USDA Loan Underwriting Guidelines for Income

usda home loansBelow are the Underwriting Guidelines from USDA regarding what Income will be considered in qualifying borrowers for a mortgage loan.  Understand that USDA is looking for 2 different parts of income.  First, they want to know if the income that is received in the home exceeds the maximum income for that area.  Second – USDA wants to see if the income received in the home can be considered “reliable” and therefore used to qualify the borrower for the mortgage loan.

Example Number One:

A 20 year old member of the household makes $19,000 a year working full time.  That income, even if the family member is not going to be on the mortgage loan, might mean that the family is over the HOUSEHOLD income for USDA in that specific area.

Example Number Two:

A 30 year old member of the household is doing Post Graduate Work in College, and is in the 2nd year of a Fellows Program, for which they receive $32,000.  Unless there’s evidence that the income is going to continue for an additional 3 full years, this income is NOT used to qualify for a USDA Home Loan.  The income WILL be used to see if the annual income for the household is OVER the USDA limit for that specific area. Remember that USDA has a different way of counting Deferred Student Loans as well.

Example Number Three:

A 28 year old member of the Mohawk Nation receives a Stipend of $30,000 a year, and has record of receiving it for each of the last 3 years.  The Stipend will continue each month for the next 10 generations.  That $30,000 WILL be used to both qualify the family for a mortgage loan, and to determine if they are over the Household Income for the area.

Check USDA Income Limits For All North Carolina Counties

USDA Loan Underwriting Guidelines for Acceptable Income Sources

Remember that there are really two issues here.  One, HOW do the USDA Home Loan Underwriters Calculate the Income  – and then What Forms of Income Will They Accept.  Below you will find details about Sources of USDA Home Loan income we can use to qualify you for a Mortgage.  Here you will find information about how they Calculate the Income for a USDA Home Loan.

“Annual income determinations will be thoroughly documented in the Lender’s casefile.  Historical data based on the past 12 months or previous fiscal year may be used if a determination cannot logically be made.  Annual income to be considered includes:

(a)  Current verified income, either part-time or full-time, received   by the applicant/borrower and all adult members of the household, including any coapplicant/coborrower.

(b)  If any other adult member of the household is not presently employed but there is a recent history of such employment, that person’s income will be considered unless the applicant/borrower and the person involved sign a statement that the person is not presently employed and does not intend to resume employment in the foreseeable future, or if interest assistance is involved, during the term of the Interest Assistance Agreement.  The statement will be filed in the applicant/borrower’s loan file.

(c)  Income from such sources as seasonal type work of less than
12 months duration, commissions, overtime, bonuses, and unemployment compensation must be computed as the estimated annual amount of such income for the upcoming 12 months.  Consideration should be given to whether the income is dependable based on verification by the employer and the applicant’s history of such income over the previous 24 months.

(d)  The following are included in annual income:

(1)  The gross amount, before any payroll deductions, of wages and salaries, overtime pay, commissions, fees, tips, bonuses, and other compensation for personal services of all adult members of the household.

(2)  The net income from operation of a farm, business, or profession.  Consider the following:

(i)  Expenditures for business or farm expansion and payments of principal on capital indebtedness shall not be used as deductions in determining income.  A deduction is allowed in the manner prescribed by IRS regulations only for interest paid in amortizing capital indebtedness.

(ii)  Farm and nonfarm business losses are considered “zero” in determining annual income.

(iii)  A deduction, based on straight line depreciation, is allowed in the manner prescribed by IRS regulations for the exhaustion, wear and tear, and obsolescence of depreciable property used in the operation of a trade, farm, or business by a member of the household.  The deduction must be based on an itemized schedule showing the amount of straight line depreciation that could be claimed for Federal income tax purposes.

(iv)  Any withdrawal of cash or assets from the operation of a farm, business, or profession will be included in income, except to the extent the withdrawal is reimbursement of cash or assets invested in the operation by a member of the household.

(v)  A deduction for verified business expenses, such as for lodging, meals, or fuel, for overnight business trips made by salaried employees, such as long-distance truck drivers, who must meet these expenses without reimbursement.

