USDA Loan Guidelines: Common Questions

When it comes to USDA loans, many times people have questions on underwriting guidelines. Here are few of the more common questions and answers when it comes to USDA loan guidelines:

Question:
How long after a bankruptcy can someone qualify for a USDA loan?

Answer:
Bankruptcies are not allowed in the last 36 months.

Question:
Can you get “cash back” at closing with a USDA loan?

Answer:
The borrowers may not receive any cash back at closing, other than the documented amount representing costs paid in advance by the borrower from their personal funds (i.e., earnest money deposit, appraisal, credit report fees). Tax pro-rations may not be given to the borrowers in the form of cash back at closing. Any tax prorations resulting in cash back to the borrower must be applied as a principal reduction. The same applies to any excess funds remaining from seller paid concessions.

Question:
When it comes to child care expenses when qualifying for a USDA loan, what is allowed?

Answer:
A deduction of the care of minors 12 years of age or under, to the extent necessary to enable a borrower to be gainfully employed or to further his/her education. Payment of care cannot exceed the income earned, if caused by employment and cannot be made to persons whom the borrower is able to claim as a dependent for income tax purposes. Documentation may be in the form of tax returns, third party verifications or cancelled checks or money orders.

Question:
Are co-borrowers allowed on a USDA loan?

Answer:
Allowed. The maximum number of borrowers allowed on a single transaction is four. Income from all borrowers and non-borrowers occupying the subject property must be considered when calculating qualifying income.

Question:
Do I have to pay off collection accounts when qualifying for a USDA loan?

Answer:
Applicants are expected to demonstrate a reasonable ability and willingness to meet obligations as they come due. It is the underwriter’s responsibility to determine what collection accounts, if any, should be paid in full by the applicant prior to or at closing, and based on the strength of the credit profile. Evidence of meaningful financial reserves and if the account(s) have the potential to affect the lien position or diminish the borrower’s equity must be considered. The underwriting decision must be fully documented on the underwriting analysis.

Question:
What kind of credit history do I have to have to qualify for a USDA loan? Can I qualify for a USDA loan with bad credit?

Answer:


Credit history must indicate a reasonable ability and willingness to meet obligations as they become due. The following are indications of unacceptable credit history and must be carefully investigated. If loan approved through GUS, the guidelines below are not required to be met.

• More than one payment being more than 30 days late in the last 12 mos.
• A foreclosure or bankruptcy in the past 36 months.
• A judgment in the last 12 months.
• Outstanding tax liens, mo matter what their age, that are currently delinquent.
• Two or more rent payment paid 30 days or more past due.
• Outstanding collection accounts, mo matter what their age, that are currently delinquent.
• Previous RHS debt or non-RHS debt that resulted in a loss.
• Any outstanding judgment obtained by the United States in a federal court (other than a tax lien).

These are just a few of the more common questions that we get about qualifying for a USDA loan. If you have questions about your particular situation, be sure to call one of our experts!