A key ingredient to qualify for a USDA rural housing loan is that you show your ability to take care of your financial commitments in a timely manner. You do this by having a good credit report and credit scores. A second key ingredient to qualify for a USDA rural housing loan is being aware of the USDA loan credit guidelines.
Fortunately for you, and other USDA rural housing loan applicants, lenders who offer USDA loans are often times lenient towards abnormal or unusual credit and financial situations that are outside the control of the loan applicant than are lenders who offer more traditional conventional loans from Fannie Mae and Freddie Mac.
In some cases USDA lenders will even credit you with an underwriting exception "poor credit history waiver" or an "adverse credit history waiver" if your family has been faced with a difficult, temporary situation. These types of situations include but are not limited to increased expenses due to injury, death, illness, or medical expenses.
Credit Requirements for Credit Scores 620 and Up
If your credit score is at least 620, lenders may use the USDA streamlined underwriting guidelines to approve your mortgage application, which means you may be able to get away with a few poor marks against your credit.
Lenders do not have to document any adverse credit history aside from delinquent federal debt. However, lenders have the right to ask you to explain anything on your credit report that may point to you being a credit risk.
It is not required for a lender to get a rental history rating from you – however don’t be surprised if they ask you for one if you appear to be a high risk loan applicant.
While the credit scores of all loan applicants are included in the process, the credit score of the principal wage earner is the most vital. If you have three credit scores you loan application will be evaluated by the middle of your three scores, and if you only have two they will use your lowest score.
Credit Requirements for Credit Scores Between 619 and 580
If your credit score is between 619 and 580, lenders will take a more detailed look into your credit history. If you are attempting to receive a waiver for poor credit history, you will typically have to document that the circumstances for this situation were out of your hands or temporary. Some acceptable reasons to receive a poor credit history waiver can be seen above.
Credit Requirements for Credit Scores Under 580
If your credit score is lower than 580, you will have a tougher time getting approved for a USDA loan if any of the following apply to you:
One or more 30 day late payments on any of your credit accounts that are on your credit report within the past 12 months.
Do you have any collection accounts that occurred within the past 12 months?
Have you had 2 or more 30 day late rent payments that are more than a month late in the past 3 years.
A foreclosure or bankruptcy discharged in the past 36 months.
A judgment that is still outstanding that was filed in the past 12 months.
Outstanding collection accounts with no payment plan.
An outstanding federal debt or tax lien without a payment plan.
Non-Traditional Credit or No Credit
You may fall into a small category of people who do not have a credit score. If this is you, there is an opportunity that you can qualify for a USDA rural housing loan as long as you have at least 4 credit sources in the past 12 months. In mortgage terms, these are considered "non traditional credit sources."
Acceptable Non Traditional Credit Sources
House or rent payments – provable with 12 months of cancelled checks that you wrote, or a written verification of rent from the management company to whom you paid your rent.
Payments for insurance such as life, medical, and automotive insurance, etc.
Consistent savings account deposits.
Department store or furniture store credit.
Utility payments such as water, electric, gas, cell phone.
No matter what your credit score happens to be, you may still be able to qualify for a USDA Rural Home Loan. To learn more about this program to see if it right for you, please complete the form below to have someone contact you.