Usda loan credit requirements
The USDA Loan Program, also known as the rural development home loan, is a 30 year fixed rate mortgage designed for home buyers with low to moderate income. The USDA home loans are mortgages backed by the United Department of Agriculture. The USDA does not actually lend the mortgage money to the home buyer, but provides default insurance to USDA approved lenders who offers the USDA home loans. The default insurance is a great incentive to lenders to provide mortgage money to home buyers who are unable meet the requirements for a traditional mortgage. The USDA home loan does not require a down payment, 100% financing. There are income limits with USDA mortgages and the hoouse must be located in a designated rural location. Surprisingly, many areas across the United States are eligible for a USDA home loan. USDA Loan Calculator
USDA Eligibility Requirements
Home buyers must be able to occupy the house after settlement, be a citizen(s) of the United States or have permanent residency. Co-borrowers who will not occupy the house are not permitted. In most cases, borrowers are required to sell their current home prior to closing on a USDA mortgage, if applicable.
Applicants must have adequate and dependable income. Prospective
homebuyers are required to meet the income guidelines for the USDA loan.
Annual income cannot be greater than 115% of the median income for the
area, however, the USDA provides adjustments to income that exceed the
limits (i.e. family size, childcare expenses for children age 12 or
The applicant(s) should have a 24 month work history or adequate and dependable income. Qualifying income includes salary, hourly wages, documented tip income, re-occurring bonus, consistent overtime, alimony, and child support, etc.) received by the applicant and co-applicant(s)
The monthly debt (i.e. credit cards, installment loans, school loans, etc.) should not exceed 41% of the applicant(s) gross monthly income. The proposed mortgage payment with taxes and insurance is also included in the debt calculation. The monthly mortgage payment should not exceed 29% of the monthly income. The qualifying ratios are called debt to income. It should ne noted that the USDA permits some flexibility with the debt to income ratio with compensating factors, such as, good credit score, stable employment with the potential for increased earnings, and the ability to save.
Applicants may apply for a USDA home loan who do not have a credit score, however, the lender will attempt to determine an applicants’ credit worthiness with a 12 month history of rental or housing payments, utility payments, insurance payments, or payments to a retail store. The typical verification is made with cancelled checks or receipts.
USDA loan credit score requirement
Technically, the USDA loan program will accept credit scores below 580;
however, most lenders require a 620 credit score.
An applicant’s credit history with any or all of the following derogatory credit is considered unacceptable to the USDA home loan program.
- Multiple 30-day late within the previous 12 months
- Personal bankruptcy or home foreclosure discharged less than 36 months,
- Outstanding judgments within the past 12 months,
- Two or more 30 day late rent payments within the past 3 years,
- Open collection accounts with no payment arrangements,
- Delinquent or outstanding tax liens, federal debt with no payment arrangements,
- Credit accounts converted to collections in the past 12 months.
USDA loan program does allow adverse credit waivers for mitigating factors
Can you refinance a USDA loan?
Yes, provided that the current loan is a USDA mortgage
Can you refinance a USDA loan to a conventional loan?
Yes, there are no restrictions to refinance to a conventional loan
How hard is it to get a USDA home loan?
The USDA loan is one of the easiest home loans to get. The USDA understands that the home buyer may have income or credit issues.
How much can I borrow?
The loan amount can be up to 100% of the sales price or appraised value (whichever is higher) plus the guarantee fee. Keep in mind that the maximum loan will be based on your monthly income and debts.
What are the benefits of a USDA loan?
The USDA loan program does not require a down payment. That’s right. Zero down payment . . . the seller is permitted to pay a large percentage of the homebuyer’s closing costs. What’s the catch? The home must be located in a designated rural area. USDA eligibility map
Frequently Asked Questions About USDA Home Loans
Click on the question below to reveal the answer
► Are mobile homes eligible for USDA loans
Existing manufactured structures are not permitted, unless the dwelling is currently financed with a USDA home loan.
► Are there closing costs with USDA loans?
► Are there income limits for USDA loans?
► Are USDA guaranteed loans good? Are USDA loans hard to get
► Are USDA loans only for new homes?
► Can the seller pay closing costs on USDA mortgages?
The closing costs can be financed with USDA rural loans up to the difference between the sales price and appraised value, if the home appraises higher than the sales price.
► Can you build a house with a USDA home loan?
► Can you have a cosigner on a USDA home loan?
► Can closing costs be rolled into a USDA mortgage
► Do all banks offer USDA loans?
► Do I apply to the USDA for a mortgage?
► Do manufactured homes qualify for USDA loans?
► Do USDA home loans have pmi?
► Does the USDA loans cover closing costs?
► How do I calculate the guarantee fee on a USDA loan?
► How long does a USDA home loan take to process?
► How low can your credit score be to get an USDA mortgage?
According to the USDA:
USDA applicants should have a credit history that indicates a reasonable ability and desire to meet their credit obligations as they become due. A credit history indicating any or all of the following is considered unacceptable credit history:
- No more than one thirty day late during the past 12 months.
- No foreclosure or bankruptcy less than 36 months old
- No open judgments within the past 12 months
- Two or more rent payments that were 30 days late within the past three years.
- Outstanding collection accounts with no payment arrangements
- Outstanding delinquent federal debt or tax liens with no payment arrangements
- No credit accounts converted to collections in the past 12 months
► Is there a sales price limit with USDA loans?
► What is the USDA maximum loan amount?
► What is the minimum credit score for a USDA mortgage?