USDA Loan Income Limits For 2023 (Plus Eligibility Requirements)

USDA home loan income requirements change yearly – largely based on income. USDA loans are fantastic for those who want to live in a rural location. They have several major benefits:

  • They are less restrictive on income and credit scores.
  • They require 0% down for qualified buyers.
  • They have relatively low-interest rates.
  • They have lower fees than either FHA or VA loans.
  • You can get a USDA home loan even with prior bankruptcy or foreclosure.

But USDA loans are also a special type of loan not everyone can get. They are for rural properties and low to moderate-income households. 

Let’s look at USDA income limits in 2023 and what it takes to qualify for a USDA home loan.

What are the USDA Loan Income Limits for 2023?

The USDA rural development loan is intended for low to moderate-income households. For 2023, annual household income generally should not exceed $103,500 (a 1 to 4-member household) or $136,600 (a 5 to 8-member household). 

But that’s a general estimation. In truth, the USDA loan is set at 115% of an area’s median income amount and differs based on household size. In Colorado, a household of 1 to 4 has a limit of $129,400. In Hawaii, a household of 1 to 4 has a limit of $150,200 — a dramatic difference. Neighbor’s Bank has a tool that you can use to look up the current USDA loan income limits based on where you live.

The USDA loan income limits are lower for direct USDA loans. But direct USDA loans are much rarer than guaranteed USDA loans.

What are the USDA Loan Eligibility Requirements?

Backed by the US government, USDA loans are similar to FHA and VA loans – they can be easier to get but have unique requirements.

To get a USDA loan:

  • You must meet the above household income limits.
  • Your property must be located within a designated rural area.
  • You must be intending to occupy the property as a primary residence.
  • You must be a U.S. citizen, U.S. non-citizen national, or Qualified Alien.

There are no credit score requirements for a USDA loan. But the bank you receive your USDA loan may have its requirements. Typically, you will need a credit score of at least 640 to qualify. Otherwise, your loan will need to be manually underwritten.

Note that you must meet both the income limit and the rural requirements. You can’t purchase just any property with a USDA rural development loan. However, many are surprised to discover how many properties qualify as rural.

Income Not Counted for USDA Loans

Some of your income won’t count toward the income limit for a USDA loan. That includes payments for foster children, earned income of minors, employer-provided benefits packages, Section 8 vouchers for rent, financial aid, and inheritances. Further, there are also deductions for USDA loans:

  • $480 for each person in the household under 18.
  • $480 for any disabled or handicapped individual.
  • $480 for each full-time student.
  • $400 for each individual over the age of 62.
  • Medical expenses for the elderly exceed 3% of household income.
  • Costs of childcare for children under the age of 12.

In other words, not only is not all your income counted for the USDA loan, but you also get some deductions to your household income depending on the people within your household. You shouldn’t assume that you won’t qualify for a USDA loan.

What If You Exceed the Income Limit for the USDA Loan?

If you exceed the income for a USDA loan, an FHA loan is often the best option. USDA income limits are largely fairly firm, but consider that some qualified deductions can be used to bring your income down and qualify for the loan.

If you are a veteran, you can also get a VA loan without being subject to the income limit. You don’t need to purchase a rural property with a direct USDA loan; it’s usually beneficial. An FHA loan might also be the right mortgage if you want more flexible requirements.

If you’re looking for a USDA or FHA loan, you will likely have to pay for private mortgage insurance or its equivalent. So, your loan could be a little more expensive than a conventional loan over time, but it’s also a more flexible lending product.

Is a USDA Loan Viable in Today’s Market?

If you’re a real estate professional, you already know that FHA, VA, and USDA loans can be a hard sell. Government-backed loans can take up to 60 days to close. You may need to sway your buyer toward a conventional mortgage product in a hot market.

If you’re a buyer, your real estate agent may have already told you the above – a USDA loan isn’t a strong offer in a hot market.

But there is still a place for a USDA loan. Rural properties aren’t moving as quickly as suburban or city areas. A USDA loan could be a very flexible vehicle if you’re interested in living in a rural location (or if you have clients interested in doing so). For some, it may be the only likely way to get into a home.

What is a USDA Direct Loan vs a USDA Guaranteed Loan?

Most information is about the USDA Guaranteed Loan because it’s the most common type. There is a USDA Direct Loan package, which is directly given out by the USDA rather than being backed or guaranteed by the USDA.

The USDA Direct Loan requires a different USDA income limit; 50% to 80% of the median wages of the area. This is far more challenging, and the USDA loan amount may be fairly low. Still, if you have a low household income and want a loan for a rural property, you should check your USDA eligibility first.

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How Much Can You Borrow With a USDA Loan?

Quite a few special loan projects have loan limitations. FHA loans won’t let you borrow over a certain amount. Another unique factor for USDA loans is that they don’t have loan limitations. The effective loan limitation is the amount the individual can borrow.

Can You Have a Co-Borrower on a USDA Loan?

You can have a co-borrower on a USDA loan, but unlike a conventional loan, the co-borrower must be within the household. Consequently, they are also going to contribute to USDA income limits.

Is USDA Income Eligibility Based on Gross Income?

The USDA income requirement is based on gross median income. A home buyer must meet income eligibility standards based on total household income. They will also need to find a property in an eligible rural area.

Is It Hard to Get a USDA Loan?

Both the USDA Guaranteed Loan and the USDA Direct Loan can be more challenging to get than a traditional loan, regarding the paperwork that must be filed and the waiting period. But a USDA mortgage loan also has lower closing costs, low-interest rates, and no credit score requirements. If you’re interested in the USDA loan program and aren’t sure of your income eligibility, you should contact a loan officer.

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