USDA Minimum Score

[Anonymous]

I am interesting in finding out if there is a minimum credit score to apply for an USDA Rural Mortgage Loan.  Is that a USDA guideline or does it go by the individual lender?

Any insight is appreciated.

[ShanetheMortgageMan]

Lenders set their own, most are looking for a 580 but some will go down to a 500. USDA doesn't have a score requirement, and can even use non-traditional credit if someone doesn't have any traditional credit established. However with below a 580 score you can't have any 30 day lates in the last 12 months, no BKs/FCs in 36 months, no outstanding judgments in 12 months, no more than 1 late rental payment in the last 3 years, no outstanding collection accounts that don't have payment agreements set up, and can't have any new collections in the last 12 months.

[BrianB_The_Loan_Professor]

BUT if you have a 620 or above it is usually pretty smooth sailing with their guaranteed program

Have you checked your location and income limits to see if you qualify?

Brian

[Anonymous]

My income and area do qualify.  My only concern is that the approved loan amount won't be enough to purchase a house in this area.  You cannot touch a house here for under $185,000, and that is for nothing fancy.

[BrianB_The_Loan_Professor]

Well there is no max loan amount it just has to fit into the DTI

What is the income limit for your family size?

Keep in mind too that in late January they are going to change it a little to make things easier - my understanding is that they will allow all families with size 1-4 to count as 4 and 5-8 to count as 8

This may help you some

Brian

[Anonymous]

The amount for a 1 - 4 person household a year is $68,550.  I will be buying in an area that has modified adjusted income limits due to the fact that the parish was declared a disaster parish after the hurricanes.

My income is $50,600 per year and it is just me and my son.  I only pay $140 a month in bills and my median credit score is 631.  Not having to pay MIP will be a big help.

Hope this works out for me.

[BrianB_The_Loan_Professor]

How much are the homes in the area?

sounds like you should be in the 150-180k range just off the top of my head?

B

[ShanetheMortgageMan]

Louisiana is a bit hard to estimate on what you'd be pre-approved for due to the varying property taxes & homeowners insurance rates.  Depending on where you are buying your insurance could be $800/year or $5k/year.  Property taxes are generally cheaper, but also depends where in Louisiana you are buying too.  To get preliminary figures it's best to get an idea of how much homeowners insurance is by calling a local agent, and then for property taxes call the treasurer and assessor to determine how much those will be.

[Anonymous]

The insurance including flood is going to run about $5,000 per year.  The property tax is really low in Plaquemines Parish.  After homestead exemption, the out of pocket is going to be around $300.00 a year.  No city tax of course.

[ShanetheMortgageMan]

Depending on your score and entire situation, your income might not even qualify you for a $140k home.

Assuming a 5.875% rate for a USDA loan, at $140k, that would be an $844/mo payment.  You have $441/mo of property taxes/homeowners insurance, and $140/mo of other payments, that totals $1,425/mo, or $1,285/mo without the other payments.  $1,285/mo divided by $4,216/mo (your income) is a 30% debt ratio, which is above the 29% limit that USDA prefers (new construction after 1999 is allowed at 31%).  Your total debt ratio is fine, about 33%, but it's your housing ratio that is limiting the price you can purchase.  If the scores are below 620 the debt ratios can be waived if it makes sense (such as a spouse who makes money but won't be on the loan, will be getting a pay increase within a month or two of closing, etc.), and if you have a 660 score then no waivers are even needed.  With a 660+ score I've seen total debt ratios above 50% get approved.  A 620-659 score is often enough of a compensating factor to get higher than the regular DTI get approved.  So if you have a 580 score, and no compensating factors, then you are probably looking at a $135-140k range at most.  If you have some compensating factors, then it would be higher.  If you have 620-659 scores then I don't think $175-185k would be a problem, and if you have 660 scores you might even be able to qualify into the low $200k range.