The Home Buyer's Korner

Information presented should be used for educational purposes only.

July 8th, 2015

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The Home Buyer’s Korner

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USDA Credit Score Guidelines

USDAUSDA Credit Score Guidelines will help you figure out if you are eligible for a USDA home loan. It’s important to know how USDA credit score guidelines work, so you can repair any issue the right way.

If you have a credit card or bank loan you have a credit score and it represents your creditworthiness.

Home buyers must be able to show a credit history that indicates a reasonable ability and willingness to meet and pay their obligations as they become due. This means:

  1. No 30 days late on an obligation within the past 12 months.
  2. You cannot have had a bankruptcy or a foreclosure discharge within the last 36 months.
  3. No more than two rent payments 30 days late or more within the last three years. If you do have one or two late payments, be prepared to provide a good explanation why it’s unlikely it will happen again.
  4. No outstanding collections accounts that don’t have payment arrangements established and a payment history of at least three or more months prior to signing a purchase agreement.
  5. No tax liens or delinquent federal debt without payment arrangements established and a payment history of at least three or more months prior to signing a purchase agreement.
  6. No accounts converted to collections in the past 12 months.

Generally, if a home buyer is applying for a USDA mortgage and has credit scores of 620 or higher, USDA’s guidelines are fairly streamlined, but your lender may require additional documentation.

  1. Adverse credit history need not be documented for federal debt or previous agency loans and your rental history rating will not need consideration.
  2. No actions will need to be taken and unpaid collection accounts will not be required to be paid off.

With a credit score of 619 to 580, home buyers historically demonstrate a higher likelihood of default on their mortgage loan and some lenders will simply not offer you a mortgage loan, but a few will under the right circumstances. A home buyer whose score falls in this range will be carefully evaluated for credit worthiness and one of those “look and see” procedures is your rent or housing histories. It’s important to note again that most lenders set 620 as the minimum credit score to offer a USDA mortgage loan. If you are working with one, they still need to get a credit score waiver from USDA and USDA will only issue the waiver if:

  1. Problems with paying back loans were temporary in nature.
  2. Beyond your control.
  3. Has been remedied and there is no likelihood of re-occurrence.

Home buyers with credit scores of 580 or below demonstrate a much higher rate of default on their obligations and it’s a complicated process to get approved, but it’s not impossible by a handful of mortgage lenders. I would however highly recommend working on boosting your credit score before seeking a USDA mortgage loan, if you fall in this scenario.

Of these handful of lenders I mention, none will lend to you even under the USDA program with a credit scores in this range if:

  1. You have been 30-days late in the past 12 months on any payment.
  2. They will, however, consider bankruptcy or a foreclosure in the last 36 months, if it’s the only reason your credit score is this low.

If you have no credit score, at least four non-traditional credit references will need to be your benchmark. They can a combination of and not limited to the following, with 12 or more months history. The exception is your rental or housing payment. A satisfactory rental or housing payment is a must and needs to have been paid by YOU; not your spouse, family member or significant other who isn’t applying with you on a USDA home loan:

  1. Rental or housing payments
  2. Utility payment records
  3. Insurance payments
  4. Payments to retail stores

You lender will get credit references from these creditors, but that alone won’t be enough. Be prepared to back up these non-traditional credit referenced with cancelled checks copies or money orders.

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LOUISIANA HOME OWNERSHIP TOOLS

FHA 203K

Your Home Purchasing or Refinancing & Renovation Tool

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are ready to assist you with your home purchase

FANNIE MAE HOMESTYLE

The Conventional Alternative to FHA 203K

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USDA RURAL DEVELOPMENT

Up to $10K for Home Improvements, Renovations or a Simple Remodel

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A SIMPLE HOME SHOPPING INSPECTION TOOL

Organizing your home shopping experience affords a wise decision-making process.

This simple home inspection tool makes your ultimate buying decision a smart one.

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