Lenders look at debts, income and credit history to determine if an applicant is able to take on a USDA mortgage. Fortunately, USDA loans offer many advantages to help low- and middle-income families buy a home.
This section breaks down common credit requirements, income limits and employment guidelines for a USDA loan.
Article Index
- USDA Loan Credit Score Requirements
- How Credit Scores Work
- What is the minimum score required to qualify for a USDA loan?
- Non-Traditional Credit and USDA Loans
- Compare USDA Credit Score Requirements
- USDA Loan Income Limits
- USDA Loan Income Requirements
- The PITI Ratio
- Total Debt-to-Income Ratio
- USDA Loan Employment Requirements
USDA Loan Credit Score Requirements
The USDA does not set a minimum credit score requirement, but most lenders require a score of at least 640, which is the minimum score needed to qualify for automatic approval using the USDA's Guaranteed Underwriting System (GUS). GUS is the USDA's automated underwriting system, which automates the process of credit risk evaluation.
It is possible to qualify with a score below 640 with some lenders, but those files require manual underwriting. Even people without a credit score at all can sometimes qualify, though there are other income and financial requirements they must meet.
Credit guidelines can vary by lender and other factors.
How Credit Scores Work
Many prospective homebuyers are caught by surprise when they apply for a mortgage and see scores that differ from what a free credit monitoring service shows.
First, it's important to note that consumers don't have just one credit score. Each of the nation's three major credit reporting agencies (CRAs) – Experian, Equifax and TransUnion – receive different information from creditors and score that information dozens of different ways depending on the type of credit you're seeking, such as a mortgage, car loan or credit card.
The majority of lenders utilize FICO scores to check a potential borrower's credit.
There are five main factors that go into every FICO score:
- Payment history (35%). Are you on time with your bills, or do you have a habit of being late? Anything over 30 days overdue can ding your credit.
- Amounts owed (30%). That's a number that shows how much debt you have, i.e. how much of your available credit you're using. Over 30 percent utilization can be a red flag.
- Length of credit history (15%). If you don't have at least 12 to 14 months of credit history, that can lower your score. The longer the record, the better.
- Credit mix (10%). The more kinds of credit you have, the better. For example, a credit card, a store card, and a loan like a mortgage or auto loan shows a good mix.
- New credit (10%). How many credit lines do you have? Ideally, you have several, but opening a bunch of new accounts all at once can hurt your score, especially if you don't have a long credit history.
If you have bankruptcies, tax liens, anything sent to collections, or any other negative things in your credit history, this can hurt your score, at least for a while.
FICO scores are judged on a 300-850 score range. The higher the score, the lower the risk. Each CRA will give you a slightly different score regardless of which credit score you use. When evaluating you for a USDA loan, lenders will generally choose the middle of the three scores.
Lenders use the median score to assess your credit risk based on the following credit score categories:
| FICO Credit Score Categories | Credit Score Range |
|---|---|
| Excellent | 750 and higher |
| Good | 700 - 749 |
| Fair | 650 - 699 |
| Poor | 550 - 649 |
| Bad | 549 and lower |
Keep in mind that most lenders use the above categories as benchmarks and rely on their own credit score requirements to determine your overall risk.
What is the minimum credit score required to qualify for a USDA loan?
The USDA uses something called a Guaranteed Underwriting System, or GUS, to help automate the process of evaluating the risk of a borrower to speed up the qualification process.
While the USDA does not set a credit score minimum, GUS requires a credit score of at least 640 to automatically qualify for a USDA loan. People with lower credit scores can still qualify for USDA loans using manual underwriting, which typically involves more stringent guidelines.
Manual underwriting means that even though you weren't automatically qualified for a loan, you might still be able to qualify with the help of compensating factors.
Compensating factors are positive points that can strengthen your loan file, such as cash reserves, low debt and more.
You can learn more about the USDA's underwriting guidelines here.
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Non-Traditional Credit and USDA Loans
If you don't have a traditional credit profile, you can still qualify for a USDA loan. You will be asked to provide proof of what's called a "non-traditional tradeline," essentially meaning that you pay your bills on time.
Lenders will often require 12 months of proof that you're paying any of the following on time:
- Rent
- Utility bills
- Insurance
- Childcare
- Medical bills
- Car lease
- Personal loan
- School tuition
- Cell phone bills
Guidelines and policies on non-traditional tradelines can vary by lender and other factors. Another way to show your creditworthiness if you don't have a FICO score is to show evidence that you've saved money regularly. Having cash reserves in your bank account – say, three months' worth of housing payments – can help convince underwriters you're qualified.
