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Buyer
Eligibility Property Eligibility
Credit
Guidelines
Income
Guidelines
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504 Repair Loan
and Grant
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USDA Rural Development Income Guidelines
The underwriters use income information to: (1) help determine whether an applicant
is eligible for a loan; (2) calculate the applicant's ability to repay a loan; and (3) determine
the amount of the loan and the amount of payment subsidy the household can obtain.
When reviewing a borrower's repayment income, the mortgage
underwriter must determine whether the income is stable and dependable. They will generally need to look at two
years of history to determine the dependability of the income. In addition, they must determine that there is a reasonable expectation that the income will continue.
This section provides guidance for verifying and calculating income for each of
these purposes.
Income Definitions
There are three types of income calculated and used by the
underwriter: Household annual income, Adjusted income, and Repayment
income Whenever income determinations are made, it is essential that the underwriter use the correct income definition and consider income
from the appropriate household members. To determine whether the applicant will be
able to repay a loan, they must use repayment income.
To determine whether an applicant is income-eligible to receive a program loan or payment subsidies, the underwriter must use adjusted income. Adjusted income is calculated in 2 steps.
First, the annual income of all household members is calculated. Then, certain
household deductions for which the family may qualify are subtracted from annual
income to compute adjusted income.
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Annual Income is the amount of income that is used to determine an
applicant's eligibility for assistance. Annual income is defined as all
amounts, monetary or not, that go to, or are received on behalf of, the
applicant/borrower, co-applicant/co-borrower, (even if the household member
is temporarily absent), or any other household member; all amounts
anticipated to be received from a source outside the family during the 12-
month period, all amounts that are not specifically excluded by regulations,
and amounts derived (during the 12-month period) from assets to which any
member of the family has access.
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Adjusted Income is used to determine whether a household is income eligible
for payment assistance. It is based on annual income and provides for
deductions to account for varying household circumstances and expenses.
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Repayment Income is used to determine whether an applicant has the ability
to make monthly loan payments. It is based only on the income attributable to
parties to the note and includes some income sources excluded for the purpose
of adjusted income. Repayment Income is used during servicing only to
determine if a borrower is eligible for a Moratorium or Re-amortization.
Whose Income To Count
For repayment income, they must consider only the income of
household members who will be parties to the note. For adjusted income, the income of
all household members must be considered. For both types, live-in aides, foster children,
and foster adults living in the household are not considered household members.
An individual permanently confined to a nursing home or hospital may not be
applicant or co-applicant but may continue as a family member at the family's discretion.
The family has a choice with regard to how the permanently confined individual's
income will be counted. The family may elect either of the following:
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Include the individual's income and receive allowable deductions related to
the medical care of the permanently confined individual; or
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Exclude the individual's income and not receive allowable deductions
based on the medical care of the permanently confined individual.
Income Limits
Some program rules differ according to the income of the applicant. Three different
income limits are used for the 502 and 504 programs. The National Office
provides the income limits and updates the limits whenever they are revised.
Adjusted
income should be compared to the income limit to determine the category in which
each household falls. Income limits are as follows:
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The very low-income limit is established at approximately 50 percent of the
median income for the area/county, adjusted for household size;
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The low-income limit is established at approximately 80 percent of the
median income for the area/county, adjusted for household size; and
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The moderate-income limit is established by adding $5,500 to the low-income
limit for each household size.
These income limits are different in each county and
state. If you want to determine the
actual income limits for your county you should contact your closest area
office. You can
check your state's USDA Rural Development website but their sites are difficult
to navigate.
You can start at www.rurdev.usda.gov.
Good luck. If you can't find it just call their office.
Buyer Income Verification Requirements
Each applicant must provide the income, expense, and household information needed
to enable the Agency to make income determinations. Most of this information is
provided on the application, but some additional follow up with the applicant may be
required.
The borrower will be requested to provide two years of history for a reasonable determination
of income. The documentation required will vary with the source of income. In some instances, less
than two years of history may be acceptable when the borrower provides the
information, .. and the
Agency can document sound justification.
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For example, an applicant whose compensation changed from salary to commission
income with the same employer in a similar job position may be considered to have
dependable and stable income. In other instances, more than two years of history
may be required.
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For example, when an applicant's income varies significantly from year to year, the
Agency
should review a longer work history to establish an average income. Information provided
by the applicant must be verified by the Agency.
Stable and Dependable Income
The Agency has no minimum history requirement for employment in a particular
position. The key concept is whether the applicant has a history of receiving stable
income and a reasonable expectation that the income will continue. The
underwriter
must carefully assess the applicant's income to establish whether it can reasonably be
expected to continue for the next two years (e.g. child support and contract income). If
the Agency determines that an applicant's income source is unstable and
undependable, the income must be excluded from repayment but included in annual
income.
Wage and Salary Income
Income from employment may include a base
hourly wage or salary, overtime pay, commissions, fees, tips, bonuses,
housing allowances, and other compensation for personal services of all adult
members of the household. When the applicant demonstrates a two-year
history of stable or rising income, current income from each of these sources
may be used unless there is evidence to the contrary (such as the employer's
indication that such income is NOT likely to continue).
Other Sources of Income
Income from public assistance, child support, alimony, or
retirement that is consistently received is considered stable when such payments are
based on a law, written agreement or court decree, the amount and regularity of the
payments, the eligibility criteria for the payments, such as the age of the child (when
applicable), and the availability of means to compel payments. Seasonal
Income
Seasonal job income may be considered stable income when the
applicant has worked in the same line of seasonal work for at least two years. When
the applicant receives seasonal unemployment compensation, it must be clearly
associated with seasonal layoffs expected to recur and be reported on the applicant's
federal income tax returns.
Additional Income Considerations for Repayment Income
Consider these additional sources of income that are attributable to parties to the note and
represent a source of dependable income for repayment income only.
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Housing assistance payment (HAP). (HUD's Housing Choice Voucher
Homeownership Program sometimes referred to as Section 8 for Homeownership.) For additional information on the Housing Choice Voucher Homeownership Program, visit
http://www.hud.gov/offices/pih/programs/hvc/homeownership.
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Adoption assistance payments in excess of $480 per adopted child.
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Payments received for the care of foster children or foster adults (usually individuals
with disabilities, unrelated to the applicant/borrower, who are unable to live alone).
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Reparation payments paid by a foreign government arising out of the Holocaust. If
any applicant for an Agency loan was deemed ineligible because the applicant's
income exceeded the low income limit because of the applicant's Nazi persecution
benefits, the Agency Loan Approval Official should notify the applicant to reapply
for a loan.
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Certain income tax credits regularly received via the applicant's employer. The two
considered income tax credits are advanced earned income tax credits and mortgage
credit certificates.
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