USDA Underwriting Guidelines and Qualifications | Minimum Credit Score
Minimum USDA qualifications are set by the United States Department of Agriculture. The USDA minimum credit score will vary by lender due to some lenders setting higher standards than USDA underwriting guidelines. This article will explain:
- Eligibility tool for USDA income requirements.
- Options for USDA grants.
- And cover some key USDA loan guidelines.
USDA Minimum Credit Score Overlays
Often, minimum credit score will vary by lender due to an internal guideline called an overlay.
For example, some lenders set higher minimum credit scores like 640 or 620 FICO credit score.
Why do lenders set these higher standards? They may not have the resources to underwrite the loan or they concentrate on originating loans for borrowers that meet a specific credit profile.
Minimum Credit Score for USDA Loan
On page 25 of Chapter 10: Credit Analysis of the USDA Handbook, there is a illustration approach to manually underwritten loans based on credit ranges. An underwriter may approach the four situations as follows:
680 Credit Score or Higher
A basic level of underwriting will be done to confirm there is an acceptable credit reputation.
679 to 640 Credit Score
A comprehensive level of underwriting will be done to establish an acceptable credit reputation. Credit history should demonstrate a past willingness and ability to meet credit obligations.
Less than 640 Credit Score
A cautious level of underwriting will be performed with a detailed review of past willingness to repay and ability to manage obligations as agreed. When approving a loan, there should be documented extenuating circumstances.
Little or No Credit History
A sufficient non-traditional credit report must be able to prove the willingness to pay recurring debts.
Minimum Credit Score of 550
At Nationwide Mortgage & Realty, LLC, the USDA minimum credit score is 550, but other factors are determined during the pre-approval process. Credit scores of 580 or under are not typically approved without strong documentation of extenuating circumstances.
Getting Pre-approved for a USDA Loan
In order to get pre-approved for a USDA loan, a borrower should go through the steps to get pre-approved. The first step is to reach out to a Loan Originator for a list of documentation required for underwriting and processing.
Once enough information has been gathered, a full credit application will be taken to run the Guaranteed Underwriting System (GUS) to determine eligibility results.
When approved, a pre-approval letter will be issued to start shopping for a home.
USDA Loan Income Requirements
Two year history for employment is required. Maximum housing ratios are 29/41 and ratio waivers do not apply with a credit score under 640 FICO.
With higher credit scores, the debt-to-income ratios are determined by GUS. USDA income limits must be met that are established by the United State Department of Agriculture.
USDA Income Limits
Steps on how to use the USDA income eligibility tool:
- Ask a Loan Originator to help or click on the USDA income eligibility link.
- Pick a state.
- Pick a county.
- Fill in the following fields:
- Number of People in Household.
- Number of Residences Under 18 Years Old, Disabled or Full Time Students.
- Is Loan Applicant or Co-Applicant Age 62 or older?
- Are there any disabled Persons Living in the Household?
- Fill out income.
- Click finish to determine USDA loan income requirements and eligibility.
USDA Underwriting Guidelines – Property Eligibility
The United States Department of Agriculture’s website has a property eligibility section that determines if properties are located in an eligible rural area.
The tool is as easy as putting in an address and finding out either:
- The address is not located in an eligible rural area.
- The address is located in an eligible area.
USDA Grants for Home Loans
USDA loans do not require a minimum borrower cash investment, but USDA grants can help pay for the down payment and/or closing costs with no repayment. The USDA grants are 3% of the first total mortgage loan amount.
- Limited to 1 unit only.
- The minimum credit scores for the USDA grants is 640 FICO.
- Debt-to-income ratios are determined by GUS.