Not having a credit score means you will be doing manual underwriting, and so your loan officer will be able to help you figure out exactly what you need to qualify.
Compare USDA Credit Score Requirements
Whether it's a conventional mortgage or one with a government backing, most home loans feature a minimum credit score. But those minimums can vary by lender, the size of the loan and other factors.
| Loan Type | Minimum Score Requirement | Details |
|---|---|---|
| Conventional | 640 | You'll often need at least a 720 score to tap into the most competitive interest rates. |
| FHA | 580 | Borrowers with scores under 580 need a 10 percent down payment. |
| USDA | 640 | Loan files below this cutoff require manual underwriting. |
| VA | 640 | Veterans seeking jumbo loans will often need a higher score. |
USDA Loan Income Limits
The USDA’s mission is to help low- to moderate-income families realize the dream of homeownership. To achieve this goal, the USDA enacts income limits, adjusted for family size, as established by HUD.
The USDA income limits are defined as the greater of:
- 115% of the U.S. median family income for the area or
- 115% of the average between the state-wide and state non-metro median family income or
- 115/80ths of the area low-income limit adjusted for household size for the county or MSA where the property is, or will be, located
Income limits count toward all adult household members, whether they are on the loan note or not.
You can learn more about USDA loans and income here.
USDA Loan Income Requirements
In order to obtain a USDA loan, the borrower must be willing and able to repay the loan. Lenders often determine your repayment ability by looking at your debt-to-income ratio, or DTI.
Applicants are considered to have repayment ability when their total debts do not exceed 41% of their repayment income and their monthly housing expenses do not exceed 29% of their repayment income.
Guidelines on debt-to-income ratio can vary by lender and other factors.
The PITI Ratio
Monthly housing expenses, referred to as PITI (principal, interest, taxes and insurance) may include:
- Principal and interest payment
- Hazard or flood insurance premiums
- Real estate taxes
- HOA dues
- Special assessments
Total Debt-to-Income Ratio
Total debts include PITI plus any other major monthly credit obligations. This may include:
- PITI
- Vehicle payments
- Student loan debt
- Credit card payments
- Co-signed loans
Voluntary contributions to retirements and accounts with a zero balance are not considered in the debt-to-income ratio.
USDA Loan Employment Requirements
Along the lines of income is employment, which plays a vital role in qualifying for a USDA loan. Yes, you certainly don’t need a job, as anyone who’s retired can attest, but for those who are still working, it can be difficult to secure a USDA loan without a stable track record of employment.
Lenders typically at minimum look at your two-year work history, but every employment scenario is different. The key to the USDA’s employment guidelines is maintaining consistency in your field or profession.
To determine consistency, lenders will look at your current employment, previous employment, education and other factors.
Overall, the USDA does not wish to penalize applicants over frequent changes in employment, as long as their employment is in the same line of work and their income has remained at a stable and consistent level.
Gaps in employment are treated differently depending on lender, but the USDA requires applicants to not have any gap in employment of more than a month within the two-year period. However, certain job gaps may be overcome with evidence, such as military service, school or re-entering the work force after taking care of a family member.
Take the next step and see if you qualify for a USDA loan here.
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FAQs
What would disqualify you from a USDA loan? ›
Things like unverifiable income, undisclosed debt, or even just having too much household income for your area can cause a loan to be denied. Talk with a USDA loan specialist to get a clear sense of your income and debt situation and what might be possible.
What income is never counted for USDA? ›Income that is never counted: Earnings of a full‐time student 18 years of age, or older, in excess of $480 unless the student is a spouse or head of household. The student also qualifies as a dependent per 3555.152(c)(1)= $480 annual income deduction. The final amount in annual income will be $0.
Can I get a USDA loan if I make too much money? ›To be eligible for a USDA home loan, your total household income cannot exceed the local USDA income limits. The current standard USDA loan income limit for 1-4 member households is $103,500, up from $91,900 in early 2022. The 2023 limit for 5-8 member households is $136,600, up from $121,300.
How do you pass a USDA appraisal? ›- The home must be in a qualifying rural area.
- The house has to be structurally sound, with a foundation and roof in good enough repair that you can live in the house right away.
- There has to be access to the home from a paved or all-weather road surface.
The minimum credit qualifying score USDA-approved lenders require can vary and credit scores can impact the approval process. However, the USDA does not have a hard and fast credit score requirement, so borrowers with low scores may still be eligible to qualify for a USDA-backed home loan.
