USDA Income Calculations - Income Eligibility Vs. Qualifying Income

Date: December 15, 2011

USDA Loans require that borrower(s) income meet both Income Eligibility and Income Qualifying requirements. Income Eligibility is the income used to determine whether the household income exceeds the allowable limit, specific to the particular county and state in which the property is located and the size of the household. Income Qualifying is the income used to determine whether the income is large enough to support the loan request. However the calculation used to determine both criteria differ.

A common list of areas that should be reviewed by the Loan Officer with the borrower is as follows:

Income TypeIncome EligibilityIncome Qualifying
Household IncomeIncome of all adult members of the household are considered for qualifying purposes even if they are not on the loan applicationUse only income from borrower(s) on the loan application
W-2 annual incomeUse Box 3 – Social Security IncomeUse Box 1 – Wages, tips, other comp
Court ordered child support and alimonyUse court ordered amount even if not receiving income. This is for all members of the householdMust document on-time receipt over the previous 12 months
Part-time, overtime and bonus incomeAny income earned is extrapolated over a 12 month period of timeNeed a two year documentable history with the same employer to consider
Business Income/LossBusiness income or loss from a previously filed tax return will be used in determine income Need a two year documentable history provided by tax return information obtained directly from the IRS
Unemployment IncomeBenefit received from current year (and possibly previous year even if non-reoccurring) will be added to income eligibilityOnly unemployment income derived from seasonal planned layoffs will be considered as for qualifying income. All other unemployment income will be disregarded
Unreimbursed business expensesReduce Income Eligibility incomeReduce Income Qualifying income

Loan officers inexperienced with USDA Loans often will not correctly calculate income eligibility, which may lead to subsequent loan denial. Furthermore, the actual borrower should review this information as well. Borrowers need to realize there are variables identified through the loan approval process that the Loan Officer has no way of knowing when providing an initial pre-qualification letter. For instance only when tax returns are obtained from the IRS will the underwriter know if there is unreimbursed business expense.

Similar Posts:

USDA Loans Previous Foreclosure
USDA Loan Maximum Loan Amount
USDA Loans Swimming Pools
USDA Loans compared to fha loan
USDA Loan 2010 Census
Understanding USDA Loans In 5 Minutes
USDA Loans - The Secret No Money Down Loan
USDA Loans Slowly Getting More Popular
Credit Score Requirements - USDA Loans

Share |
Blog Ping