Credit Scores Used By Lenders To Qualify For Mortgage

USDA Credit Score Guidelines For Borrowers With Bad Credit

ByMargarett Jurilla
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What credit score do you need for a USDA home loan?  The USDA does not have a minimum credit score requirement but 640 is the minimum for “streamlined” underwriting. Most mortgage lenders set a minimum score, usually 640. However, an applicant with a low score but no recent bad credit qualifies for USDA financing. USDA credit score guidelines do require a 640 or better score for automated underwriting. That’s why many lenders set that minimum for their own guidelines. Applicants with lower scores must go through manual underwriting, and those guidelines can be stricter.

Eligibility for USDA Loans

USDA credit underwriting involves more than just a credit score. You must meet income eligibility guidelines and the property must be in a rural area. Your income can’t be too high with a USDA loan. Qualifying depends on your area and family size. Check USDA income eligibility before applying. 

USDA Debt-to-Income Ratio Guidelines

The USDA has limits for debt-to-income (DTI) ratios. Usually, your new mortgage payment plus monthly debt payments can’t exceed 41% of your gross (after tax) monthly income. If the USDA automated underwriting system (called Guaranteed Underwriting System or GUS) approves, you can go higher than 41%. 

USDA Credit Score Guidelines

You must meet USDA guidelines for home loans. The minimum credit score requirements depend on your lender. The maximum DTI is determined by GUS. Borrowers with no credit scores and/or traditional credit can qualify for a USDA with non-traditional credit. The USDA sets income limits by county and state. The team at Gustan Cho Associates can help borrowers with credit scores down to 580 FICO qualify for USDA loans.

Other USDA Credit Score Guidelines

Some situations make applicants ineligible for a USDA loan regardless of credit score. You cannot get a USDA loan if.

  • You are delinquent on any non-tax federal debt
  • There are arrearages on your child support unless you have a court-approved payment plan and have made at least three on-time payments or will have paid the debt in full before closing your loan
  • Your social security number is flagged in the CAIVRS database.
  • Usually, that means you have an unpaid debt to a federal agency.

USDA Loans With Bad Credit

Having a low credit score won’t necessarily disqualify you for a USDA loan. If your score is low, you don’t have a credit score, or your credit report is compromised by identity theft, your lender may be able to approve you by underwriting your loan manually. If one borrower does not meet the guidelines for a validated credit score, but a co-borrower does, the loan may still be approvable.  Sometimes, a well-qualified applicant with previous bad credit can obtain loan approval. USDA credit score guidelines say:

Understand, however, that few lenders are willing to go out on a limb and approve an applicant with bad credit. That’s because they may be on the hook if the borrower defaults. Or even lose their USDA approval to do loans. 

How to Qualify for USDA Loans

Both borrowers and property need to qualify in order to be eligible for USDA Loans:

Complete the following information:

  • Total members in the household who are 18 years and younger
  • Borrowers and Spouse’s income information
  • State whether or not the borrower and/or co-borrowers are 62 years of age or older
  • Any disabled members in the household

Check to see if the property is eligible by being located in an eligible rural area.

USDA Loan Advantages

USDA credit score guidelines do not mandate a minimum credit score requirement. Homebuyers can purchase a home with a USDA Loan with zero down payment and zero closing costs. Most homebuyers pay closing costs with sellers’ concessions and/or lender credit. For more information on buying a home with USDA Loans with no down payment and no closing costs, please contact us at Gustan Cho Associates at 800-900-8569. Or text us for a faster response. Or email us at gcho@gustancho.com. We are available 7 days a week, on evenings, weekends, and holidays.

This article on USDA credit score guidelines was updated on August 22md, 2022

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