In the situation where there is truly no credit scores established, qualifying for a USDA loan can be possible but addition qualifying steps will be needed. Today’s blog will discuss what options are available when there is NO credit score.
In the case of no credit score reporting, USDA guidelines will permit verification of “non-traditional” credit to be considered in the underwriting evaluation. These would be accounts paid by the applicant, but normally would not report to the credit bureaus.
However, it is important to note that a buyer with “zero credit scores” must truly have a credit profile that is without any negative credit reporting, period.
Non-traditional credit CANNOT offset adverse credit.
In a no score situation, we will need at least 3 pieces of non-traditional credit provided there is a 12 month verified rental history. If no rental history can be verified, then 4 alternative lines of credit will need to be documented.
Possible examples of non-traditional credit types could be:
Written account verifications directly from the creditor which would include:
Statements such as satisfactory or acceptable are not permitted.
In summary, a buyer with no credit scores can qualify for the USDA Loan. However, minimum credit conditions will apply, and each situation is reviewed on a case by case scenario.
Qualifying for a USDA home loan can be both difficult and overwhelming, but when you work with a lender that specializes and understands the USDA loan process, it is a match that can open the door to homeownership.
If you are looking to purchase a home within the next 6 months download your free USDA Blueprint for Success! This is a great educational resource for both buyers and Realtors.
For more immediate scenarios, click here to apply online for a USDA mortgage today!
So, keep us in mind for your next pre-qualification or if you have a current transaction experiencing financing difficulty and need an expert opinion.
Just call or email to discuss your scenario and let us show you the “Metroplex” difference!
Toll Free: (800) 806 – 9836 Ext. 280
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The USDA Rural Development Loan Program does require certain conditions to be met on eligible properties in order for closing to take place. This week’s tip will explain what these requirements are, where to find them, and what potential property issues a homebuyer should be on the look out for.
USDA loans are covered by HUD Handbook requirements for minimum property requirements (MPR).
Administrative Notice (AN) 4699 states that:
It continues with the following:
“Appraisers may certify the requirements of HUD Handbooks 4150.2 and 4905.1 have been met on page three of the appraisal form in the “Comment” section, in an addendum to the appraisal, or elsewhere on the appraisal form. It is not necessary for the appraiser to specifically identify each HUD Handbook by number (4150.2/4905.1). Appraiser comments that state the property “appears to meet” or “seems to meet” HUD Handbooks are unacceptable.”
So what are some red flags to look out for?
While there can be any number of issues that may require repairs, a good rule of thumb is to observe the following:
Safety, Sanitary, and Structurally Sound
If your concerns impact any one of these aspects of the home, then it may very well need to be addressed prior to closing. Please check out the link provided here for more details.
Remember that today’s topic covered USDA minimum property requirements, but understand that additional conditions can be requested by the underwriter or appraiser that go above and beyond depending on the circumstances of the situation.
If you’re already approved and in process with a contract, please consult with your lender for any specific transaction related questions that may apply.
This tip will cover a very important topic which can go a long way in determining your loan qualifications, maximum sales price, and what properties you can search for.
Per AN 4699: When qualifying tax exempt income for repayment:
“Section 1980.345(c)(2)(ii) allows income exempt from Federal Income Tax to be “grossed up” by the amount of federal tax savings attributable to the nontaxable income for repayment purposes only. No other adjustments for tax-exempt income are authorized. Lenders must document any adjustment made. There is no flat percentage authorized for all applicants.
Remember that repayment income is for loan qualifying and annual income is for USDA household income calculations.
Let’s illustrate by using the following example:
He is in a 15% tax bracket, so you could then “gross up” the non-taxed VA income by 15%, from $1,500 to $1,725.
His total loan qualifying or repayment income would be as follows:
Today’s blog will cover why a USDA loan can be a flexible choice in the case of a new construction property and is a must read for any buyer, builder, or Realtor.
For a point of clarification, the USDA Guaranteed Program does not offer construction to permanent financing or provide builder draws.
Our topic today will be discussing permanent financing also known as an end loan.
Here are the acceptable options available to document these requirements.
USDA guidelines define a new construction property as: “New dwellings that have been built for less than 12 months and have never been occupied.”
When dealing with a new construction property the following benefits will apply:
This allows for an extended time to handle both loan qualifying and construction of the home.
USDA Rural Development guidelines require the following for new construction properties:
It can be exciting when a home is built to your specifications, and while the USDA program is an equally exciting loan option, be careful that you are working with a highly experienced mortgage professional due to the additional steps required under USDA guidelines for new construction properties.
Stop the presses because I have great news to share this week. Since the Farm Bill passed earlier this year, we have been waiting on USDA to finalize their rural definition and that day is finally here. This is an important announcement, so let’s find out what this means for future USDA area eligibility!
Before we get started today, please be patient with the details. I realize this topic can be complicated, but having this knowledge is critical for future success.
The Agriculture Act of 2014 (H.R. 2624) was passed earlier this year, which ended months of uncertainty surrounding key features of the USDA Loan Program. Also known as the Farm Bill, it authorizes $956 billion in spending over the next ten years for programs such as rural development.
