USDA Underwriting Guidelines Made Easy for Homebuyers

USDA Underwriting Guidelines: 2025 Guide to Getting Approved for a USDA Loan

Are you looking to buy a home in a rural or suburban area with little to no money down? The USDA loan program might be perfect for you. In this updated 2025 guide, we break down the USDA underwriting guidelines in plain English, so you know exactly what to expect and how to qualify.

At Gustan Cho Associates, we help homebuyers every day who thought they couldn’t get approved. If you’ve been turned down elsewhere or are unsure if you qualify, keep reading. This guide is for you.

What Are USDA Loans?

USDA loans, backed by the U.S. Department of Agriculture, aim to help people with low to moderate incomes buy homes in rural or suburban areas. One of the best things about these loans is that they don’t require a down payment, making it easier for people who might have trouble saving up for a traditional deposit.

USDA loans usually have low interest rates, which means smaller monthly payments and less overall borrowing cost. Plus, they have flexible credit requirements, making it easier for more folks to qualify. Borrowers also pay less for mortgage insurance, which helps lighten the financial load. USDA loans are a great way for many people to get closer to owning their own home in certain areas.

USDA Underwriting Guidelines: Who’s Eligible?

Let’s start with the basics. You must meet the following guidelines to qualify for a USDA loan:

1. Occupancy Requirement

To get a USDA loan, you’ll need to live in the home as your main place. That means it can’t be just an investment property or a vacation spot. This rule is all about helping people and families who will actually be using the house.

2. Citizenship

Eligibility for the USDA loan extends exclusively to U.S. citizens and those with permanent residency status. Unfortunately, foreign nationals and temporary residents do not qualify for this type of financing.

3. No Non-Occupant Co-Borrowers

Anyone taking out the loan has to actually live in the property. This means no co-borrowers are allowed who won’t be living in the home. The goal is to keep the loan aimed at people who will be living in the house themselves.

4. Existing Homeowners

Typically, buyers need to sell their current home before getting a new one with a USDA loan. This rule helps ensure that applicants are ready for a new mortgage and do not have to manage two home loans at once.

USDA Income Guidelines for 2025

Income is a major factor in USDA underwriting guidelines. There are two kinds of income you’ll need to understand:

1. Eligibility Income

• This includes all income from everyone who will live in the home—even if they’re not on the loan.
• It includes wages, overtime, tips, child support, disability, and more.

2. Adjusted Income

• USDA subtracts certain deductions from your eligibility income.

Your adjusted income must be less than 115% of the median income in your area. Use USDA’s income limit lookup tool.

Common Deductions:

• $480 for each child under 18
• $480 for full-time students or disabled household members
• $400 for each elderly (62+) or disabled applicant
• Medical costs that go beyond 3% of your income (for senior members).
• Documented childcare expenses

Proof of Income:

• Paystubs for the past month
• W-2s for the past 2 years
• Written Verification of Employment (VOE)
• For self-employed: 2 years of tax returns with all schedules
• For Social Security or disability: 2 months of bank statements and/or an award letter

USDA Debt-to-Income Ratio (DTI) Guidelines

Your debt-to-income ratio (DTI) evaluates your monthly obligations in relation to your earnings.

USDA Standard Ratios:

• Front-end (housing) DTI: 29%
• Back-end (total) DTI: 41%

What If You Exceed the Ratios?

You can still qualify for a loan even if your debt-to-income ratios are higher than usual. Several factors can help you get approved. For example, a credit score of 660 or higher can greatly improve your chances. A strong work history shows that you are financially stable. Having extra savings after closing can act as a safety net.

If you start a new job with guaranteed raises, that can also strengthen your loan application. Use credit carefully. If you need a waiver for your debt ratio, your loan officer can send a written request with your loan file to explain your situation.

USDA Credit Guidelines: What Score Do You Need?

USDA rules don’t set a specific minimum credit score, but lenders usually stick to these categories.

1. 620 or Higher – Streamlined Underwriting

Getting a loan is easier if your credit score is 620 or above. The underwriting process is quicker, which reduces stress. You don’t need to provide letters of explanation or show your rental history. You also don’t have to pay off any collections. This makes it simpler to secure a loan and lessens the stress involved.

2. 580 to 619 – Manual Underwriting

When you’re looking at credit scores between 580 and 619, things usually get a bit more hands-on because there’s a higher risk involved. If you fall into this range, you might need to write some letters to explain any bumps in your credit history.

On top of that, having some solid backup info can really help your application stand out. Don’t forget that showing your rental history could also be important to prove you can handle your finances and keep up with your bills.

3. Below 580 – Not Recommended

If your credit score falls below 580, applying for loans or credit is generally a bad idea since most lenders see that as a big risk. In this situation, getting approved is unlikely unless you have some special reasons to convince the lender otherwise. Without those special circumstances, it’s tough for anyone with a score in that range to secure financing.

What If You Have No Credit Score?

You can qualify for credit even if you don’t have a traditional credit history. To do this, gather documents that show you are financially reliable. When you’re putting together your application, start by showing that you’ve paid your rent on time for the last year. That way, you can prove you handle your financial commitments. Toss in some electricity, water, and phone utility bills to back up your payment history.

Including any regular payments you’ve made for insurance or stores is also a good idea. Finally, try to gather at least four credit references to give lenders a better picture of your creditworthiness. Collecting all these documents and references shows that you’re financially responsible.

Unacceptable Credit History (within the past 12 months):

When figuring out if someone qualifies for USDA loans, a few things can really mess up their chances. Having lots of late payments—like 30 days or more—recent bankruptcies or foreclosures within the last three years, unresolved judgments or tax liens, and recent collections without payment plans can all hurt their approval. These issues are important for USDA underwriting and help lenders assess the borrower’s credit risk.

