With USDA Home Loan income Calculations, it’s important to remember that there are really two issues that are important. One is how the underwriter actually does the calculations to see if you qualify for a USDA Home Loan. The second is what income Sources will be used to qualify for a mortgage. For instance, do they include Retirement Income, Alimony, or income from a Grad Student Stipend?
Basic Applicant Eligibility For USDA Home Loan
- Have the ability to personally occupy the dwelling
- Be a citizen of the United States or be admitted for permanent residency
- Non-occupant co-borrowers are not permitted
- Generally, borrowers must sell their existing home – although, if it is a Company Directed Relocation, and you can not logically commute, you may be able to keep the existing home.
USDA RD Mortgage Guidelines state that the:
“Applicants must have adequate and dependable income, typically with a history of 24 months.”
We have certainly made loans to students who just graduated with a degree, and found employment within their field of study. USDA Underwriters generally want to see the First Paystub prior to closing, so a Letter of Offer can get the loan approved… but you will usually have to receive your first pay check before the loan can close.
Contract Employees must generally have 2 full years of employment within the same company to be eligible for a USDA Home Loan in NC.
“Qualifying ratios are 29/41; however, higher ratios considered with strong compensating factors,including good credit scores (660+), stable employment history, potential for increased earnings, and ability to save.”
Compensating factors we’ve used in the past to show the “Potential for Increased Earnings” to USDA Underwriters were overtime received consistently for over 9 months, and a copy of a college degreethat correlates with the current position. Remember the USDA Catch 22… Overtime that does not have a 2 year history will not be counted in the Ratios… HOWEVER, it will be calculated in the Maximum Income Numbers for that County.
Household Members: We’ve recently been asked about how to verify the number of “Household” members. If a grandmother, for instance, is living in the home – we will use their tax returns to be certain that they claim that address, and that their income (even if they are not on the mortgage) will put the maximum household income over the limit. If a College student, for instance, is living with a family member while attending school – we need to document enrollment, and that they are living there.
Income to be verified with a written VOE and one month’s current pay stubs, OR one month’s pay stubs and two years of W2’s.
- 2/1 buydowns qualifying ratios are calculated using note rate.
- Debts with more than 6 monthly payments remaining must be included in qualifying ratios
- Student loan payments must be included in ratios even if loans are currently in deferment
- Self employed borrowers require two year history with 1040’s
- Disability and Social Security benefits – 3 year continuance documented with award letter or 2 months bank statements, grossed up 125%
- Salary increases within 60 days of the first payment due date are acceptable
- Part time employment must have a history of no less than 12 months
- Alimony and child support income must continue for 3 years and have no less than a 12 month history
- Any income of a non-purchasing spouse must be verified to make sure income limits are not exceeded
Income Calculations for USDA Home Loans in NC
USDA Rural Development determines applicant’s income in two manners:
Eligibility Income – Includes all income (salary, tips, bonus, overtime, alimony, child support, etc..) received by the applicant and co-applicant(s). This income is used to calculate qualifying ratios.
Adjusted Income – This is the applicant’s eligibility income less the total of any of the following deductions applicable to the loan. Income from all household members must be included in the total adjusted income. This adjusted income must not exceed 115% of the median household income for the area.
Allowable Deductions to Determine “Adjusted Income”:
Each minor child under 18 years of age: $480
Each disabled or handicapped individual who is not the applicant or co-applicant: $480
Each full time student 18 years or older: $480
Each elderly (62 years of age or older) or disabled applicant: $400
Medical expenses for any elderly family member: Total that exceeds 3% of gross annual income
Child care expenses for children 12 years old or under: Actual cost of care, supported by full documentation of cost
Remember that in addition to these Income Calculations, you must also meet the Minimum Income Requirements for USDA for the County you want to purchase a home in. Also, USDA requires that the Property be located within the USDA Foot Print for that County. In many of NC’s Counties – the whole county qualifies for this 100% mortgage loan! Unlike FHA, there’s no maximum loan limit with USDA – it’s a matter of what you qualify for.
If you have questions about USDA Home Loans in NC call Steve Thorne 919-649-5058, we specialize in USDA RD Mortgage Loans, and offer Today’s best interest rates!