Since then the USDA has spent significant time working to finalize their rural definition, along with when the changes would take effect. The rural area definition has been amended as follows:
Additionally, Section 737 of the Consolidated Appropriations Act, 2014 (H.R. 3547) authorized any area that was eligible as of September 30, 2013, to remain eligible until September 30, 2014.
Rural Development is now in the process of implementing this new definition and revising the existing rural area maps. The new rural area definition will be implemented in the following two phases:
Phase 1, May 6, 2014:
Areas meeting any of the three following criteria shall be classified as eligible:
Phase 2, October 1, 2014:
Areas meeting any of the following criteria shall be classified as ineligible:
In summary, all current eligible areas will stay so until 9/30/14. Starting in 10/1/14, is when changes will take place for any areas that fall under this criteria. Some areas could lose their eligibility, while others can possibly gain eligibility they did not previously have.
Now that we have some certainty, this is a great time for homebuyers and their Realtors to take advantage of this window of opportunity.
USDA Rural Home Loans are a sought after program by consumers, so it is important for Realtors and homebuyers to understand the facts about this unique and valuable program.
In addition to saving money with no down payment, USDA loans offer the ability to finance out of pocket settlement charges. In cases when the appraised value is higher than the sales price, USDA loans will provide this added flexibility and allow homebuyers the option of financing these expenses.
FHA, Conventional, and VA loans will not permit the financing of these costs.
With all of the above mentioned benefits, please note that there are two main requirements needed before additional eligibility can be reviewed.
USDA eligible areas and income limits can be found directly at the USDA website.
Per Administrative Notice 4699: “An existing dwelling must meet HUD Handbooks 4150.2 and 4905.1”
These sections cover both existing housing property requirements and valuation analysis for Single Family homes. FHA roster appraisers will follow this when completing a USDA appraisal.
The existence of kitchen appliances is not a minimum property requirement (MPR), and the appraiser should not complete the appraisal subject to the installation of appliances.
However, please remember that if the subject property does not have appliances, then the appraiser will need to consider any applicable adjustments when determining value.
Remember that today’s topic covered minimum appliance requirements, but understand that additional conditions can be requested by the underwriter or appraiser that go above and beyond depending on the circumstances of the situation.
If you’re already approved, and in process with a contract, please consult with your lender for any specific transaction related questions that may apply.
Can you qualify for a USDA loan if you already own a home? This is a common question, and while this scenario can be possible, additional USDA qualifying guidelines will apply.
The USDA Rural Loan Progam may not be used for second homes or investment properties. Only for primary residences located in eligible areas.
However, in situations where a homeowner wants to purchase a new primary residence before their current property sells, a USDA loan can help, but proceed with caution!
In order to qualify for a USDA loan with this scenario, the loan will have to be approved by both underwriting and USDA Rural Development (RD) to have met their property superiority condition which could be anyone of the following:
Upfront work and communication at the beginning is critical between all parties to determine if this could be considered an eligible situation.
USDA income limits for the Guaranteed Program are both generous and based on household income size, but many are not familiar with the eligibility advantages for what is considered a high-cost county.
While many make the assumption that the USDA loan program is strictly for smaller loan amounts, this is simply not true. Unlike FHA loans, for example, the USDA loan program does not have a set loan limit. The maximum loan size is based on the applicant’s ability to repay.
The USDA Guaranteed Rural Housing (GRH) Program breaks down income limits for tiers of 1-4 person households and 5-8 person households. Income calculations vary from state to state and from county to county.
High cost counties are considered part of a Metropolitan Statistical Area (MSA), so the income limits are increased to allow for the higher cost of living. The United States Office of Management and Budget defines an MSA to “have at least one urbanized area of 50,000 or more population, plus adjacent territory that has a high degree of social and economic integration with the core as measured by commuting ties.”
For today’s comparison, we’ll use the Florida counties of Highlands and Collier.
USDA income limits for Highlands County start at $74,750 for a household size of 1-4 and increase to $98,650 for households consisting of 5-8 members. In comparison, Collier County has income limits of $83,750 and $110,550 respectively.
Please note that household income eligibility is based on total income by all household members, NOT just those who are on the loan application.
While this topic can be complicated, today I will guide you step by step through the USDA website and how to determine if your income qualifies for a USDA Loan.
Please remember, this calculator is only to be used as a tool and does not guarantee eligibility. Certain income or deductions may not be applicable based on specific USDA income qualifying guidelines. The bottom line is do not qualify or disqualify yourself, always check with a mortgage professional who is experienced with USDA Home Loans.
Metroplex Mortgage Services
Toll Free: (800) 806-9836 Ext. 280
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8622 N Himes Avenue
Tampa, FL 33614
FL, AL, TN NMLS# 185264
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13612 Midway Road, Suite 333-05
Dallas, TX 75244
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We lend in the following states: Alabama, Florida, Tennessee & Texas.
Any loan program may require sufficient equity and certain conditions may apply.