USDA Eligibility

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USDA loan requirements for applicants

Pursuing homeownership in rural America has its advantages when it comes to the type of mortgages you can apply for. Maybe you've seen signs on the road offering mortgages at 0% down? Those signs are referring to a USDA 100% financing home loan. If you're wondering if you could meet USDA eligibility for a 100% guaranteed loan, get ready to find out... There are several requirements you must meet in order to be eligible for USDA loans. They are:
  • Legal status: You need to either be a permanent resident with a green card, or a U.S. citizen.
  • Other federal programs: USDA 100% financing for home loans are federally funded. To qualify for a USDA mortgage, you need to have the ability to use other federally funded programs. If you have been disqualified or suspended from using other federally funded programs, a USDA home loan will not be an option for you.
  • Legal capacity: You must have the legal capacity to be responsible for the mortgage and USDA home loan.
  • Primary residence: You need to plan on occupying the home as your permanent residence. USDA home loans are not the route to take for an investment or rental property.
  • Payment history: Do you have a positive payment history? You’ll need a documented history of paying your bills and other expenses on time.
  • Income limits: USDA 100% guaranteed financing home loans have income restrictions. There is a limit to how much you can make before you no longer qualify for a USDA mortgage.

USDA property eligibility requirements

  • Adequate value: The property must be adequately secured by the value of the real estate.
  • Rural designation: Areas classified as rural are based on a population less than 2500. Some areas can maintain rural designation based on a larger population if they are rural in character, or they lack mortgage credit for low-income families.
  • Size: The site must not be large enough to be subdivided under local subdivision regulations.
  • Value: The value of the site should not exceed 30 percent of the as-improved market value of the property.
  • Farm buildings: The property must not include farm service buildings. Smaller outbuildings such as storage sheds are allowed.
  • Water: The site must have water and wastewater disposal systems.
  • Modest: The property must be one that is considered modest for the area, must not have a market value in excess of the applicable area loan limit, it must meet the standard square footage consideration, and must not have certain prohibited features.
  • Square footage: The square footage of the home is not to exceed 2000 square feet.
  • Prohibited features: The property must not have a swimming pool or income-producing structures.
  • Decent, safe, and sanitary: The structure must be sound and free from deficiencies found during the inspection.
  • Protection of environment and resources: The property must be free from environmental hazards and contaminants.
  • Appraisal: In order to pass USDA eligibility, the property must undergo an appraisal.

How to find elgible areas using the USDA eligibility map

In order to meet USDA eligibility for one of their loan programs, the home you purchase must be located in an eligible rural area. To determine if your desired area is part of the USDA property eligibility list, use the USDA eligibility map. Simply enter the address and hit enter, and you’ll be shown if the property is in an eligible area.

The USDA is slow to update these maps, with the latest maps being based on 2000 census data. This is good for applicants, as it means more houses qualify for USDA eligibility in a wider area.

The most recent changes to the USDA eligibility map occurred in 2015 and were minor changes. The USDA has stated that additional changes will be made every three to five years—so expect changes to occur as soon as October 2017 or as late as 2019. Although changes may be made, the government has been reluctant to update the map based on 2010 census data. If it did, smaller communities would be greatly impacted.

USDA elgibility income

USDA eligibility is complex and based on income, geography, and household size. USDA eligibility income categories include very low, low, and moderate, while geography is down to the county level.

USDA income limits can range from $17,050 for a single member household, to $83,700 for a 4-member household, to as high as $208,350 for an 8-member household in some high-cost areas.

The USDA eligibility income is not universal—it depends on where you live and where you are choosing to move. A rule of thumb is your income needs to be 115% or less of the average income for your geographic region. Knowing what that figure is will be dependent not only on the state you choose to live in, but also the number of people in your household.

Use this USDA income calculator to find out if you and your household meet the USDA income requirements for your geographic area. You may also choose to use this USDA income-eligibility document listing income limitations for each state.

  • Self-employed: If you or someone in your household is self-employed, then the income you or your family member receives from self-employment is calculated.
  • Other adults: The income of all household members over the age of 18 are added to your income. It does not matter if they are a borrower on the USDA home loan or not.
  • Employee housing allowance: If your employer covers or pays you, or any adult in your home, a housing allowance, then it is considered income.
  • Vehicle expense allowance: If your employer pays you, or any adult in your home, a vehicle allowance, then it is considered income.
  • Pension: If you receive a pension, it’s considered income.
  • Retirement: Receiving a monthly check for retirement is considered income.
  • Military: If you, or anyone in your household, receives funds from serving our country in the military, it will be seen as income.
  • Alimony: If you are separated or divorced, and are paid alimony, it is calculated as income.
  • Child support: If you are separated or divorced, and are paid child support, it is calculated as income.
  • Rental: Any rental property adding money to your household is added to your income.
  • Social security or disability: If you or someone in your household receive funds from social security for a disability, it’s counted as income.
  • Unemployment: If you or someone in your household is unemployed, and is receiving unemployment benefits, it’s considered income.

