USDA Mortgage Takes Weaker Credit

Begonia in my yard blooming in blue pot

USDA Mortgage can help you buy an owner occupied home with no down payment!

Cash reserves are not required

The minimum FICO score requirement 640.

This mortgage loan is also easy on the credit items:

·          Foreclosure or deed-in-lieu of foreclosure allowed after three years from completion


·         Outstanding tax liens or delinquent government debt with no satisfactory arrangements

·         No court-created or affirmed obligation (judgment) caused by nonpayment that is currently outstanding or has been outstanding within the last 12 months.

·         Two or more rent payments paid 30 days or more past due within the last 3 years

·         Accounts which have been converted to collections within the last 12 months (utility

·         bills, hospitals bills, etc.)

·         Collection accounts outstanding, with no satisfactory arrangements for payments, no

·         matter what their age as long as they are currently delinquent and/or due and payable.

·         The lender is responsible to determine what collection accounts, if any, should be paid

·         in full by the applicant prior to or at closing based upon the strength of the credit profile.

·         Evidence of meaningful financial reserves and if the accounts have the potential to

·         affect the lien position or diminish the borrower’s equity must be considered.

·         Any debts written off within the last 36 months.


·         A bankruptcy in which applicant was discharged more than 36 months before

·         application

·         A satisfied judgment completed more than 12 months before the date of mortgage application

·         _ The lender may consider mitigating circumstances to establish the borrower’s intent for

·        USDA mortgages accept weaker credit than FHA and case by case  when the applicant provides documentation that:

·         The circumstances were of a temporary nature, were beyond the applicant’s control,

·         and have been removed (e.g., loss of job; delay or reduction in government benefits or

·         other loss of income; increased expenses due to illness, death, etc.); or

·         The adverse action or delinquency was the result of a refusal to make full payment

·         because of defective goods or services or as a result of some other justifiable dispute

·         relating to the goods or services purchased or contracted for.

·         _ A 24-month history of residency is required on all files.

·         _ Non-purchasing spouse in Community Property States: Except for obligations specifically

·         excluded by state law, the debts of NPS must be included in the applicant’s qualifying ratios when

·         the applicant resides in a community property state or the property guaranteed is located in a

·         community property state. The NPS credit history is not considered a reason to deny a loan

·         application. However, the NPS obligations must be considered in the debt-to-income ratio unless

·         excluded by state law. A credit report must be obtained for the NPS in order to accurately

·         determine the debts that must be counted in the total debt ratio.

·         _ Community property states include: Arizona, California, Idaho, Louisiana, Nevada, New

·         Mexico, Texas, Washington and Wisconsin.

·         _ If borrower is legally separated in a community property state, the Legal Separation

·         Agreement signed by the judge is accepted the same as a divorce decree.

·         _ If the non-borrowing spouse has no Social Security number, due diligence must be

·         completed to assure that indeed there is no SS# assigned. Indications may show up on the

·         tax transcripts or other misc. documentation in the file. The required credit report is run with

·         only zero’s (0) in the SS# fields. It is not acceptable to run the credit report using an ITIN

·         number.


_ Short Sales: Evaluation of a borrower’s creditworthiness for borrower(s) who have pursued a

short sale

Collections: Underwriter discretion as to whether they will be required to be paid off or not. Must

not affect first lien position and cannot affect the ability to repay the mortgage debt. If the Underwriter

determines collection accounts may remain open, they must document an adverse credit waiver

and addressing the circumstances surrounding each collection account; specifically,

that the situation was temporary in nature, and beyond the mortgage applicant’s control.

_ Child care expenses are not required to be considered as a recurring liability when calculating

debt-to-income ratios. Child care expenses are utilized to calculate the adjusted gross income in

determining mortgage program eligibility.

Declared Disaster Areas _ From time to time, FEMA announces counties that are affected by natural disasters. For example after the Laguna Beach fire of 1993.

Certain areas of Orange County that are within the scope of this type of mortgage such as Silverado Canyon and Trabuco Canyon.

Property must be located in a rural area as defined by the RHS

o Populations of 10,000 or fewer

o Populations up to 20,000 if located outside a Metropolitan Statistical Area (MSA)

_ To determine if a property is located in a designated rural area, visit the RHS Web site at: Click on “Single Family Housing” under

“Property Eligibility”.

oBorrowers adjusted income may not exceed 115% of the Area Median Income (AMI)

_ To determine the income and eligibility limits, the following website walks through the household

members, income, etc. and determines if it fits within the 115% requirement: Click on “Guaranteed” under “Income Limits”.

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