USDA Rural Development:  Direct Mortgage

Buyer Eligibility

Property Eligibility

Credit Guidelines

Income Guidelines

Loan Process

504 Repair Loan
and Grant

Appraisals

How To Apply

USDA Credit Guidelines

To be eligible for a USDA Rural Development Direct 502 loan, applicants must demonstrate that they are reasonably able and willing to repay an Agency loan. This section begins with a discussion of the criteria that underwriters must use in assessing an applicant's credit history. 

It then describes the procedures for conducting preliminary credit checks when an applicant is placed on the waiting list and full credit reviews for applicants selected for processing, and provides guidance for evaluating the information obtained.

Credit Guidelines

The underwriter must evaluate the credit history of each proposed party to the note. An applicant's credit record does not have to be perfect; a few instances of credit problems can be acceptable if an applicant's overall credit record demonstrates an ability and willingness to repay obligations. 

The Agency must investigate indicators of unacceptable credit to determine whether they are accurate, and whether there is an acceptable explanation for the problem that might justify an exception. Failure to understand credit history or the nature of a credit problem could put the Agency at risk of providing financing to an applicant who is unable or unwilling to repay the debt.

Unacceptable Credit

• Little or no credit history. The lack of credit history on the credit report may be mitigated if the applicant can document a willingness to pay recurring debts through other acceptable means such as third party verifications or canceled checks. Due to impartiality issues, third party verifications  from relatives of household members are not permissible.
• Payments on any installment account where the amount of the delinquency exceeded one installment for more than 30 days within the last 12 months.
• Payments on any revolving account which was delinquent for more than 30 days on two or more occasions within the last 12 months.
• A foreclosure that has been completed within the last 36 months.
• An outstanding Internal Revenue Service (IRS) tax lien or any other outstanding tax liens with no satisfactory arrangement for payment.
• Two or more rent or mortgage payments paid 30 or more days late within the last 2 years. If the applicant has experienced no other credit problems in the past 2 years, only 1 year of rent history  will be evaluated. This requirement may be waived if the program loan will reduce shelter costs significantly and contribute to improved repayment ability.
• Outstanding collection accounts with a record of irregular payments with no satisfactory arrangements for repayment, or collection accounts that were paid in full within the last 6 months, unless the applicant had been making regular payments previously.
• Non-Agency debts written off within the last 36 months, unless the debt was paid in full at least 12 months ago.
• Agency debts that were debt settled within the past 36 months, or are being considered for debt settlement.
• Delinquency on a federal debt.
• A court-created or court-affirmed obligation or judgment caused by nonpayment that is currently outstanding or has been outstanding within the last 12 months, except:
  ◊ A bankruptcy in which:
  ♦ Debts were discharged more than 36 months prior to the date of application; or
  ♦ Where an applicant successfully completed a bankruptcy debt restructuring plan and has demonstrated a willingness to meet obligations when due for the 12 months prior to the date of application.
  ◊ A judgment satisfied more than 12 months before the date of application. An applicant with an outstanding judgment obtained by the United States in a Federal court, other than the United States Tax Court, is not eligible for a Section 502 loan. This requirement is statutory and cannot be waived.

Credit Alert Interactive Voice Response System - CAIVRS

Except in VERY unusual circumstances, an applicant who is delinquent on a Federal debt is not eligible for a Section 502 loan. The underwriter can verify whether the applicant has delinquent Federal debt through CAIVRS.

Residential Mortgage Credit Report

The Residential Mortgage Credit Report (RMCR) will include a Beacon, Classic 2004 FICO, and Fair Issac credit score. The report will include data from the three main repositories, updated verifications on all tradelines with a balance (updated to within 90 days), a court records check that includes adverse items for the prior 7-year period, and a 2-year employment and rental history. 

The RMCR will also provide the results of a check against the U.S. Department of the Treasury's Office of Foreign Assets Control (OFAC) database. OFAC administers and enforces economic and trade sanctions against targeted foreign countries, terrorists, international narcotics traffickers, and those engaged in activities related to the proliferation of weapons of mass destruction. 

If an OFAC match message appears on the RMCR, refer to the U.S. Treasury website at http://www.treas.gov/offices/enforcement/ofac/faq/answer.shtml for guidance on how to determine if the match is valid. If a due diligence review concludes that the match is valid, the applicant should be denied assistance and referred to the OFAC contact number for further information as per the aforementioned website.