my fico is about 630 and i was wondering if I could qualify for a USDA loan. What are the qualifications for it? Is it hard?

Asked by Lost_in_brawley, Brawley, CA Wed Jun 29, 2011

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Shane Milne, Mortgage Broker Or Lender, South Jordan, UT
Wed Jun 29, 2011
To add what Scott has pointed out, in your area, unless you were going to be buying in El Centro or Calexico, then anyplace you find in Imperial County would be eligible, including Brawley.

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. Like Scott pointed out, a 620 (or even 640 here in California) is a common minimum score requirement for USDA financing, and I suspect banks in Imperial County who have mortgage divisions would very likely offer USDA financing and perhaps even go lower than that. 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 630 score it probably wouldn't take long to get it up 10 points, 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: http://www.trulia.com/blog/shanethemortgageman/2011/06/usda_…

Those other links I mentioned:

USDA Guaranteed's main guidelines: http://www.rurdev.usda.gov/regs/regs/pdf/1980d.pdf
Update to guidelines in October of 2010, includes documentation requirements pertaining to pretty much everything, including the 640 score information: http://www.rurdev.usda.gov/SupportDocuments/an4543.pdf
These are "updates" (called Administrative Notices, AN's) to the USDA program that are announced, for example clarification of guidelines, general information, reminders, etc.: http://www.rurdev.usda.gov/rd-an_list.html
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Sergio Gonza…, Agent, Westlake Village, CA
Wed Jun 29, 2011
Scott is correct with his guidelines. Also, remember you have a funding fee of 3.5% that is added to your loan amount. This can be paid by the seller or by your lender as a credit.
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Scott Butcher, , Austin, TX
Wed Jun 29, 2011
Most lenders have placed a 620 middle FICO floor on USDA loans; however, you can still possibly get them done below that point as I'm sure their might be a portfolio lender or two in your market that is willing to go below a 620 score. You should be OK on your FICO score at 630, but your credit history will also come into play as well.

That said, your income ratios are much tighter on USDA versus Conventional or FHA. Ratios are 29/41 with limited exceptions. Otherwise, qualifications are similar to FHA guidelines;however there are income restrictions in that you can't make too much money relative to your area. You can review the following website for more information.

http://eligibility.sc.egov.usda.gov/eligibility/welcomeAction.do

Make sure and enter the address of the home your thinking of purchasing to make sure it is USDA 'eligible' via the aforementioned website and review the income limitations for your area as well.

Hope this helps.
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