3 Things The Lender Looks At When You Apply For A USDA Rural Development Home Loan

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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.

Apply for a USDA Loan Online Now: Loan Application

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:

  1. Good (Currently defined as a 620 middle credit score or better)
  2. Bad (Less than a 620 middle credit score)
  3. 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 click on the Get Started on USDA tab above.

Apply online for a USDA Loan and get pre-qualified today.

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60 Responses to “3 Things The Lender Looks At When You Apply For A USDA Rural Development Home Loan”

  • Steve on December 9, 2009

    How does the effect of a short sale on a FHA loan in the qualification of a USDA Gaurantee loan. I understand that part of the check is looking at the CAIVRS system and a FHA short sale shows as default. Does the effect qualification and if so is there any execption that can be applied , like bankruptcy do to family member medical issue.


  • pauldunn on December 9, 2009

    Hi Steve – This is something we will be seeing more of in the future just because of the current market conditions here in Arizona. In the 502 there isn’t anything written specifically to address the issue of short sales. Most decisions on loans with prior short sales will be based on the overlays that your lender will have. Most lenders are using a 3 year overlay right now. There are other issues to look at such as how late the prior mortgage had been prior to the short sale. If it had been 120 or more days late then your most likely looking at 3 years before qualifying again. The good news is that should give you plenty of time to get a great credit score AND the market will still have some VERY good deals on USDA qualifying homes.

  • Janelle on November 4, 2010

    Hi, my dad does not have good credit and he has a few of unpaid debts, does he have a chance in qualifying for the loan or no chance at all. Also, he has had a repossession :/

  • pauldunn on November 5, 2010

    @ Janelle – Generally a borrower would need fairly decent credit. A typical credit score would need to be 620 or greater. Your dad can pull a copy of his own credit report at annualcreditreport.com to see where he stands.

  • BETTY on December 25, 2010


  • akili bullock on December 28, 2010

    i have been approved twice for a usda loan this year through a local bank. i tried for the third time because the seller was not ready due to building obligations. i am having the hardest time getting it approved this time because my credit score has gone down to 635 and they require a 640. what measures can i take to boost my score, or what other advice would you give.

  • akili on December 28, 2010

    what type of credits do the usda program have at this time for first time home buyers?

  • pauldunn on January 4, 2011

    @akili – The USDA is still providing guarantees on loan applicants with scores as low as 620. HOWEVER, the USDA does not fund the loan, the lender does and each lender has their own rules that override the USDA guidelines. Most lenders have moved up to a 640 score requirement.

  • pauldunn on January 4, 2011

    @akili – without seeing your report it is impossible to tell, but in most cases it is simply paying the bills on time and making sure to have the smallest possible balance on credit cards.

  • itsmefree on March 22, 2011

    I have applied for the guaranteed RD loan. i make 43k but show a loss so my income is 27k how can this be overlooked???? also how likely is it for me to get a loan of almost 200k
    no debt paid it off in january, my middle score is about 618 helllllppppp my child and i need a house

  • pauldunn on April 22, 2011

    @ itsmefree – I would have to see your file in order to answer that question. We do require a 620 minimum credit score to qualify for the USDA Loan. Search this site for some tips on optimizing a credit score.

  • Melissa on May 9, 2011

    I have credit scores of 671, 680, and 701. I have no open collections and no bankruptcies. I work as a substitute for the school system during the school year starting in November of 2010 and every summer for the last 6 years I work for a dentist office. My income is considered “low income” but is the fact that I am a substitute part of the year and my income changes going to hurt me. I know a bank told me that it isn’t steady income because substitutes aren’t guaranteed work days but that was the only problem they saw. Is this different through the USDA and also if it isn’t can you build with a USDA loan and what are the regulations like how many square feet and such? Or where can I find this information?

  • Michelle on May 15, 2011

    I have a quick question…I am at the end of my loan and they are asking for 2 months of bank statements…why? and could something make my loan not go thru? I have met all requirements til this

  • Mary on May 18, 2011

    We are looking into applying for a Rural Development Direct Mortgage, however we have a bankruptcy that was discharged in June 2010. My husband and I have both good credit scores already with the middle of the scores being 650 and 665. Does the bankruptcy automatically shoot us down for a chance since it’s only been about a year. We figured we would wait until a year from the discharge date has past but would love to know if that’s even feasable to qualify with this in the credit history. Thanks!

