What are the Credit Requirements for a USDA Home Loan?
The credit requirements for a USDA Home Loan:
When trying to qualify for a USDA home loan, many home buyers ask, “Does my credit qualify for a USDA loan?” Due to current and past economic conditions, many have dealt with issues such as medical bills, loss of employment, and other factors which required them to prioritize payments and possibly jeopardize their credit standing. Depending on the circumstances, you still may be able to meet the credit requirements for a USDA loan.
What are the Qualifying Credit Requirements for a USDA Loan?
USDA 1980D credit guidelines require that: “The applicant must have a credit history which indicates a reasonable ability and willingness to meet obligations as they become due.”
In cases of negative (adverse) credit accounts, the following will need to be reviewed:
- Was the activity temporary in nature?
- Was it beyond the applicant’s control?
- Were the circumstances contributing to the adverse credit removed?
The reason for the negative activity may need to be documented with letters of explanation along with relevant supporting documentation. Possible hardship examples could be: death of a spouse, job transfer, relocation, or medical hardship for the borrower or family member. Additionally, the underwriter will need to determine if the collection activity is a trend, or can the borrower’s intent for good credit be documented?
The following compensating factors can help towards qualifying:
- Low Debt Ratios
- Stable job time (2+ Year on the same job)
- Reserves (Checking, Savings, 401K, etc.)
- Verifiable rental history with no late payments
- High Credit Scores
Your credit scores will contribute towards loan approval. Higher scores give more flexibility with automated approvals and underwriter discretion. Lower scores can be cause for denials or require the need for additional documentation. Credit Scores can greatly impact qualifying ratios, otherwise known as Debt Ratios.
Depending on the situation, all loans are case by case scenarios and a specific score does not guarantee approval and minimum credit conditions might apply.
We know that taking the steps towards home ownership may be overwhelming; let our unique experience and expertise help with each step of the process.