The United States Department of Agriculture has been offering loans for quite some time. Many area’s are approved to use this type of financing. This loan works simular to FHA or VA as far as qualifying. However, you are subject to income restrictions and geographical area’s. Not all area’s are approved for USDA.
This loan is now one of the strongest ways to finance a home in the qualified area’s. The loan provides 102% financing which allows you to finance the 2% Funding Fee.
There used to be geothermal restrictions on homes. This past year this requirement was eliminated.
If you have a 620 credit score you are Credit Approved. If you are 1 day out of bankruptcy or foreclosure and you have a 620+ you can buy a home!
There is no limit to the amount a seller can contribute to your closing costs and pre-paid items.
There is no PMI.
There is no cash reserve requirments.
There is no sourcing or seasoning of cash required to close if any. So, if you bury your money in a cookie jar that is acceptable.
So, remember this loan and ask your loan officer about it. Or if you want to check the area’s that are approved or check to see if your income qualifies then visit http://eligibility.sc.egov.usda.gov
2 responses so far ↓
1 Greg // May 5, 2008 at 3:04 pm
USDA has issued new requirements on credit scores under 580 which make it nearly impossible for someone with a credit score less than 580 to obtain financing.
2 Greg // May 5, 2008 at 3:16 pm
I have in my possession a memo dated 3/28/2008 that addresses specific guidelines for underwritting loans in today’s enviroment. It specifically addresses credit scores and credit issues. I am going to paste the memo below and please ask questions if you need clarification.
RD AN No. 4346 (1980-D)
March 28, 2008
TO: All State Directors
Rural Development
ATTENTION: Rural Housing Program Directors,
Guaranteed Rural Housing Specialists, and
Area Directors, and Area Specialists
FROM: Russell T. Davis (Signed by Russell T. Davis)
Administrator
Housing and Community Facilities Programs
SUBJECT: Single Family Housing Guaranteed Loan Program
Utilizing Credit Scores for Underwriting Single Family Housing
Guaranteed Loans
PURPOSE/INTENDED OUTCOME:
The purpose of this Administrative Notice (AN) is to affirm 620 as the minimum
Fair Isaacs & Company (FICO) credit score required for applicants to utilize
streamlined documentation for manually underwritten guaranteed loans.
COMPARISON WITH PREVIOUS AN:
This AN replaces AN No. 4237 (1980-D) dated January 25, 2007. This AN
includes new guidance for lenders when manually underwriting guaranteed loans
with FICO scores below 620 as well as files with no credit scores. References to
VantageScore have removed from this AN, because this credit format is not used
within the industry to a great extent and is not acceptable for the Single Family
Housing Guaranteed Loan Program (SFHGLP) at this time.
EXPIRATION DATE: FILING INSTRUCTIONS:
March 31, 2009 Preceding RD Instruction 1980-D
BACKGROUND:
The SFHGLP continues to evaluate both loan performance and the real estate
lending environment. SFHGLP loans with FICO scores over 620 historically
experience significantly lower defaults than borrowers with scores below 619.
A recent SFHGLP portfolio review of FICO scores of 619 and below supports a
thorough evaluation prior to extending mortgage credit:
• FICO score 619 and below:
* 17% of SFHGLP portfolio
* 39% of program losses
• No FICO score:
* 6% of SFHGLP portfolio
* 16% of program losses
Lenders should judiciously evaluate and carefully screen the credit histories of
applicants with FICO scores of 619 and below for manually underwritten
Guaranteed loan files.
IMPLEMENTATION RESPONSIBILITIES:
Selecting FICO Scores
The FICO score of the primary wage earner should be given the most emphasis;
however FICO scores of other applicants should not be ignored. When reviewing
appropriate credit reports select the correct FICO score for underwriting per
these guidelines:
Three scores: Select the middle score
Two scores: Select the lowest score
One score: Use that score
No score: Non-traditional credit histories may be accepted
Streamlined Documentation for FICO Scores of 620 or Higher
For loan applications that contain co-applicants, each applicant must have a
FICO score of 620 or higher to qualify for streamlined documentation.
• A lender shall not be required to document adverse credit history
waivers under RD Instruction 1980-D, section 1980.345(d),
(referenced below in this AN) except for those involving a
delinquent Federal debt or previous Agency loan.
• A lender shall not be required to document applicant rent payment
history.
• No action will be necessary for any derogatory items, such as
those outlined in RD Instruction 1980-D, section 1980.345(d),
except for those involving a delinquent Federal debt or previous
Agency loan.
