My USDA Direct journey.

[StarraeAday1]

I've been researching and working on fixing things in my credit for over a month now, and I just submitted our USDA Direct mortgage application today. I have no idea what kind of time frame I'm looking at, but I wanted to start documenting things here for my own information and to help out other people who may be looking into the program. I will update when I hear something back!

Credit scores: Most recent lender pull #'s are in signature. I had a Chapter 7 BK in 2008 after simultaneous job losses for my husband and I. There were a couple of charge-offs and collections in 2011 due to my husband being diagnosed with Multiple Sclerosis and becoming unable to work, but everything has been paid except for two medical collections totaling $250. I tried PFD with them and they weren't biting, and the previous LO I was dealing with advised me to just let them ride. I was able to get CapOne to delete the late payments from their CO and it turned into a positive account. I also got a paid collection account deleted. No late payments since late 2011/early 2012. Just opened a new CapOne card on 8/1 to start rebuilding. That, my car loan, and my student loans are the only open accounts besides the two small collections.

Income: $28,248/yr W-2 income

Debt: Car payment $254, Balance $14,791

          Student loans $112, Balance $33k

          Credit card $25, Balance $25 (PIF every month, used for rewards)

Employment: 4 years with the same employer, 12 years in industry

Assets/Reserves: Unknown at the moment. Going with USDA for zero down. Will have gift funds ready for any fees that pop up.

Location: St. Charles, Lincoln, or Warren counties in Missouri

Property: Single-family home

Value: No idea what we'll be approved for.

Occupancy: Primary residence

I'm very anxious to find out what this program can do for us in the way of payment subsidies. I think there's a possibility that we may be able to end up in a nicer house than I ever thought possible, but we'll see. Thanks for reading if you've made it this far!

[StarraeAday1]

I got a notification this morning that USDA pulled my credit yesterday, one day shy of two weeks since I faxed my app. I've been trying to keep in touch with the lady by email, but her one reply to me was a bit terse. I'm hoping she'll contact me back by email or phone ASAP to discuss, but I'm afraid she may just send out a letter. I guess I'll find out soon enough either way.

[StarraeAday1]

Unfortunately, our journey is dead in the water at the moment. Everything is fine except for my student loans. It doesn't matter that I was able to provide a letter from both servicers showing what my payment would be under Income-Based Repayment, the lady at the USDA office said that they have to use 1% of the balance as the monthly payment, which blows my DTI out of the water. With my income and the IBR payments, I would have qualified for $121k, which would have been plenty. Unfortunately, with the student loans I only qualify for $24k, which doesn't help me any. I either have to get more income (not happening) or I have to find a non-residential cosigner (also not happening).

I guess the most positive thing to come out of this is that she pulled my TU score at 673 when MyFico is only showing it at 613. I was pretty thrilled by that.

[Anonymous]

When do your student loans come due? If it is less than 12 months from closing, ask for a deferrment of 12 months, if you can. I know with FHA if the loan repayment doesn't start within 12 months after closing they don't take the loan into consideration for DTI, not sure if USDA is the same.

[StarraeAday1]

They don't come out of deferment until 2019. I think it's a USDA Direct thing, because I tried to get it reconsidered. They have to use 1% of the balance. We're considering asking my father-in-law to co-sign, but not sure how that would work out. We'll see!

[DanTheMan77]

Yes, it's a USDA Direct requirement. If it's in deferment, they will use 1% of the balance as payment. They will not consider the income based payment until you are actually paying that amount and it shows up on your credit report.

If you can take your loans out of deferment and start paying the payment for a month or two, it will show on your credit report. Maybe you can put them back into deferment after you close?

[StarraeAday1]

Unfortunately, her email states that they are required to use the higher of the listed student loan payment or 1%. And unfortunately, 1% will always be higher. That was a good idea, though! I got excited for a second before I re-read her email. LOL

[DanTheMan77]

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@StarraeAday1 wrote:

Unfortunately, her email states that they are required to use the higher of the listed student loan payment or 1%. And unfortunately, 1% will always be higher. That was a good idea, though! I got excited for a second before I re-read her email. LOL

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I'm not sure what you're talkin about. That's not USDA policy. I just went through this myself. USDA Direct policy is to use 1% of the balance only if no payment shows up on the credit report. Once the credit report shows a payment, they will use that amount for the DTI.

[StarraeAday1]

Thank you for saying that. I went back and re-read her email. I must have missed the part where it says that the underwriter may grant an exception and use the actual payment amount if it is in repayment. So I'm asking her if I put them in to repayment if that will help me, but I have yet to hear back from her.

[StarraeAday1]

Her reply to me simply stated, "I cannot advise you on this matter." Hopefully that means it will work. LOL I'm going to call both student loan servicers today to see how long the process will take and make sure I won't have any issues putting them back into deferment once I can get closed. I also paid the two remaining collections that are reporting. They will report as PIF for 90 days and then will be deleted per the CA. Hopefully I'll be reporting back with positive news at some point, thanks for the help so far!