Eugene Loan Guy

Yesterday I talked about what the credit requirements are for a 100% USDA Rural Guaranteed Mortgage Loan. Today, I am going to go over the income requirements for this loan product. Since the USDA is one of the very few 100% programs in existence, it helps to know if you can qualify for the program based on the several factors involved. You might want to read my previous post on the 3Cs of mortgage lending, I think it is a help for someone just starting the process. However, since making too much money has never been a problem in the past, this is one loan program where making too much money is a problem.

To find out if your income falls within the upper guideline of the USDA program, please follow this link. (This site may still be showing income limits for family size that are not current, please check with me if confused.) Now, let’s talk about the other end of the equation, do you make enough money to qualify for the loan? Debt ratios are very important in underwriting loan in today’s mortgage environment. The standard debt ratio limit for the 100% USDA loans is 33%/41%. This means that no more than 33% of your gross income should go toward your housing payment and no more that 41% should go toward total debt payments.

As per normal, there are exceptions to every rule. Again, the USDA program allows exceptions but in a much more limited manner than conventional and other government loans. For instance, if you receive an approval from an automated underwriting system with a 50% debt ratio for an FHA loan, that is acceptable. Since there is not automated underwriting for USDA loans, anything over the norm must be supported with valid reasoning. Here are some of the more useful reasoning’s:

• Higher ratios should be avoided unless strong compensating factors are present (i.e. Principal, Interest, Taxes and Insurance (PITI) is comparable to current housing, conservative user of credit, strong job history, or demonstrated ability to accumulate reserves.)
• Payment Shock: Lenders should be cautious when applicants have no rent or housing history to verify, or the proposed PITI is 100% or greater than current rent or housing expense.
• Questionable repayment income or job stability: Lender must calculate income and document employment history and the likelihood it will continue.
  Applicants with commission only positions or widely varying amounts of overtime and bonus income may not exhibit enough adequate or stable monthly income to qualify.
• Applicants with gaps in their employment histories may not exhibit enough dependable or stable monthly income to qualify.

Mortgage Lending has entered a new phase of underwriting. A lot of the things we used to do, we are doing again. USDA has not changed their policies, they have always required this type of documentation. Income qualification….enough to pay the payment….not too much to be disqualified for the program. An interesting paradox.