Calculating Income for USDA Mortgages: Deductions that may help you Qualify
USDA Mortgages in Pennsylvania, also know as Rural Development loans, have many benefits not seen in other types of mortgage financing. These benefits include...
True 100% no money down financing
The ability to finance in your closing costs (if the appraised value supports the loan amount)
The seller may contribute up to 6% of the purchase price towards your closing costs
Low interest rates
More flexible credit and qualifying guidelines with minimum 620 credit score
USDA home loans do have income restrictions. If a household has too much income for this program, the USDA will not approve a mortgage application. Sometimes households are close to the county limit set by USDA and a few adjustments up or down to their income figure can make the difference between qualifying for a USDA mortgage or not.
Deductions to Calculated Household Income for USDA Mortgages
The USDA allows for these Basic Deductions listed in the chart below...
These deductions are mainly dependent related. The Child Care expenses are often shown with documentation from the daycare provider or can also be matched up with what is reported on the Borrower's tax returns.
Important Note to Remember : There is no double whammy with these deductions.
They are not counted as debts and are not used as part of the debt to income ratio. They are only used as deductions to possibly reduce income to within the USDA income limits. So these deductions will only benefit your USDA Mortgage application, not hurt it. If the verified income is already within the USDA income limits, there is no need to further document or explore any of these deductions.
Additions to Calculated Household Income for USDA Mortgages
The additions made to qualifying household income are mainly related to the IRS reported income of household members. The USDA will also take into account income from all members of the household minus the above deductions to determine the adjusted family income, even if these household members are not listed on the mortgage application or on the deed. If they live in the house, the USDA will take their income into account. This includes grandparents and older children who work and still live in the home. The income used will be the income they have listed on any W2s, 1099s or any reportable IRS tax documents. It is the final adjusted family income that must fall below the USDA income limits.
There is an entire website for USDA Mortgages in Pennyslvania. Visit Pennsylvania USDA Mortgage to find out about USDA Income Guidelines and to find USDA Eligible Areas.