USDA Requirements: Loans approved with adverse credit listed in section 1980.345(d)(1) must be accompanied by a credit waiver. Credit waivers approved by the lender should be fully documented by the underwriter on the underwriting analysis.
Properly documented credit waivers must explain the circumstances
surrounding the adverse credit were temporary in nature, beyond the
applicant’s control, and have been removed per section 1980.345(d)(3)(i).
Lender must document the compensating factors considered in support of the underwriting decision and submit the supporting documentation to Rural Development.
Manually underwritten loans, and GUS loans that receive a “Refer” or “Refer with Caution” underwriting recommendation, approved by the lender for applicants with eligible credit scores of 640 and above do not require the lender to submit supporting documentation to Rural Development.
Exception: Any applicant with a foreclosure or pre-foreclosure activity in the previous 36 months, Chapter 7 bankruptcy discharged in the previous 36 months, Chapter 13 bankruptcy that has yet to complete repayment or has completed repayment within the previous 12 months, and/or late mortgage payments in the most recent 12 months must submit all supporting evidence along with the credit waiver regardless of credit score. The lender must document the compensating factors as well as the rationale that was applied in the course of making a decision to approve the loan in their permanent loan file.
Lenders should not approve loans with credit scores of 580 and below if the loan exhibits any of the indicators of unacceptable credit listed inspection 1980.345(d).GUS “Accept” loans do not require the lender to submit an explanation of credit waiver to Rural Development nor retain credit waiver documentation in their permanent loan file. The GUS Underwriting Findings Report serves as evidence of credit review and approval by the lender.
Applicants that are delinquent on Federal debts may be ineligible for a
guaranteed loan per section 1980.345(f). Recorded outstanding judgments obtained by the United States in a Federal court (other than the U.S. Tax Court) or any delinquent Federal debt identified by CAIVRS (Credit Alert Interactive Voice Response System) shall cause the applicant to be ineligible until the Federal debt is paid in full or otherwise resolved.
Official documentation to prove debt resolution may include a release of
liability from the creditor or official receipts from creditors stating the debts have been paid in full. Evidence of payment arrangements do not qualify as acceptable documentation. Loan funds from Rural Development may not be used to satisfy a debt.
Applicants participating in a Consumer Credit Counseling Program are not disqualified from obtaining a guaranteed loan. The lender must document that 12 months of the repayment period has elapsed under the plan with all payments made on time and the applicant has received written permission from the counseling Agency to enter into a mortgage transaction. Exception : GUS “Accept” loans are not subject to additional documentation since the credit scores already reflect degradation in the applicant’s credit
A Chapter 13 bankruptcy does not disqualify an applicant from obtaining a guaranteed loan. The lender must document that 12 months of the repayment period has elapsed under the plan with all payments made on time and the applicant has received written permission from the bankruptcy court/trustee
NON-PURCHASING SPOUSE (NPS) in COMMUNITY PROPERTY STATES: Except for obligations specifically excluded by state law,
the debts of NPS’s must be included in the applicant’s qualifying ratios when the applicant resides in a community property state or the
property guaranteed is located in a community property state. The NPS’s credit history is not considered a reason to deny a loan application.
However, the NPS’s obligations must be considered in the debt-to-income ratio unless excluded by state law. A credit report that complies
with Rural Development requirements must be obtained for the NPS in order to accurately determine the debts that must be counted in the
total debt ratio. Community property states include: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and
Lenders may request Rural Development concurrence to exceed ratio
thresholds when documented compensating factors are present. Debt ratio waiver requests should be identified by the underwriter on the underwriting analysis and must include all compensating factors considered by the lender.
Acceptable compensating factors include but are not limited to: a minimal increase in housing expense; an applicant’s historical ability to devote a higher percentage of income to housing expenses; conservative attitude toward the use of credit; presence of cash reserves available post closing; additional compensation or income available in the household to meet the mortgage obligation; and the potential for increased earnings through career advancement. A credit score of 680 or higher may be documented as a standalone compensating factor when no additional risk layers are present
Rental or Housing History
Verify a 12 month payment history for rent or housing expenses when
applicable. Lenders may collect canceled checks or money order receipts. Written verifications by independent management companies may be accepted in lieu of canceled checks. Written verification should include creditor name, date the rental agreement or contract began, monthly payment due, and payment history reported in 0x30, 0x60, 0x90 day format. Statements such as “satisfactory” or “acceptable” are not acceptable. Rent or housing payment history reported on the credit report is acceptable.
Applicants with credit scores of 640 and above do not need to provide Rural Development with a rent or housing verification. Exception: Any applicant with a foreclosure or pre-foreclosure activity in the previous 36 months,
Chapter 7 bankruptcy discharged in the previous 36 months, Chapter 13
bankruptcy that has yet to complete repayment or has completed repayment within the previous 12 months, and/or late mortgage payments in the most recent 12 months must submit a verification of rent or housing, regardless of credit score.
Loan files that receive a GUS “Accept” underwriting recommendation are not subject to verification of rent or housing history.
Section 1980.345(c)(1) requires payments on debts with more than six
months (6) repayment remaining to be included in the total debt ratio. This type of debt is typically installment debts. Regardless of the existing balance, revolving debt will always be considered when calculating debt
ratios. Underwriters may also include other shorter term debts (less than 6 months repayment remaining) that are considered to have a significant impact on repayment ability. If no monthly payment is listed for the balance, underwriters may use 5% of the balance for the monthly payment due or the applicant can provide a recent statement as evidence of a lower
Section 1980.345(c)(1)(i) requires debts which have been co-signed by the applicant for another party to be considered in the debt ratio unless evidence can be obtained that it has not been necessary for the applicant to make payments over the last 12 months.
A co-signed obligation refers to an agreement where the applicant is liable for the note with other parties. Liabilities solely in the applicant’s name must always be considered in the debt ratio, regardless of who is making the monthly payment as the legal obligation resides with the applicant.
Student loans represent a debt obligation. Loans in repayment and deferred student loans must be included in the debt ratio per section 1980.345(c)(1).
If available, lenders will utilize the payment amount listed on the credit
report. If the credit report does not indicate a monthly payment amount,
lenders may use the monthly payment amount provided by the loan servicer or 1% of the loan balance reflected on the credit report.
Applicants obligated to pay child support, alimony, garnishments, or other court ordered debts must have these payments included in the debt ratio. If the applicant has a release of liability from the court/creditor, the debt can be excluded. Lenders may use select pages from the applicable agreement/court order to document the required monthly payment due and the duration of the