  • pauldunn on May 19, 2011

    @ Melisssa – Currently the USDA only allows for purchasing existing property (new builds are okay) and refinancing existing USDA loans. Construction money is not available currently. If you are looking to buy here in Arizona I would be happy to speak with you about your work situation to determine if it is workable or not. If you are buying someplace other than Arizona you should contact the local rural development office for a referral to a lender.

  • pauldunn on May 19, 2011

    @ Michelle – Any time you apply for a mortgage you will need to provide 2 months of bank statements. Any large or unusual deposits should be documented.

  • pauldunn on May 19, 2011

    @ Mary – Most lenders will require 3 years after a discharge of a bankruptcy in order to do a new loan. If you are considering a USDA Direct Loan you will need to contact the local Rural Development office directly and ask them as we only underwrite the USDA Guaranteed Loan.

  • meka2004 on May 27, 2011

    I am currently under bankruptcy until September 2011 can I still quakify for a USDA loan?

  • melvin on May 27, 2011

    if i live in a rural area and own a home that is paid for, can i apply for a rural development loan? if i want 2 purchase a new home?

  • melvin on May 27, 2011

    in the state of louisiana can u qualify for a rural development loan if u already own a home that is paid for in another rural area?

  • pauldunn on May 31, 2011

    In the current market, GUS is not approving loans that have a bk discharged less than 3 years.

  • pauldunn on May 31, 2011

    @ Melvin – That is a question you should ask someone who specializes in RD loans in Louisiana.

  • KimG on June 7, 2011

    I qualify for a conventional loan as well as an RD loan. I’m interested in taking advantage of the RD loan so as to avoid a down-payment and mortgage insurance. But since the RD loan program is for people with low income and/or credit issues, I’m concerned that having an RD loan might actually harm my credit record. Is that a valid concern?

  • pauldunn on June 7, 2011

    @KimG – That’s an interesting question, but nothing to worry about. The RD loan is for people with low to moderate income and good to excellent credit. Minimum credit scores are generally in the 640 range right now with some investors having overlays at 680. A USDA loan will have the same impact on your credit as a conventional loan.

  • Heather on June 18, 2011

    I qualified for the rural development loan, they only used my credit because my husband only had a 620 and the lender requires a 660. I had to go part time at work due to family illness, and now that we are at end of our loan they have asked for 2 more pay stubs, which my income has dropped due to going part time. They are telling me that they can not count my husband’s income on the loan as other income due to his credit score,does this information sound correct?

  • pauldunn on June 19, 2011

    All lenders have their own requirements. If you are buying in Arizona, please give me a call.

  • Tamara on August 3, 2011

    Hi. I just realized a medical hit my credit report (amt is 1800) in April of this year. However, the debt would have been from 2009. I’ve been in the process of rehabing my credit and am in the final stages for getting a mortgage. My question is what are my chances now that I do not have a clean history 24 months (this is my only bad account in that time frame)? Will it matter if I can PIF? Would love some advice on how to handle this.

    I actaully have another one for 2200 as well that has been on my CR since 2009. Shuold I wait till underwriting tells me to pay it or should I try and settle it before hand. I was thinking of offering a payment arragement.

    These are my last two issues before I can apply.

  • pauldunn on August 3, 2011

    @ Tamara – if your loan is in underwriting right now, DO NOT DO ANYTHING to your credit profile. Let the underwriter review it and they will tell you how to handle it. Making changes to your credit report while your loan is in process can jeopardize your ability to get approved.

  • kris on August 9, 2011

    Hi i was just wondering i was wanthing to apply for a usda loan but i only make 500 a month and then 560 a month with support but thats not all the time have a credit score of 733 would i qualify for a loan or do i not make enought?

  • BRYAN on August 15, 2011

    Can you get a usda home loan if you have an existing home loan. I live in North Carolina. Credit is good. Ive already been pre approved but I hear that you cant have an existing home loan.

  • pauldunn on August 15, 2011

    @ Bryan – Maybe. That would depend on how far you have to move and if you are moving for employment.

  • pauldunn on August 15, 2011

    @ Kris – you should look into the DIRECT USDA Loan. Call your local Rural Development office and they should be able to help you out.