(3)  Interest, dividends, and other net income of any kind from real or personal property, including:

(i)  The share received by adult members of the household from income distributed from a trust fund.

(ii)  Any withdrawal of cash or assets from an investment except to the extent the withdrawal is reimbursement of cash or assets invested by a member of the household.

(iii)  Where the household has net family assets, as defined in §1980.302(a) of this subpart, in excess of $5,000, the greater of the actual income derived from all net family assets or a percentage of the value of such assets based on the current passbook savings rate.

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(4)  The full amount of periodic payments received from social security (including social security received by adults on behalf of minors or by minors intended for their own support), annuities, insurance policies, retirement funds, pensions, disability or death benefits, and other similar types of periodic receipts.

(5)  Payments in lieu of earnings; such as unemployment, disability and worker’s compensation, and severance pay.

(6)  Public assistance except as indicated in paragraph (e)(2) of this section.

(7)  Periodic allowances, such as:

(i)  Alimony and/or child support awarded in a divorce decree or separation agreement, unless the payments are not received and a reasonable effort has been made to collect them through the official entity responsible for enforcing such payments and they are not received as ordered; or

(ii)  Recurring monetary gifts or contributions from someone who is not a member of the household.

(8)  Any amount of educational grants or scholarships or VA benefits available for subsistence after deducting expenses for tuition, fees, books, and equipment.

(9)  All regular pay, special pay (except for persons exposed to hostile fire), and allowances of a member of the armed forces who is the applicant/borrower or coapplicant/coborrower, whether or not that family member lives in the unit.

(10)  The income of an applicant’s spouse, unless the spouse has been living apart from the applicant for at least 3 months (for reasons other than military or work assignment), or court proceedings for divorce or legal separation have been commenced.

(e)  The following are not included in annual income but may be considered in determining repayment ability:

(1)  Income from employment of minors (including foster children) under 18 years of age.  The applicant and spouse are not considered minors.

(2)  The value of the allotment provided to an eligible household under the Food Stamp Act of 1977.

(3)  Payments received for the care of foster children.

(4)  Casual, sporadic, or irregular cash gifts.

(5)  Lump-sum additions to family assets such as inheritances; capital gains; insurance payments from health, accident, hazard, or worker’s compensation policies; and settlements for personal or property losses (except as provided in paragraph (d)(5) of this section).

(6)  Amounts which are granted specifically for, or in reimbursement of, the cost of medical expenses.

(7)  Amounts of education scholarships paid directly to the student or to the educational institution and amounts paid by the Government to a veteran for use in meeting the costs of tuition, fees, books, and equipment.  Any amounts of such scholarships or veteran’s payments, which are not used for the aforementioned purposes and are available for subsistence, are considered to be income.  Student loans are not considered income.

(8)  The hazardous duty pay to a service person applicant/borrower or spouse away from home and exposed to hostile fire.

(9)  Any funds that a Federal statute specifies must not be used as the basis for denying or reducing Federal financial assistance or benefits.  (Listed in exhibit F of RD Instruction 1980-D, available in any RHCDS office.)

(f)  Income of live-in aides who are not relatives of the applicant or members of the household will not be counted in calculating annual income and will not be considered in determination of repayment ability.”

Adjusted Annual Income and USDA Home Loan Underwriting Guidelines.

Remember that you can take a deduction for the care of minors 12 years of age or under, to the extent necessary to enable a member of the applicant/borrower’s family to be gainfully employed or to further his or her education.

The deduction will be based only on monies reasonably anticipated to be paid for care services and, if caused by employment, must not exceed the amount of income received from such employment.  Payments for these services may not be made to persons whom the applicant/borrower is entitled to claim as dependents for income tax purposes.  Full justification for such deduction must be recorded in detail in the loan docket.

More Information on USDA Loans, and USDA Frequently Asked Questions please call Steve and Eleanor Thorne, 919 694 5058 we do TONS Of USDA home loans in NC.

We also offer the NC First Time Home Buyer Program that gives you additional benefits.  This is really really great news – especially since it looks like the USDA Home Loan Program is NOT going to be available for nearly 1/3 of our State starting at the end of September!  You can currently use this program with the Mortgage Credit Certificate to purchase a home in NC!