Interested in prequalifying for a USDA loan to purchase in Eagle Mountain area. Bad credit.

Asked by Lauren, Provo, UT Thu Jun 30, 2011

We have been renters and in school. Recently finished school and landed great job security. Wanting to purchase in next year if possible. Scores of 620 and 580. We were planning to improve credit first buy opening secure card with capital one, etc. But rent being raised by a good amount so we need to see if we should sign a longer contract or if buying is even possible in the next year. Wanted to prequalify now to see at worst where we stand, so we can decide whether to sign 12 month contract, or go month to month as planned. Would not be fun to go month to month optimistically, and then find out later that we can't qualify anyway and wasted hundreds of dollars. Need USDA loan for 100% financing, and because we are intrested primarily in Eagle Mountain area. Contacted our bank, but they do not do USDA loans. Not sure where to go from here. Is USDA possible at our credit scores? Where is a reputable place to prequalify?

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Kristi Hutch…, Agent, Eagle Mountain, UT
Thu Jun 30, 2011

Everyone below has been super helpful. I have a gal who works from her home in Eagle Mountain and does USDA loans all of the time. If you would like to meet my offices are located in Eagle Mountain as well and we'd be happy to sit down with you and get you the information that you desire. I am sure that she would welcome your call. Please call me at 801-362-2080 and I would be happy to get you connected up with her.

Best wishes!

Kristi Hutchings
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, ,
Thu Jun 30, 2011
Shane certainly gave you alot of wonderful information. We are a USDA approved lender and if you would like to come in for a full consultation in person I would love to lay all your options out on the table. Including but not limited to bringing those credit scores up above 580 and 620. We are located in Union Park Center in Cottonwood Heights.
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Dave Belnap, , Eagle Mountain, UT
Thu Jun 30, 2011
Not being a mortgage broker I do not have all of the answers. I like Ryan at American Lending Network 801.223.9800 and James at Security Home Mortgage 801.420.1042. Janet and M and T Bank also well versed in USDA loan details 801.319.8509

Best of luck and happy home hunting!
Dave Belnap, R and R Realty, LLC 801.400.6425
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Derek Seal, Agent, Sandy, UT
Thu Jun 30, 2011
Please call me to get the names and numbers for 2 great lenders that do USDA loans and how to get up to 60 days with no payment.

Derek Seal
Real Estate Expert
Realty Executives Experts
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, ,
Thu Jun 30, 2011
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). 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, and I bet you could call the Guaranteed office and find out which (if any) lenders are sending them loans with scores ~580 - if there are none then that is a good sign there isn't any. 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. 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).

Even though I am in California, I work for a bank HQ'd in Layton, UT, and we do USDA financing. We require a 640 score for our USDA program however.

The links I mentioned:

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.:

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