What The USDA Rural Development Underwriter Looks For When You Apply… Part 1
This is a three part series where we will look at the 3 factors that a USDA Rural Development underwriter will look at when reviewing your file for loan approval. If you have questions that are not addressed here specific to USDA Rural Development Credit Qualifying, please ask them in the comment box below.
The USDA Rural Development Loan is not as familiar to people as other mortgage types. Additionally it’s natural to be concerned about what an underwriter will be looking for when they delve into the depths of your personal Loan application. After all, you’re supplying them with personal information in your quest to buy a home. So I’d like to provide some quick insight as to the 3 things that a USDA Rural Development Underwriter is looking for when they review your loan application for that Loan approval.
1. Your Credit
Yes, your credit is an obvious number 1 and it is the most important aspect of your loan decision. It is one factor that you can actually have control over. In an earlier post I wrote about USDA Credit Qualifying, but will go into more detail here.
Credit tends to come in three categories:
- Good (Currently defined as a 620 middle credit score or better)
- Bad (Less than a 620 middle credit score)
- Thin (A lack of credit history often with no credit score)
While most USDA Rural Development lenders require a 620 middle score, some have been elevating that requirement to 640 or even 660 over recent months. Credit Score Optimizing is beyond the scope of this post, but good advice may be all you need to boost your score enough to qualify. If you have concerns about your score you should review your credit report with an experienced mortgage professional as some good quality advice may be all you need to get a few extra points.
Collections and bankruptcies are the predominate issues that the can cause concern. The age and size of a collection will determine if it would need to be paid off or not. AND different USDA Rural Development lenders will have their own specific requirements determining if a collection must be paid or not before closing.
The same can be said about prior bankruptcies. Most USDA Rural Development lenders will require that a bankruptcy be discharged for 3 years before you can be considered for a USDA loan. However with a high enough credit score, some lenders will allow you to qualify for a USDA Loan after only 2 years. Consult your mortgage professional.
Length of Credit History
While the talk of the town on the credit front is mostly about credit scores and optimizing your credit to get that magical 620 middle credit score, there is one other credit factor that is often overlooked; Length of Credit History.
A credit score is supposed to be an indicator of the quality of your credit, but many times a “Thin” credit profile may artificially skew a score. For this reason most USDA Rural Development lenders do have a minimum requirement for the Length of Credit History.
Most lenders will require a credit history to have:
- 3 credit trade lines (auto, credit cards, etc.); and
- 12 month active history for each of those three trade lines
Here it is important to note that the 3 trade lines do not currently need to be open or even active. This requirement helps to assure that the credit scores reported are indeed accurate.
But I Don’t Have A Credit History…
If you are one of the many Americans with a Thin credit profile, meaning that you just don’t have a credit history, you can still get a USDA Rural Development Loan. You can actually “build” a credit profile by providing a history of four sources of alternative credit that have been active for at least 12 months.
What qualifies as Alternative Credit?
- Increasing consistent deposits to a savings account
- Rent and Housing payments
- Utilities (electricity, water, gas, cable, phone, etc.)
- Insurance (medical, auto, life, renters, etc.)
- Local stores (department stores, furniture, etc.)
In the next post we will discuss the other 2 important factors that the USDA Rural Development Underwriter will be looking at in your loan application file.
To apply for a USDA Rural Development Loan go to USDARuralHomeLoans.com and click on the Get Started tab or click here.
Apply online for a USDA Loan or call (520) 225-0380and get pre-qualified today.