CAIVRS Check

You must not have any overdue federal debt. Lenders will verify your status in the CAIVRS database. Actively monitoring your federal debt situation can greatly improve your likelihood of getting financing approved. Always review your CAIVRS status and address any problems before moving forward with your loan application.

Streamlined vs. Manual Underwriting

Streamlined Underwriting (Score 620+):

Using the Streamlined Underwriting method, individuals with a credit score of 620 or above can benefit from an easier application process that demands fewer documents. You won’t need to share your rental history, which makes getting approved a lot easier. Plus, you don’t have to explain any past collection accounts or late payments, so securing financing is much less of a hassle.

Manual Underwriting (Score <620 or borderline case):

If you’re going through manual underwriting and your credit score is under 620, or if your situation is a bit complicated, there are a few things to keep in mind. First, be prepared to provide extra paperwork that clears up your financial picture. This can include letters explaining any negative stuff on your credit report because lenders want to know what’s up with those issues.

Also, highlight any strong points that can balance out your low credit score—showing that you handle your finances well despite past bumps in the road is key. And don’t forget about your rental history! Having a solid track record of paying on time is helpful for lenders when evaluating the risk of giving you a loan.

Student Loans & Other Debts

Under USDA underwriting guidelines, all monthly debt obligations must be included—even if:

• Student loans are in deferment – You must use 0.5% of the balance or a documented payment
• Installment debt – Include all debts with more than 6 payments left

Timeline for Salary Increases

According to USDA rules, lenders can consider a borrower’s expected income boost if it kicks in within 60 days after the first mortgage payment. This helps them assess applicants based on their potential to earn more money. By adhering to these guidelines, lenders can support borrowers expecting a pay raise, making it easier for them to secure a loan.

Common Myths About USDA Underwriting

Myth 1: You need perfect credit – False! You can receive approval even if your credit isn’t flawless and despite having collections.

Myth 2: You must live in the country – False! Many USDA-eligible areas are in suburbs or small towns just outside major cities.

Myth 3: USDA loans take forever – False! With the right lender, USDA loans can close as fast as other programs.

Get Help from USDA Loan Experts

At Gustan Cho Associates, we help borrowers get approved for loans, other lenders have said no to. We follow the USDA underwriting guidelines without adding extra rules, and there is no unnecessary information.

We work with:

• First-time homebuyers
• Borrowers with low credit scores
• Self-employed buyers
• Buyers with limited income or high DTI

Ready to See If You Qualify?

Apply today with Gustan Cho Associates and let our USDA loan experts walk you through every step of the process.

Final Thoughts on USDA Underwriting Guidelines

If you’re buying a home in an eligible area and meet the income requirements, USDA loans are one of the best zero-down programs available in 2025. Understanding the USDA underwriting guidelines helps you plan ahead and increase your chances of getting approved.

At Gustan Cho Associates, we’re here to help you every step of the way. Let’s make homeownership happen—starting today.

Borrowers who need a five-star national mortgage company licensed in 52 states with no overlays and who are experts on USDA underwriting guidelines, please contact us at 800-900-8569, text us for a faster response, or email us at alex@gustancho.com.

Frequently Asked Questions About USDA Underwriting Guidelines:

Q: What are USDA Underwriting Guidelines?

A: USDA underwriting guidelines are the rules that help lenders decide if you qualify for a USDA loan. They look at your income, credit, debt, and the area where the home is located.

Q: What Credit Score do I Need to Meet USDA Underwriting Guidelines?

A: Most lenders require a credit score of at least 620. If your score is between 580 and 619, you might still qualify if you provide extra paperwork. Scores below 580 are typically not accepted under USDA guidelines.

Q: Can I Get a USDA Loan if I don’t have a Credit Score?

A: Yes! If you don’t have a traditional credit score, USDA underwriting guidelines allow you to use non-traditional credit, such as rent, utility, and phone bills, to show that you pay your bills on time.

Q: What Kind of Income Qualifies Under USDA Underwriting Guidelines?

A: USDA underwriting guidelines say your income must be steady and reliable. Paystubs, W-2s, Social Security, or self-employment income can count—as long as it’s well documented.

Q: What is the Debt-to-Income Ratio for USDA Loans?

A: Under USDA underwriting guidelines, your housing costs should be no more than 29% of your income, and total debts should be under 41%. You might go higher with a good credit score and other strong factors.

Q: What Areas Qualify for USDA Loans Under USDA Underwriting Guidelines?

A: Homes must be in a USDA-eligible rural or suburban area. You can check the USDA website to see if the address qualifies. The USDA underwriting guidelines only allow loans for homes in approved areas.

Q: Do I Need to Sell My Current Home to Get a USDA Loan?

A: Usually, yes. USDA underwriting guidelines require most borrowers to sell their current homes before using a USDA loan to buy a new one—unless they qualify for a rare exception.

Q: Can I Use a Co-Signer if They won’t Live in the Home?

A: No. USDA underwriting guidelines don’t allow non-occupant co-borrowers. Everyone on the loan must live in the home full-time.

Q: Do Student Loans in Deferment Count Against My DTI?

A: Yes. Even if your student loans are in deferment, USDA underwriting guidelines require lenders to count 0.5% of the balance or a verified payment amount in your debt ratio.

10. Can I Still Get a USDA Loan if I had a Bankruptcy or Foreclosure?

A: Yes, but you must wait at least 3 years after the bankruptcy or foreclosure discharge. USDA underwriting guidelines also say you need a clean payment history during that time.

This blog about the waiting period after foreclosure requirements for borrowers on title but not on mortgage was updated on June 4th, 2025.