What are Allowable Deductions within the USDA Income Guidelines?
USDA Eligible Deductions under USDA Income Guidelines
What are allowable deductions within the USDA Income Guidelines? This is a great question and finding the answer can be the difference between an approval or denial under the USDA program. The USDA sets income limitations to qualify for the USDA Guaranteed Home Loan Program, but most people don’t realize they can have allowable deductions which can reduce their income and help them qualify for USDA 100% financing.
As mentioned in the USDA Income Limits post, the USDA calculates an applicant’s income in two ways: repayment income and annual income. The repayment income is used for loan qualifying purposes while the annual income determines the actual household income of all household members (which is the number used for USDA county income limits).
Most people don’t realize they can be eligible for “deductions” which help reduce their income for eligibility under USDA income guidelines. Below is a list of eligible deductions that could be used when calculating income:
- $480 deduction for each child under the age of 18
- Verified childcare expenses (day care, after school care, etc.)
- $480 deduction for each disabled dependent 18 years old or older
- $400 deduction for each eligible applicant or co-applicant aged 62 years or older
- Unreimbursed business expenses as claimed on IRS Form 2106
Here is an example using a county income limit of $74,750 and assuming a household of 1 to 4 people:
Annual Household Income: $78,000
Total Deductions: $6,360
Household Adjusted Annual Income: $71,640
In this case, the eligible deductions would reduce the total annual household income to below the county limit thus making it eligible for USDA Income Limits.