  • Steve on August 16, 2011

    Retired. Scores 670-680. Perfect credit until 2009 due to lawsuit over business lease, had to file c7 to get out of it. Perfect since, no debt. Looking at property priced so dti would be below 20%. Lifetime government pension of 65k/yr. Any chance for RD guaranteed now, or must I wait another year?

  • pauldunn on August 25, 2011

    @ Steve – 3 years since the discharge of a bankruptcy are required.

  • Joey on September 8, 2011

    I was told that you could get approved with 2 years after a discharged BK 7. That the underwriter justed need to sign a credit waiver. And that you could be in a BK 13 as long as you had 12 month payment history. Again you would need a credit waiver. Is that wrong?

  • Stephanie on September 27, 2011

    I live in North Carolina and I found a home that was eligible for USDA financing. My credit score is 668 ( middle score) but I am not currently working. My husbands credit is not so good. Would I be able to state his income on the loan application without using his credit score as a factor?

  • Charla on October 24, 2011

    My credit score, debt to income ratio, and income all meet the qualifications under the USDA program, but I had short sale on my former home in June 2010. How long will I have to wait before I qualify for a new home loan under the USDA program?

  • Melanie on December 31, 2011

    My husband and I are planning to buy our first home. His credit score isn’t enough to get approved. I have a 625 credit score. I don’t work. Could we use my credit and his income? I know the area we live in is USDA eligible and his income qualifies for a USDA Guaranteed loan. I am currently disputing a couple of items on my credit report. Is there any way we could do this?

  • Debbie on January 31, 2012

    Hi Paul,
    I applied for a USDA loan back in May of 2011 and I just received a letter from the USDA for an interview. I called the loan officer directly since I am working directly with the USDA to request a phone interview instead of a face to face interview which is what they are asking of me. They declined the phone interview. The loan officer claims that it’s not even worth it for me to go to a face to face interview at this point because I have an old collection that I must take care of before they can work with me. I told the loan officer that I can pay for it. She said that even if I pay for it, I would be denied and would have to wait six months and then submit a new application. I told her that would be unfair if I am willing to take care of this collection right now, why are they not giving me the opportunity to obtain the loan now. She claims that per USDA regulations, once I pay for the collection, I would have to wait six months and then apply again. I don’t understand why she is doing this? This particular collection is from 2007. Can she deny my loan even if I pay for the collection right now? Thank you in advance for any feedback. I do not know what to do? I find this is so unfair! Scores: TU-677, EX- 618, EQ-598.

  • Aaron on February 21, 2012

    Is there one best way to apply for this loan? I was going to just go through my bank… I have a hard time understanding these things… a friend suggested my small bank my charge me excessive fees? Should I apply at my local Service Center?

    Also, I will be receiving a $20,000 buyout from my old house. I’m hesitant to put it in my savings. I don’t make a lot of money and will need this as safety net cash for the next few years to ensure I get all my bills paid and child’s needs met. New car may be on the horizon too. If this money is sitting in my savings when I apply, could this amount of money disqualify me? Will I be required to use it for a downpayment?

  • Emily on March 30, 2012

    Hi, My husband and I are looking into a USDA Loan. We have sat down with a loan officer and right now he currently shares ownership of his grandmothers house with her. When she passes away he will have the whole house. She has a life lease. We never have had a mortgage. The house is 2 family and we live upstairs and its about 550 sq feet. We have a 2 yr old. It is waaaaay to small for us clearly. His grandmother has life use of the home. We have found the perfect house for us but reading about USDA we can’t own a home. But I also read that if the home is not considered big enough we could still possibly get the loan. I just can’t find absolute facts that clearly state. I can’t get ahold of the loan officer until Wed she is away. Does anyone have any idea about this?

  • Steve R. on April 1, 2012

    I have an older delinquency that shows up on 2 of my 3 reports. Does RD use a tri merge report? How do I address this before I apply? TR-672. EQ-627, EXP-627



  • Martha on May 10, 2012

    I have applied for a USDA loan and I have not been approved because I had a forecloser on my report from a past divorce. I meet the exception to the rule that the loan states. I have the court documents that states my ex was to refinance the mortgage into his name only and he never did. I have reastablished my credit very well since the divorce, I have no late payments and a 710 credit score. What do I need to do to. I have been reading up on this and see something called a credit waiver? What do you suggest? Thank you.

