USDA Loans seem to be mystery, both to Georgia borrowers and other real estate professionals. One area of confusion is around credit history. While most lenders now require a 620 credit score for approval, the following are the basic credit guidelines from the US Department of Agriculture given to mortgage lenders.
Applicants must have a credit history that indicates a reasonable ability and willingness to meet obligations as they become due. A credit history reflecting any or all of the following is considered unacceptable credit history:
- More than one 30-day late within the past 12 months.
- Bankruptcy or foreclosure discharged less than 36 months
- Outstanding judgments within the past 12 months
- Two or more rent payments 30 days late within the past 3 years.
- Outstanding collection accounts with no payment arrangements
- Outstanding tax liens or delinquent federal debt with no payment arrangements
- Accounts converted to collections in the past 12 months.
The USDA will allow sub-620 credit scores, but unfortunately very few lenders will offer this program. The reluctance here is due to the high failure rate of these loans. My bank does not allow USDA loans for under 620 scores, and I don't currently have a channel to broker these "sub-prime" borrowers to.
If you have a credit score of 620, the USDA instructs lenders to utilize what they call "Streamlined Underwriting Criteria". These guidelines are a little more lenient than the above.
- Lender shall not be required to document adverse credit history except for those involving a delinquent federal debt or previous agency loan.
- Lender shall not be required to obtain a rental history rating
- No action will be necessary for any derogatory items, (i.e. no letters of explanation, unpaid collection accounts not required to be paid off, etc...
Unlike FHA loans which have strict requirements for documenting adverse credit history, USDA loans can help Georgia borrowers in qualified zip codes obtain the dream of home ownership with very little hurdles and a great rate!
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