A Zero-Down Program For Moderate-Credit Home Buyers
Many home buyers get excited about buying their first home until a lender pulls their credit.
Then they discover their credit score isn’t what they thought it was.
The good news is that mortgage programs exist that not only allow but encourage lower credit buyers to apply. Case in point: USDA loans.
This program was designed from its inception to get rural and suburban renters into their own homes.
It continues this mission today by allowing those without perfect credit to qualify.
What Is The USDA Loan Minimum Credit Score?
Typically, lenders will set a 640 minimum score for this program.
However, USDA does not ban lower scores. Its guidelines state that applicants may be approved if the borrower experienced an extenuating circumstance.
Extenuating circumstances include:
- A layoff due to reduction in workforce
- A medical emergency
- Other events outside the applicant’s control
The circumstance must be a one-time event that is not likely to recur. Additionally, it can’t be a result of the applicant’s inability to manage finances.
If you are unsure if your circumstance is considered “outside your control”, speak to a lender to see if you might qualify.
The USDA loan is not just for buyers with challenged credit, though. The loan offers fantastic value and low rates for all borrowers.
Applicants with a credit score of 680 or higher will enjoy a streamlined approval process. No verification of rent is required, and the chances of getting approved are relatively good.
Bankruptcy, Foreclosure Waiting Periods
Waiting periods after major derogatory credit events are as follows.
- Foreclosure: 3 years
- Chapter 7 bankruptcy: 3 years (12 months if the circumstance was temporary and is now resolved)
- Chapter 13 bankruptcy: 12 months after you complete repayment
In addition, you must not have had any mortgage or rent payments that were more than 30 days late in the past 12 months.
Getting A USDA Loan With No Credit Score
You need two or three accounts open for at least 12 months to generate a credit score.
Some applicants, though, have no score due to lack of credit history. That’s okay. According to guidelines, lenders may not use the borrower’s choice not to use credit as a basis for denial.
In cases of no credit score or insufficient account history, USDA accepts non-traditional credit reports. These look just like regular credit reports, but credit agencies manually generate them via proof-of-payment documentation for:
- School tuition
- Other recurring bills
The lender may also approve the loan without a non-traditional credit report. It must use third-party verifications such as proof of on-time rent payments from a landlord.
Having no credit score should not stop you from buying a home with this loan program.
Check Your USDA Eligibility
USDA financing removes traditional barriers to homeownership. Many home buyers worry their credit history isn’t good enough to get a mortgage. However, USDA loans are lenient when it comes to credit scores.