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USDA Mortgage Loans: USDA Loan Requirements

written by: Lucinda Watrous•edited by: Jean Scheid•updated: 6/29/2011

The United States Department of Agriculture, otherwise known as the USDA, provides mortgage loans to those who may not otherwise qualify for conventional mortgages. If you are interested in learning more about USDA mortgage loans, continue reading this article.

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    Income Limitations

    The applicants must have "adequate and dependable" income. The income must not exceed the established moderate income limit for the area. These limits will vary from county to county, so it will be necessary to check with the local agency to find out the exact income limits for the area where you want to move. Some areas will have higher income limits as the agencies are trying to establish growth in these areas.

    The adjusted gross income includes the income of the applicant, the co-applicant, and any other adults in the home, though some adjustments may be made for child care--of up to $480 per month per minor child.

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    Citizenship

    All applicants should either be a natural U.S. Citizen, a resident alien or otherwise legally designated to be in the United States. If citizenship is an issue, an USDA loan is not an option. Anyone without legal U.S. citizenship will experience issues with getting a loan approved.

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    Credit History

    The credit history of the applicants must be satisfactory, with a rating of at least 620. The history should show that the applicants are willing and able to pay their debt arrangements when they are due. This means there should not be more than two 30 day late payments on the record for at least the last two years. If a 620 credit score cannot be achieved, a cosigner may be an option, but otherwise, the applicants will need to work with a local consumer credit agency to improve their credit rating and chances of qualifying for the loan. Sometimes, exceptions can be made, but this will depend on the lender and their underwriters.

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    Ratios

    The ratio of mortgage payment including taxes and insurance cannot exceed 29% of the applicant's gross income. The ratio of total debt cannot exceed 41% of the applicant's gross income. This means the income the applicants have must mtch the home purchase price within these ratios. For instance, if an applicant wants to purchase a house that is too much for him under these guidelines, he will either need to increase his income, decrease his debt, or find a cheaper home.