USDA Agency Mortgage Guidelines Versus Lender Overlays

This BLOG On USDA Agency Mortgage Guidelines Versus Lender Overlays Was PUBLISHED On May 28th, 2019

USDA allows home buyers to purchase a home with no money down.

• Per USDA Agency Mortgage Guidelines100% financing is allowed on USDA Home Loans
• Closing costs can be covered with sellers concessions and/or lender credit
• USDA Agency Mortgage Guidelines allows up to 6% sellers concession by home sellers
• Buyers can use sellers concessions for closing costs
• If the home buyer is short in covering closing costs with sellers concessions, the lender can offer lender credit in lieu of a higher mortgage interest rate
• USDA has property eligibility requirements and maximum household income guidelines unlike other loan programs

In this blog, we will cover USDA Agency Mortgage Guidelines versus lender overlays.

USDA Agency Mortgage Guidelines On Property And Income Eligibility Requirements

Not all areas qualify for USDA Loans.

• Per USDA Agency Mortgage Guidelines, the subject property needs to be located in a USDA designated area
• It does not necessarily be in an agricultural area
• Many suburbs of major cities are designated as USDA designated eligible rural areas
• USDA Agency Mortgage Guidelines also has a maximum household income limit
• Borrowers cannot exceed the maximum income limit required by the USDA
• The maximum household income limit depends on the number of people in a household versus household income

This loan program was created and launched to help low-income to moderate-income families become homeowners in rural areas.

USDA Agency Mortgage Guidelines On Borrower And Property Eligibility Requirements

The best part of USDA Loans is it allows no down payment by home buyers with 100% financing.

• The program allows for up to 6% sellers concessions so most home buyers do not have to worry about closing costs
• Not all areas qualify for USDA Financing
• The property needs to be in a rural area that has been approved by the USDA
• The area does not need to be in a farm area. Many suburbs of major cities are qualified as eligible areas
• Many areas in the United States are classified as eligible areas
• The USDA property eligibility tool is a system where home buyers can enter the zip code of the area they are interested in buying
• The tool will tell viewers whether or not the area is an approved USDA rural approved area
• USDA is the only loan program that has a maximum household income limit
• Borrowers making a lot of household income would not be eligible for financing

Here is the link to determine whether or not you meet the maximum income eligibility requirements to qualify for USDA Loan.

Data Of Borrowers Required To Determine Eligibility Requirements

The following information will be needed to see if the subject property is located in a USDA eligible rural area:

• State the property is in
• City and county of the subject property and the nearest metropolitan city
• Amount of people in the household
• Children and/or dependent under 18 years of age
• Disabled and full-time student in the household
• Are borrowers (including co-borrowers) seniors and 62 years of age or older?
• Monthly debts which include child care, elderly care, ongoing medical and disability expenses
• Household income
• Non-borrower spouse’s income is part of household income

USDA Loans is one of two loan programs that allow 100% financing. VA Loans is the other loan program that allows no down payment and 100% financing. However, you need to be an active and/or retired member of the U.S. Armed Services with a valid Certificate of Eligibility to qualify for VA Loans.

USDA Agency Mortgage Guidelines On Credit And DTI

• The minimum credit score of 580 FICO is required
• Maximum debt to income ratio is 29% front end and 43% back end
• Need automated approval per the Guaranteed Underwriting System also referred to as GUS
• GUS is an Automated Underwriting System (AUS) that is used to receive findings to determine a borrower’s eligibility.
• GUS renders the following:
  • Approve/Eligible
  • Refer/Eligible
  • Refer with Caution

GUS determines the borrower’s eligibility by analyzing the borrowers’ credit, capacity, and collateral in a matter of seconds.

USDA Agency Mortgage Guidelines After Bankruptcy And Housing Event

Borrowers can qualify for USDA Loans after bankruptcy, foreclosure, deed in lieu of foreclosure, short sale. However, there are mandatory waiting period requirements.

• There is a three-year waiting period to qualify for USDA Loans after a Chapter  7 and/or Chapter 13 Bankruptcy discharged date
• There is a three-year waiting period to qualify for USDA Loans after foreclosure, deed in lieu of foreclosure, short sale
• Unlike VA and FHA Loans, borrowers cannot qualify for USDA Loans during a Chapter 13 Bankruptcy repayment plan
• There is no manual underwriting on USDA Loans
• Therefore, there is a two-year waiting period after Chapter 13 Bankruptcy discharged date to qualify for USDA Loans

If you have any questions on this blog or other mortgage topics, please contact us at Gustan Cho Associates at 800-900-8569 or text us for faster response. Or email us at gcho@gustancho.com.