Yes, they do take household income into consideration when they calulate the subsidy. They also take household income into consideration for qualifying for the program in general.
If your household income is too much for the program, you will be denied the loan, regardless of how low the applicant's individual income may be. How much you are approved for, though, is based on just the applicant's income and ability to repay. So they will only take your fiancé's income into consideration for qualifying for the program, but not for determining your loan amount.
I would definitely recommend paying your car off or being close to having it paid off before applying. I do think they make some exceptions for ratios, but I would not bank on it if you are maxed out. I think you can still have two or three months of payments left on your car when you apply and they will not base the ratios on that car loan payment if it will be zeroed out by the time you close. Please double check on that, though, before you apply too early. I would not want what I "think" to mess up someone else's chance to get into their dream house if they had just waited a few more months before applying!
I do think that in your case you would likely qualify for a 38-year loan term, which would boost how much house you would qualify for. The lower your income, the more likley you will get a longer term to repay your loan. I think my income based on my family size was just at the cusp between being "very low income" and "low income." Obviously, those with a "very low income" tend to get a longer term to repay the loan in many cases and also should qualify for a decent subsidy. My subsidy is only $200 per month. That amount helps significantly, but it's not such a huge amount of money that it will prevent me from seeking further job promotions, even though I know that my subsidy will shrink and in time I will no longer qualify for a subsidy at all if I seek to earn more money. Those on disability are pretty much on a fixed income and their ability to earn more money is harder, so I think they would therefore truly benefit long-term from the subsidies available with a USDA Direct Loan.
I cannot stress enough how very important it is, though, to get your credit cards and other credit obligations paid down as much as possible if you want to get a higher approval amount. Not only does it help your credit score, but it also helps your ratios and maximum loan amount! I know that I would have never been approved for as much as I was if I had a car payment and also a lot of other monthly bills. My ratios were very low when I applied. I think you can still get approved with certain bills like a car payment, but you may not get approved for as much house as you would like if you are already paying a few hundred dollars a month on a car.
