The USDA aims to specifically assist lower-income homebuyers who struggle to purchase houses away from the city. So, borrowers must earn within a specific financial window in order to qualify for a loan. A potential borrower’s household income must reach no higher than 115% of the median household income of the town in which they’re attempting to buy a home. For example, if the median household income of a town is $60,000, a buyer can earn up to $69,000 and still qualify for a USDA loan. However, this rule does not apply to all USDA home loans.
There are two types of loans offered by the Department of Agriculture: direct and guaranteed. The above qualifications apply to guaranteed USDA loans –- loans that “guarantee” homes to borrowers due to the fact that the department will compensate a private lender in the chance a homeowner defaults on their mortgage payments. On the other hand, direct USDA loans are strictly handled between the USDA and the borrower, and responsibility to pay back the loan falls squarely upon said borrower. Buyers must earn significantly less in order to qualify for a direct loan, with annual incomes usually not allowed to exceed the low-income limit for a specific town or area.