The United States Department of Agriculture offers home loans to families who make below a certain amount of money and do not have adequate housing for their needs. To qualify for a USDA loan, families must meet credit requirements, including income requirements and debt-to-income ratios. The USDA examines debt-to-income ratio to establish that the family can afford to pay the loan back each month.
Types of Debt
USDA loans typically have two different debt-to-income ratio guidelines. The ratio of potential mortgage debt to income must be no greater than 29 percent. This means that the amount of debt you would take on as a result of the mortgage must not be more than 29 percent of your total income. The ratio of total debt to income must be no greater than 41 percent. All your debts, including your potential mortgage, must not be more than 41 percent of your income.
Maximum Loan Amount
The maximum amount you may borrow for your USDA mortgage depends on your debt-to-income ratio. Those whose debt-to-income ratio closely matches the guidelines may have more trouble making mortgage payments because of other debt guidelines. Thus, borrowers whose incomes closely match the maximum guidelines for debt-to-income ratio cannot borrow as much money as those who make far more income than the debt they carry.
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The USDA examines the borrower's credit score in addition to his debt-to-income ratio when making decisions about his USDA loan application. In general, borrowers must have a credit score of 620 or more to borrow money through the USDA loan program. This credit score indicates that the borrower pays most of his debts on time and does not carry a significant amount of monthly debt. A lower credit score suggests the borrower has trouble paying back debts, even if his debt-to-income ratio falls within program standards.
To qualify for USDA mortgages as of 2011, you must make less than 115 percent of the median income for your area. Your debt-to-ratio income does not matter if you don't meet this criteria. For example, if your debt-to-income ratio is low because you make an extremely high amount of money per year, you will not qualify for USDA mortgages. The USDA lists income limits for each state on its website (see Resources).