USDA Home Loan Credit Requirements

To apply for the USDA Home Loan Program, the applicant’s credit history must show a reasonable ability and willingness to meet financial obligations. Credit history indicating any of the following will be considered unacceptable credit history:

  • 1 or more 30-day late payments in this past 12 months.
  • Bankruptcy or foreclosure discharged less than 3 years.
  • Unresolved judgments in this past 12 months.
  • 2 or more 30 day late rent payments in the past 3 years.
  • Collection accounts with no payment arrangements.
  • Outstanding tax liens or federal debt with no payment arrangements.
  • Accounts that have gone to collections within the past 12 months.

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USDA Home Loan Mitigating Factors to Unacceptable Credit:

Poor credit history waivers may be given for mitigating factors to establish the applicant’s intended effort toward good credit to qualify for the USDA home Loan. Lenders must document the circumstances which were beyond the borrower’s control and have been removed:

The circumstances of the adverse credit were temporary, beyond the applicant’s control and have been removed. Examples: an increased expense due to illness and/or medical expenses, injury, death, etc.

  • Applicants must not be delinquent on any Federal Government debts.
  • CAIVRs must be checked and documented in the loan submission package.
  • Credit reports involving all 3 CRA are required and must be no more than 90 days old.

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USDA Home Loan Streamlined Underwriting Criteria (620 Credit scores and higher)

For borrowers with a credit score of 620 or higher, lenders may use USDA‘s streamlined underwriting guidelines, to evaluate the loan.

  • Lenders are not required to document adverse credit histories, excepting those involving a delinquent federal debt or previous agency loan.
  • Lenders are not required to obtain a rental history rating.
  • No action will be needed on any derogatory items, (i.e. no letters of explanation, unpaid collection accounts not required to be paid off, etc.)
  • The credit score of the primary income producer will be given the most weight; however, credit scores of other applicants will be included in the review of the loan request. The middle of the 3 scores or the lower of 2 scores for all borrowers will be used.

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USDA Home Loan Credit scores of 619 to 580

Statistically, this range of credit score, results in a higher likelihood of default. Therefore, lenders will evaluate loans carefully and will be cautious of multiple risks in addition to the lower credit score. For example, a ratio waiver will be avoided unless strong compensating factors are in play. Lenders will be cautious if applicants have no rent or housing history to verify.

If an adverse credit history waiver is requested, the lender must document:

1) Circumstance was temporary in nature, and

2) Beyond the applicant’s control, and

3) Has been removed so reoccurrence is unlikely

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USDA Home Loan Credit scores of 580 or below

Statistically, this range of credit score results in a much higher rate of default. Lenders will not approve loans with credit scores of 580 and below if they exhibit any of the following:

  • 1 or more 30-day late payments in the past 12 months.
  • Bankruptcy or foreclosure discharged less than 3 years.
  • Unresolved judgments in the past 12 months.
  • 2 or more 30 day late rent payments in the past 3 years.
  • Collection accounts with no payment arrangements set up.
  • Outstanding tax liens or federal debts with no payment arrangements
  • Accounts that have gone to collections in the past 12 months.
  • Extraordinary compensating factors must be present to allow an adverse credit history waiver.

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USDA Home Loan No credit score – Non-traditional credit

No additional layers of risk are advisable for applicants with non-traditional credit.

At least 3 non-traditional credit references, representing 1 year or more, must be documented, made up of:

  • Rental or housing payment
  • Utility payment records
  • Insurance payments
  • Payments to a retail store

Debt ratio waivers may be requested for loans with ratios outside the program guidelines of 29/41, if compensating factors are present. Applicants with credit scores of 660 and higher will not require compensating factors to be documented for debt ratio waiver requests. If co-applicants have a credit score of 659 or below, additional compensating factors will need to be documented to further support the ratio waiver request. There is no minimum credit score required to be able to request a debt ratio waiver.

Compensating factors include, but are not limited to:

  • Credit score of 660 or higher for any applicant
  • Cash reserves after closing costs are fulfilled
  • Potential for increased earnings and career advancement
  • Similar housing expenditure experience
  • Conservative, responsible use of credit

Additional compensation not included in qualifying income, such as part time job income and potential bonus or commission income from a job.

Low total obligation ratio. A low total obligation ratio does not compensate for a high PITI ratio; however, if other strong compensating factors are present, a low total obligation ratio should be viewed as a positive mitigating factor.

Debt ratio waiver requests are to be submitted by the lender in writing with the completed submission package.

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