Financing in 32082>Question Details

Nymets010, Home Buyer in 32082

Are there any USDA lenders that are flexible with credit scores?

Asked by Nymets010, 32082 Tue Jul 5, 2011

I have scores in the high 500's, but i have a perfect rent history that can be used for supplemental credit, and almost 12 months of my car payment on time. I also have a fairly high income. Most lenders ay 620 credit score is the minimum, but everything i read says USDA will approve loans with lower scores, i just need to find those lenders! Please help!

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If you are applying through a mortgage lender, then you would be using the "Guaranteed" version of USDA financing, which means the mortgage lender makes the loan and USDA is guaranteeing that loan in case you default on it. The Guaranteed version's primary benefit is that it allows higher income limits to be eligible for USDA financing. The other version is called "Direct" as you apply directly with USDA, it has a lot of benefits, including lower fees, a payment subsidy (if needed), and more flexible underwriting guidelines (as they don't add any "overlays", which mortgage lenders do for their version) and *no minimum credit scores*. The downfall of the Direct version is that it has a lower eligible income threshold, and whether you see it as good or bad, you deal directly with USDA, and often their underwriting turn times can be slow (as in weeks for underwriting, just depends on how busy the local field office is).

As you can imagine, most mortgage loan officers who don't work for USDA are primarily familiar with the Guaranteed version of the program, because it's all we can do. A 620 (or even 640 here in California) is a common minimum score requirement for USDA financing. The reason 640 is a common threshold is because that is a cutoff where easier underwriting guidelines apply pertaining to one's credit. USDA specifically states in regards to "Credit Worthiness/Derogatory Credit: Credit Waivers":

"Manually underwritten loans, and GUS loans that receive a “Refer” or “Refer
with Caution” underwriting recommendation, approved by the lender for
applicants with eligible credit scores of 640 and above do not require the
lender to submit supporting documentation to Rural Development."

And so it alleviates a lot of the underwriter's concern that the loan would have a high probability of being "guaranteed" by USDA, because they had reassurance that with a 640 score they don't need to be as tough (more or less meaning, "asking for lot of documentation") on underwriting. It used to be a 620, which is why a lot of USDA lenders are also using that as their minimum score. But not many go below 620. I still recommend you aim for a 640 score, just so you have an easier overall time in underwriting. At a score below 600 it probably wouldn't take long to get it up there, a few months, if there is a credit card(s) with balances then paying those off would likely do it, or a couple more months of on time payments reporting. Credit score isn't everything though, read the "Update" link below to read through the entire guidelines. It's good to know what they are, and not just take a loan officer's word for it (but make sure to understand that lenders add "overlay" guidelines, so not all USDA mortgage lenders are the same).

Another very important item to note, is that with the Guaranteed version, your monthly payment will be higher (even if interest rates do not move one millimeter) come October 1st (meaning your loan needs to pretty much be done by October 1st, like right about to close on the home), the reason being is that USDA is imposing a monthly fee similar to "mortgage insurance" that FHA loans have. You can read about the details, and how it would affect a USDA GRH (Guaranteed Rural Housing) monthly payment in a blog entry I wrote at:…

USDA links:

USDA Guaranteed's main guidelines:
Update to guidelines in October of 2010, includes documentation requirements pertaining to pretty much everything, including the 640 score information:
These are "updates" (called Administrative Notices, AN's) to the USDA program that are announced, for example clarification of guidelines, general information, reminders, etc.:
1 vote Thank Flag Link Tue Jul 5, 2011
I suggest you contact Home Loans For All. They deal with all types of situations including this one. They have shown us they're experts even with USDA home loans. I'll include a link to their website. Hope this helps.

Best of luck!!
0 votes Thank Flag Link Wed Aug 24, 2016
"you state you have perfect rental history and almost 12 months of car payment" this paints a picture of what might span 36 months or so...which is 1/10 the amount of time you will have a home. Because of this your credit score becomes valueable because it spans 10+ years, or at least 5+years, and if it is Low, it may very well be because you have not had it long. you need to work on improving your credit that will be your best solution, which should only take 6-12 months...…
0 votes Thank Flag Link Tue Jul 5, 2011
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