How strict is USDA underwriting? ›USDA underwriting can take longer than traditional mortgage loans, as it must go through a two-party approval system. Once the lender has underwritten and approved the loan, it must also be approved by the state's USDA office. This can add extra time to the closing process, depending on the state and other factors.
What is generally excluded from income? ›Income excluded from the IRS's calculation of your income tax includes life insurance death benefit proceeds, child support, welfare, and municipal bond income. The exclusion rule is generally, if your "income" cannot be used as or to acquire food or shelter, it's not taxable.
What is not counted as income? ›- Generally, property you receive as a gift, bequest, or inheritance is not included in your income. However, if property you receive this way also produces income such as interest, dividends, or rents, that income is counted.
What money does not count as income? ›Inheritances, gifts and bequests. Cash rebates on items you purchase from a retailer, manufacturer or dealer. Alimony payments (for divorce decrees finalized after 2018) Child support payments.
Does USDA allow future income? ›If the applicant has a minimum of 1 year of continuous stable and dependable income, future/projected income may still be considered when the applicant has a firm offer with the employer without a foreseeable or unjustifiable gap in employment.
Is a USDA loan for poor people? ›
USDA Offers 100% Direct Rural Housing Loans for Low Income Families | Rural Development. A . gov website belongs to an official government organization in the United States.
What is adjusted income for USDA loan? ›if the household is eligible for the guaranteed loan program. • Adjusted annual income is the annual income of all adult household members minus. eligible deductions.
How long does underwriting take with USDA? ›Once you've signed a purchase agreement, the USDA loan application process typically takes around 30-45 days. The faster all parties work together to complete and provide documents for loan approval, the quicker final loan approval and closing can happen.
What happens after USDA final approval? ›USDA completes a final “sign-off” (a few days to a few weeks) The lender completes underwriting and final approval. Lender sends closing documents to the escrow company, which you sign (1 week) After signing on closing day, the house is yours.
How long does it take to get approval from USDA? ›The Loan Approval Official should review all of the documents contained in the case file to ensure that they are completed properly, and must confirm that the Loan Originator's underwriting decision is sound. The Loan Approval Official must approve or reject the loan within 30 days of receiving a complete case file.
Can you be denied for a USDA loan? ›Beyond these reasons, a USDA loan application could be denied due to inadequate cash savings, spotty employment history, or the house not meeting appraisal guidelines.
What is a USDA background check? ›A Federal Bureau of Investigation (FBI) National Criminal History Check (fingerprint check) is required for all USDA hires and must be determined to be favorable in order by the agency to secure Federal employment.
Is a USDA home loan hard to get? ›Qualification is easier than for many other loan types, since the loan doesn't require a down payment or a high credit score. Homebuyers should make sure they are looking at homes within USDA-eligible geographic areas, because the property location is the most important factor for this loan type.
Why do lenders not like USDA loans? ›The main downside that stops people from taking out USDA loans is the geographic restrictions. As USDA loans are only designed for rural areas mostly, it means that anyone who wants to buy a home in a more urban location cannot qualify.
What FICO score do you need for USDA? ›The USDA doesn't have a fixed credit score requirement, but most lenders offering USDA-guaranteed mortgages require a score of at least 640, and 640 is the minimum credit score you'll need to qualify for automatic approval through the USDA's automated loan underwriting system.
How long does it take USDA to approve a loan? ›
The Loan Approval Official should review all of the documents contained in the case file to ensure that they are completed properly, and must confirm that the Loan Originator's underwriting decision is sound. The Loan Approval Official must approve or reject the loan within 30 days of receiving a complete case file.
Is it easier to get approved for FHA or USDA? ›Many home buyers may find FHA loans more accessible than USDA loans. FHA loans are generally considered to have flexible eligibility requirements. Unlike USDA loans, they allow for lower credit scores and have no rules about purchasing in rural areas or meeting household income limits.
How long is the USDA hiring process? ›The recruitment and selection process may take several weeks from the time a position is advertised to when a selection is made. Don't be deterred by this. Ask questions and keep in touch during the application process. You should always print and keep a copy of vacancy announcements for which you apply.
What shows up on a full background check? ›Criminal background checks will reveal felony and misdemeanor criminal convictions, any pending criminal cases, and any history of incarceration as an adult. Arrests pending prosecution may also be reported, and in some cases, arrests that did not lead to a criminal conviction may also appear.
How long after federal interview can I hear back? ›Questions and answers
Although each agency is different, generally, you will hear from the hiring agency in about 15-30 days after the job opportunity announcement (JOA) closes. If you have not heard from the agency, you should contact the agency that posted the JOA to inquire about the status of your application.