Note that each applicant is treated separately. If the applicant has a score higher
than 620 and the co-applicant has a score lower than 620, then the applicant
qualifies for streamlined documentation but the co-applicant’s credit history
should be carefully examined.
FICO scores are calculated based upon credit information reported to the credit
bureaus, therefore lenders and Agency staff can be confident that FICO scores
of 620 and higher represent acceptable credit histories.
Applicants with FICO Scores of 619 and below
Based upon the portfolio review of SFHGLP loans, applicants with FICO scores
of 619 and below have a statistically higher likelihood of default. This does not
mean applicants with FICO scores of 619 and below are poor credit risks and
should be categorically rejected. Many loans in this category are paid as agreed.
However, underwriters should be especially cautious of layered risks in addition
to the lower credit score which include but are not limited to:
• Adverse credit history waivers: Approved by the lender
If the lender approves an adverse credit waiver for any instance of
derogatory credit as outlined in RD Instruction 1980-D, section
1980.345(d), the lender must secure documentation evidencing that
the circumstances surrounding the adverse information were
temporary in nature, and were beyond the applicant’s control, and
have been removed so their reoccurrence is unlikely. Alternately,
the lender must secure documentation evidencing that the delinquency
arose from a justifiable dispute related to defective goods or services.
• Ratio waivers: Requested by the lender, approved by Rural
Development Ratio waivers should be avoided unless strong
compensating factors are present (i.e. Principal, Interest, Taxes and
Insurance (PITI) is comparable to current housing, conservative user of
credit, strong job history, demonstrated ability to accumulate reserves,
etc.)
• Payment Shock: Approved by the lender
Lenders should be cautious when applicants have no rent or housing
history to verify, or the proposed PITI is 100% or greater than current
rent or housing expense.
• Questionable repayment income or job stability: Approved by the
lender The lender is responsible for calculating income and documenting
the loan file.
o Applicants with commission only positions or widely varying
amounts of overtime and bonus income may not exhibit enough
adequate or stable monthly income to qualify.
o Applicants with gaps in their employment histories may not exhibit
enough dependable or stable monthly income to qualify.
Rent History Verification
Lenders are required to obtain a Verification of Rent (VOR) when available for all
applicants with FICO scores of 619 and below. A 12 month history is most
desired, however any length of payment history should be considered. Written
verifications are preferred, but 12 months of cancelled checks covering the most
recent 12 month period will also indicate a satisfactory payment history.
Applicants with FICO scores of 580 and below
Loans with FICO scores of 580 and below are very high risk and tend to exhibit a
much higher rate of default. Lenders should not approve loans with FICO scores
of 580 and below if they exhibit any of the indicators of unacceptable credit per
RD Instruction 1980-D, section 1980.345(d) which include:
• One or more debt payments being 30 days late within the last 12 months
• Foreclosure discharged less than 36 months
• Outstanding tax liens or delinquent government debts with no payment
arrangements, currently due
• Outstanding judgments within the last 12 months
• Two or more rent payments 30 days late within the last 3 years
• Accounts converted to collections within the last 12 months
• Outstanding collection accounts with no payment arrangements that are
currently due
• Bankruptcy discharged less than 36 months
Extraordinary compensating factors must be present to warrant a lender to issue
an adverse credit waiver for applicants with FICO scores of 580 and below.
Additional risk layering in addition to the lower score is not recommended.
SUMMARY
Loan performance and current market conditions reveal a need to revisit
acceptable parameters for SFHGLP loans. FICO scores are excellent indicators
of acceptable credit, however the FICO score alone does not always give an
accurate indication of an applicant’s ability and willingness to repay a mortgage
loan. Loan records must contain sufficient justification by the underwriter for
approving the loan. The Uniform Underwriting ransmittal Summary is a good
place to document this justification. The analysis should include an assessment
of any compensating factors, or credit history explanations that establish the
applicant’s ability and willingness to repay the proposed loan as agreed.
SFHGLP loans that are rejected by lenders based on underwriting risk should be
rejected based on lack of repayment ability, lack of adequate and dependable
income, inadequate credit history, or collateral that does not meet the required
standards.
Lender Monitoring
On an ongoing basis, Agency field staff should monitor originating lenders for
adherence to SFHGLP loan underwriting requirements, including the standards
outlined in this AN. Field staff conducting lender origination monitoring reviews
should pay special attention to credit scores when reviewing first year
delinquencies and early defaults.
Questions regarding this AN may be directed to Joaquin Tremols at
(202) 720-1452 or Kristina Zehr at (309) 452-0830 ext. 111. Their respective
email addresses are joaquin.tremols@wdc.usda.gov and
kristina.zehr@wdc.usda.gov.
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