  • Jesse Stanley on May 16, 2012

    I am going to apply for an usda home loan within the next month. I have no credit cards on my credit report, only auto loan that i have paid for a year and is still in good standing. Also a rv loan which was for a year i just paid off. I also have a verizon bill i am making monthly payments on and an old collection that was 92.00 that i paid off. What are the pros and cons of getting a credit card with a low limit and useing have of the debt raitio and paying it right off monthly? Will this boost my credit automatically? or should I wait on the credit card to see what the loan officer says?

  • SUEZ on May 20, 2012

    I am 9 months away from three year bankruptcy anniversary…with a 635 credit score..do I have a chance of being approved..I also completed a credit counciling course per bankruptcy 7 requirements…
    And have applied what I learned for these past couple of years…ie credit score 635..

  • Ashley on June 30, 2012

    I paid off all of my debt and my score went up but then we were forced to move when our landlord decided not to renew our lease because she wanted to move back in. I had to use credit cards for the move and came close to my credit limit. I paid them off but will the previous balance on my credit cards affect my chances of getting my USDA loan?

  • Kenneth Anderson on July 11, 2012

    I am looking at getting a house right now and have some questions i need answering. whem i was in college my mother and i had to take out loans. well the loans she took out are on my credit report also even though im not the one paying them, she is, how do i go guy letting the RD loan agency know that, the only reason there on my report is because they were for me but there in here name. or will that effect my chances of getting the loan anyway.

  • Paul Dunn on August 26, 2012

    @ Kenneth – the only way a loan will show on your credit report is if you are responsible for it. If it is there in error, you need to contact the credit bureau directly to investigate.

  • Paul Dunn on August 26, 2012

    @ Ashley – the current balance will be the determining factors in qualifying.

  • Paul Dunn on August 26, 2012

    @ Suez – at this point you will need 36 months seasoning.

  • Paul Dunn on August 26, 2012

    @ Jesse – that is something you should speak with your loan originator about.

  • Paul Dunn on August 26, 2012

    @ Martha – if you have a foreclosure on your credit report then you will be subject to the USDA rules regarding foreclosures. If it should not be there, you need to have the credit bureaus investigate.

  • Paul Dunn on August 26, 2012

    @ Steve – that is hard to say from this little bit of information. That credit score with some older derogs would be okay with us.

  • Paul Dunn on August 26, 2012

    @ Emily – that is tough to tell from the comment. We would need to know more about the existing home.

  • Paul Dunn on August 26, 2012

    @ Aaron – the best way to apply for a USDA Loan in Arizona is to call us at 520-225-0380

  • Rachel on September 28, 2012

    Hi Paul..I was approved for a USDA loan a few months back, but just changed jobs. Will this hurt me? How long do I have to wait to get approved again? I found a home I want to purchase in the area of my job. Also, I had a mishap last month and overdrafted by $10 on my checking, but had protection from my savings account. Will this hurt my loan chances? My credit scores 705, 730, 755 so good with that!

  • Paul Dunn on October 1, 2012

    @ Rachel – You should talk with your loan officer about that as some lenders have additional credit requirements above and beyond what the USDA requires. Generally, the info you are asking would be fine if you had applied for a USDA Loan with us to buy here in Arizona.

  • Amanda on October 19, 2012

    Is it possible to get a loan with two incomes but only use one persons credit score? Sorry if this question was asked already my phone won’t let me read any of the comments.

  • Cathy Pittman on April 2, 2013

    I qualified for the USDA loan recently going the non-purchasing spouse route. However, my income is only 40,800 a year so I only qualified for 85,000 when taking into consideration my student loans and car loan. My middle credit score varies, but is usually between 660-690. My husband makes about 34,000 a year. However, his middle credit score is around 590 right now. He has several past due debts/collections from 2006/2007. He does not have any negative accounts on his report since 2007. He does have a few positive accounts from shared credit cards/loan with me. I have read that most lenders require 620 for approval. I also read that the USDA encourages lenders to look at the credit score of the spouse with the highest income primarily. Would we be likely to qualify for the direct USDA loan given both of our credit scores? We are looking to purchase a home around 150,000. Thank you, Cathy.

  • Casey on April 5, 2013

    Hi! I am going to apply for a USDA loan. I have gathered all the information that was requested of me. What I am needing to know is, I need to show last 2 months checking. My account was in the negative amount on one of the statements, my account offers me overdraft privledges. Is this going to hurt my chances?? I have my paychecks direct deposited and always get it back to positive standings right away. Thank you!

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