USDA Credit Score Guidelines: Can You Get a USDA Loan With Bad Credit?
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 qualify 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.
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%.
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.
Other Credit 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 unpaid debt to a federal agency.
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.
Credit repayment issues do not always reflect an inability or unwillingness to meet financial
obligations. When evidence of significant derogatory credit is present, lenders may consider
extenuating circumstances and determine if the applicant is creditworthy. The lender’s underwriter
must use prudent underwriting judgment to evaluate loan requests that include significant derogatory
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:
- Check the USDA income eligibility link
- Choose state
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 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
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 262-716-8151. Or text us for a faster response. Or email us at [email protected] We are available 7 days a week, evenings, weekends, and holidays.