Lenders look at debts, income and credit history to determine if an applicant is able to take on a USDA mortgage.
This section breaks down common credit requirements, income limits and employment guidelines for a USDA loan.
A frequent question of the USDA loan is, “What is the minimum credit score requirement for a USDA loan?” The answer to that can be complicated. The USDA does not impose a minimum credit score requirement, but the USDA also does not make the loan.
Lenders who fund the loans often have minimum credit score requirements. For many lenders, the minimum credit score needed for a USDA loan is a 640, which is the number needed to use the USDA’s Guaranteed Underwriting System (GUS). GUS is the USDA’s automated underwriting system, which automates the process of credit risk evaluation.
Some borrowers may qualify with a score below 640, but will be required to have their loan file manually underwritten.
The USDA’s mission is to help low- to moderate-income families realize the dream of homeownership. To achieve this goal, the USDA enacts income limits, adjusted for family size, as established by HUD.
The USDA income limits are defined as the greater of:
Income limits count toward all adult household members, whether they are on the loan note or not.
In order to obtain a USDA loan, the borrower must be willing and able to repay the loan.
Applicants are considered to have repayment ability when their total debts do not exceed 41% of their repayment income and their monthly housing expenses do not exceed 29% of their repayment income.
Guidelines on debt-to-income (DTI) ratio can vary by lender and other factors.
Monthly housing expenses, referred to as PITI (principal, interest, taxes and insurance) may include:
Total debts include PITI plus any other major monthly credit obligations. This may include:
Voluntary contributions to retirements and accounts with a zero balance are not considered in the debt-to-income ratio.
Along the lines of income is employment, which plays a vital role in qualifying for a USDA loan. Yes, you certainly don’t need a job, as anyone who’s retired can attest, but for those who are still working, it can be difficult to secure a USDA loan without a stable track record of employment.
Lenders typically look for two years of consistent employment at the same employer, but not having this won’t immediately disqualify you. The key to the USDA’s employment guidelines is maintaining consistency in your field or profession.
To determine consistency, lenders will look at your current employment, previous employment, education and other factors.
Overall, the USDA does not wish to penalize applicants over frequent changes in employment, as long as their employment is in the same line of work and their income has remained at a stable and consistent level.
Gaps in employment are treated differently depending on lender, but the USDA requires applicants to not have any gap in employment of more than a month within the two-year period. However, certain job gaps may be overcome with evidence, such as military service, school or re-entering the work force after taking care of a family member.