Income sources that cannot be used by the USDA

There are three sources of income that cannot be used to calculate your total household’s USDA eligibility income:

  • Minor income: Income coming in from those in your household under the age of 18, does not count.
  • Foster subsidies: If you are a foster parent receiving funds from the state for caring for foster children, payments received for the care of foster children or foster adults in the home, are not calculated. The same is true for caring for and fostering adults with disabilities.
  • Student aid: Funds you or anyone in your household receive from student loans are not considered income.

Income deductions you can use to your advantage with a USDA home loan

After going through all the different sources that count as total household’s income, are you worried about being approved? Don’t worry; Just like federal tax deductions, the USDA has five deductions that you can use to your advantage:

  • Dependent deduction: Deduct $480 for every child and minor under 18.
  • Child care expenses: Deduct what you pay for child care for all children 12 and under.
  • Elderly household: Deduct $400 for every elderly person in your household who is 62 or older.
  • Medical expenses: You may deduct your household’s medical expenses if one of your household’s members is elderly.
  • Disability assistance: Deduct the expenses for the care of a disabled person if it exceeds 3% of gross annual income.

How can the funds from a USDA loan be used?

While the main use of the single-family housing guaranteed loan program is to buy a home, there are various ways you can use the funds from a USDA 100% financing home loan. Let's look at all you can do with your USDA mortgage funds:
  • Permanent residence: Use the funds to buy your new permanent residence. You can choose to buy an older or new home.
  • Repairs: You can use your USDA funds to buy an older home that meets USDA property eligibility and make any necessary repairs.
  • Rehabilitation: You can use your USDA funds to purchase a pre-existing home that meets USDA eligibility and go through a complete rehabilitation process.
  • Physical disability accommodations: USDA funds can help you build accommodations for a family member that faces physical challenges. You can build ramps, other special design features, or equipment that needs to be installed permanently into a home you want to buy to make life a little easier for them.
  • Refinance: If you currently have a USDA home loan, you can refinance it if you still meet USDA eligibility.
  • Utilities: USDA funds can cover the install and setup fees for your new home’s utilities, such as electric, trash, sewer, water, gas, etc.
  • Real estate taxes: USDA funds may be able to assist you in paying for the escrow account for the home’s real estate taxes or the taxes you pay when you close on your home.
  • Flood insurance premiums: If you choose to purchase a home in a flood-prone area, USDA funds may help you pay for flood insurance.
  • Essentials for livable conditions: If the home has wall-to-wall carpeting or heating and cooling equipment, funds may go towards those items. Just confirm that the items convey with the home.
  • Essential home appliances: As long as the appliances convey with the home, USDA funds will pay for them—washers, dryers, refrigerators, ranges, and ovens.
  • Fixed broadband internet service: Installing the internet service may be covered by USDA funds if the modem or other equipment was included in the home. Especially if the modem or other equipment is physically attached to the house.
  • Enhancing your home’s energy efficiency: USDA home loan funds can help you save on your electric bill by adding solar panels on your roof or installing double pane windows as you buy your new home.
  • Home site fees: Use your USDA home loan to fund a variety of upgrades, such as curb appeal.
  • Grading: USDA funds can cover services like grading the home site by leveling out the properties landscaping and soil.
  • Foundation plantings: Use shrubs and plants around the home’s foundation to alleviate a high foundation and use your USDA loan to cover the cost.
  • Seeding or sod installation: Is the landscaping non-existent? Are you looking at a home with just dirt as a back or front yard? Use your funds to add seeds to grow greenery or install sod.
  • Trees: Use the funds to install trees to add shade to the property.
  • Walkways: If there aren’t any pathways or walkways you can have them built and installed with the funds.
  • Fencing: Build a fence using the funds from your USDA loan to establish a property boundary between you and your neighbor’s property. Or have fencing installed to keep your pets inside your yard.
  • Driveways: Get the driveway repaved and fixed through the funds from a USDA loan. It’s dangerous to have a driveway that is non-existent, cracked, or full of potholes.