? Unfortunately, that's the rule.

Also included is the first $480 of earnings (if any) for any children or dependents, including full-time college students even if they are living outside of the home temporarily during the year. Other income that is included is:

  • Alimony/child support
  • Disability/social security checks
  • Employee housing or automobile expense allowances
  • Military and self-employed income
  • Pension/retirement income
  • Rental income
  • Unemployment compensation

USDA Income Eligibility Deductions

After adding up all of the household income, borrowers/lenders can lower the total household income with the following adjustments:

  • The total amount of medical expenditures for any elderly family member that exceeds 3 percent of the gross annual income
  • The exact cost of child care for children 12 years and younger with full documentation of the expense
  • $480 for each minor child under 18 years old
  • $480 for each 18 years or older full-time student
  • $480 for each handicapped or disabled individual who is not the loan applicant or co-applicant
  • $400 for each disabled or elderly applicant (62 years of age or older)

Keep in mind, that there is a distinction between total family income and income required for qualifying.

All sources of income are considered in determining whether the applicant's household income is equal to or less than the stated household income limit (see Single Family Housing Income Eligibility). The family income is not used to determine eligibility. Qualification income is the yearly income of the borrower(s) that is used to calculate the debt-to-income ratios.

Additional Loan Requirements

  • Agree to occupy the home as their primary residence within 60 days of settlement
  • Understand the applicant(s) are acquiring a home that complies with all USDA program requirements
  • Are U.S. citizens, qualified aliens, or U.S. non-citizen nationals
  • Have not been debarred or suspended from participation in Federal programs
  • Have the legal authority to take out the loan
  • Meet income eligibility (debt to income ratios)

USDA loan property requirements

The dwelling must be located in a designated rural area. The USDA provides a lookup tool to determine property eligibility. Click on the Single Family Housing Guaranteed for a lender sponsored mortgage. Very low income borrowers who meet the income limits and are applying to the USDA directly, should click the Single Family Housing Direct link.

Properties that include Income-producing structures are not eligible for a USDA home loan.

Income-producing farms with barns, silos, livestock facilities or commercial greenhouses are not eligible.

However, homes are eligible if similar buildings are used for storage but do not generate income

There are no restrictions for home-based businesses such as daycare or other low-income activities that do not need specialized commercial real estate characteristics.

Sites must comply with zoning restrictions, be supported by adequate utilities, and have direct access to roads.

All sites must have acceptable wastewater and water systems to make sure the dwelling is decent, sanitary, and safe.

Public wastewater and water systems are required to meet state and local requirements with no further documentation or inspections needed.

Private well and wastewater systems that meet HUD, municipal, and/or state health authority regulations are not subject to additional inspections beyond water purity testing.

See Site Requirements for additional guidance

Conclusion

In conclusion, USDA guaranteed loans are a great option for those looking to purchase a home. The program offers low interest rates and flexible financing options. Additionally, the USDA is committed to helping rural communities grow and thrive. If you are interested in purchasing a home in a rural area, be sure to check out the USDA guaranteed loan program.