USDA Rural Housing loan limits mirror the conforming loan limits set each year by FAFA. These mortgage limits are based on property location (state & county) For 2021, most of the U.S. has a limit of $548,250 for a single 1 unit property. However, some more expensive high-cost locations permit loan limits even higher as seen in the link above.
All Conventional, FHA, and USDA loans guidelines put restrictions or “cap” on the borrower’s debt-to-income ratios. What does this mean exactly? This is the amount of debt a buyer has in relation to their income.
The debt to ratio or “DTI” has a front end and back end ratio number. The front end debt ratio number is to include just the borrowers housing expense – principle, interest, taxes, insurance and homeowners association dues. The back end ratio is housing expense plus ALL of the other debts like car payments, student loans, credit card payments, etc.
USDA likes to see these numbers stay below 30% for the housing expense, and 42% for debts for a buyer’s total gross income. Let’s look at an example below:
Front end ratio: Jill is a school teacher and she makes a gross income of $55,000 per year. This comes out to $4,583 gross income per month. 30% of Jill’s gross monthly income is $1,375.00. So in Jill’s situation, her maximum housing expense cannot exceed $1,375 per month.
Back end ratio: Let’s also assume Jill also has a monthly car payment of $300 per month, this put’s her total monthly debt to $1,675 per month. Since this is still less than 42% of her monthly gross income, she would qualify.
Keep in mind that in addition to debt ratio limits, USDA is the only program that also has household income limits. FHA and Conventional loans do not have this. So even with the maximum loan limits being over $500,000, it’s unlikely most homebuyers would qualify for this much due to household income and debt ratio restrictions.
Example: The Jones family has 4 members in their household. The USDA yearly income limit for their county is $90,300. 30% of their monthly gross income is $2,257.00. So in this example, a $2,257 housing expense would equal roughly a $375,000 home purchase (PITI) with a $0 down payment. This represents a best-case situation for a family of 1-4 members with minimal debt.
Homebuyers with questions can learn more by calling the number above, or just submit the Info Request Form on this page.