USDA loans qualifications?

[Mellochick]

Does anyone know what the current qualifications are for the USDA loans? I am engaged and live my fiance. I have a daughter myself and he has two sons, one lives part time with us. Now we have found our dream home but it does need some work. The home is in the qualified "rural" area based on the USDA website. My scores are low but have been in the process of changing. They currently are in the 550 area. I do have a judgement and two recent collections that I do intend to pay off prior to closing. I do have some student loans that are in deferment and I have a car loan in my name, and a car loan with my ex husband that I can have him refinance if absolutely necessary since he is the sole owner and makes the payments monthly. Now my question is this, I understand that my score may be low but I have read that lenders are becoming more lienent. I also read about the USDA direct where you go directly through USDA and not a lender. Does anyone have any experience with that route? Also, would I have to count his income since he would be living in the home or would I just be able to count my own? I believe I qualify alone but his income may push us over the limit and he hasn't been at this job very long. I just need to know if this seems like an option for me or not? I've been working with a lender who is amazing for an FHA loan but the USDA loans are kind of enticing as well. Just curious of the options and your experiences with these loans.

[ShanetheMortgageMan]

How recent are the "recent collections"?  With a 550 score you'll very likely need 12 months of clean credit.  If they are within 12 months, can you do a pay-for-delete and get those collections removed?  I'm sure that'd help your score quite a bit too.

All people's income who will be living in the home count towards the income eligibility limit - as it's the "household income limit", not just the "borrower's income limit".  Doesn't matter if he's been on his job for 1 day or 1 decade, the income he makes would be included when determining if you are within the limit.

[Mellochick]

Yes the two were just added in March but the account was opened last July so just shy of the year limit. It is a local small gym so they surely should do a pay for delete. I double checked today on the USDA website and based on our entire household income including the child support and social security that his son receives, we are still eligble for both the direct and the guaranteed loan!!! Do you often hear of people with that low of a score securing one of these loans??

[ShanetheMortgageMan]

Well hopefully you will have luck with the PFD.  With low scores you need clean credit for the past 12 months, and a low debt ratio.  The application process takes a little while with the Direct program, so after you attempt to get the collections deleted you should apply.  USDA employees are usually very nice, they aren't the quickest so that is why you shouldn't put off applying any longer than as soon as you are ready.

[Mellochick]

Is it possible to get a conditional approval? So I can put an offer on the house? LIke I must pay off the recent collections in order to close? Is that even possible?

[ShanetheMortgageMan]

Yes it's possible.

[rideswithchrist1]

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@Mellochick wrote:

Is it possible to get a conditional approval? So I can put an offer on the house? LIke I must pay off the recent collections in order to close? Is that even possible?

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If you go USDA Direct, keep in mind that if there is no funding, you will likely lost that home because they may not be able to commit to funding. If you go DIRECT- you need to fill out the application ASAP. Some places will not give you the Certificate of Eligibility util funding is ready and the COE is just like a pre-approval for you to even get your offer accepted.