There is a frequently used quote in the movies in reference to the work performed by attorneys: “never ask a question that you don't know the answer to.” On the surface, that sounds like a contradiction. However, it means that attorneys should be well prepared about their legal opponent before entering a trial. In the same mold, home buyers should be well informed about their potential mortgage. Here are some general rules about income that can be used for USDA Home Loan program.
Income has Two Sides
When the USDA office reviews a borrower's application, they have two goals in mind. First, the office must determine that the total income for the household will fall within the acceptable range for USDA income guidelines. Second, the office must make a judgment to ensure the income has a reasonable expectation to continue in the future.
Acceptable Types of Income
- Verifiable income for the borrower, co-borrower and any other person living in the home whether it be from a full-time occupation or part-time.
- Income derived from seasonal type of work such as lawn care, snow removal, etc.
- Tips, commissions, bonuses, over time pay,
- Net income earned from owning a business, farm, or a profession.
- Withdrawals of cash and/or assets from a profession, business or farm will be counted in the annual income amount
- Dividends, interest and other income from stocks, bonds and rental property investments.
- Payments that are received from annuities, life insurance payouts, social security, disability benefits, pensions, retirement accounts and any other type of similar account.
- Payment received instead of earnings from employment such as workman's compensation, unemployment benefits, severance pay and disability pay.
- Child support payments as well as alimony payments
- Income from the armed forces, whether the person is enlisted fulltime or part of the Guard or Reserves
Understanding How The USDA Looks at Income
Here are a few examples to understand how the USDA views income and what can be approved for a home loan.
First Example: A married couple have one child who is 18 years old. Both parents work full-time and the child works part-time earning $10,000 per year. The child's income may put the family over the limit for their area, even though the child is not a borrower on the loan.
Second Example: In Wisconsin, a man has a fulltime job earning $85,000 per year. He is married and has 4 children, all under the age of 17 and the wife does not have a job. Because there are 6 people living in the home the annual salary of $85,000 will fall in the acceptable ranges of the USDA guidelines.
Third Example: A married couple have no children. The husband works fulltime, earning $45,000 per year and the wife works part-time earning $12,000 per year. In addition, the wife is attending college, working towards a PhD. As part of her college program she receives $32,000 yearly through a grant. The wife is scheduled to graduate with her PhD in 19 months. Since the $32,000 grant will end when she graduates, that income will not be used in calculating the family's debt to income ratio. HOWEVER, the income is used to see if the couple exceeds the income guidelines for their area.
Before choosing a home and getting set on a particular type of mortgage it is vital to talk to a mortgage lender and get pre-approved for a loan to make sure you are withing the acceptable range for the loan.