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How does a pastor qualify to purchase a home with a USDA loan?

May 10th, 2024 by Sean Stephens

How does a pastor qualify to purchase a home with a USDA loan in Florida, Texas, Tennessee, or Alabama?How does a minister or pastor qualify for a USDA loan in FL, TX, TN, AL

How do you qualify for a USDA loan with pastor, clergy, or ministry income?

Can housing or parsonage income be considered for USDA loan qualifying?

These are both great questions which seem to generate much confusion, and in today’s video we will break down the details and explain how to calculate pastor, clergy, or ministry income for USDA loan qualifying.

Remember, if you need help or have a question that is what we are here for, so just call or email to discuss your scenario because we are known for returning calls, replying to emails, and responding to your messages. Now, wouldn’t it be nice if everyone did that!

How do pastors, clergy, or ministers qualify for a USDA loan?

BackgroundHow does a pastor qualify to purchase a home USDA loan in Florida, Texas, Tennessee, or Alabama?

As a starting point, the IRS provides for the following: “A minister’s housing allowance (sometimes called a parsonage allowance or a rental allowance) is excludable from gross income for income tax purposes but not for self-employment tax purposes.”  (Click here to view the entire IRS FAQ)

Do USDA guidelines allow you to include housing or parsonage allowances for pastor, clergy, or minister loan qualifying? 

USDA Guidelines state the following under Housing or Parsonage Allowance:

For annual income, which is the amount calculated when determining total USDA household income, guidelines require approving lenders to “include the amounts that will be received in the ensuing 12 months.”

For repayment income, which is the amount of income calculated to “determine if applicants have sufficient income to repay the mortgage in addition to recurring debts”,  it requires at least a one year history of the housing or parsonage allowance receipt.”

Additionally, the “full amount of the allowance may be included” but we are unable to “offset the mortgage payment with the amount of the allowance.”

USDA Guidelines further confirm that housing or parsonage allowance “will be presumed to continue unless there is documented evidence the income will cease.”

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This is also consistent with Fannie Mae guidelines that do specifically reference income for pastors, clergy, or ministers as follows: “Housing or Parsonage Income may be considered qualifying income if there is documentation that the income has been received for the most recent 12 months and the allowance is likely to continue for the next three years. The housing allowance may be added to income but may not be used to offset the monthly housing payment.”

USDA Loan Qualifying Documentation Requirements for Pastors

Now that we have a better understanding, what could be required for documentation?

Parsonage, housing, or honorarium income may be documented by reporting it on filed tax returnSebring FL USDA Loanss for qualifying income, but it may not be recognized solely through a verification of employment.

However, if the parsonage or honorarium income is not reported on the filed returns, but is reflected in box 14 of the W2 or box 3 of the 1099, the income can be used for qualifying purposes

Summary – Pastor Home Loan Qualifying

In summary, it is possible to qualify for a USDA loan with pastor, clergy, or ministry income, but having an experienced lender combined with the proper documentation is critical to success.

Just call or email to discuss your scenario and let us show you the “Metroplex” difference.

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(800) 806-9836 X 280

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Let’s make it a great day, and I look forward to seeing you right here for the next tip of the week!

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