With the updates that USDA Rural Development recently made, they are being more strict on the amount of credit experience a borrower has. While the USDA program does not have a minimum score requirement, it does have a minimum trade line requirement (Even though USDA doesn’t have a minimum credit score, lenders do have their own minimums usually at 620). The USDA home loan requires 3 trade lines and they can be from non-traditional sources. USDA’s description is: At least one applicant whose income or assets are used for qualification must have at least three historical (any account that is open and active with repayment underway or any account that has been open, but may now be closed) trade line payment references that have existed for at least 12 months to establish a credit reputation and validate the credit score. Some applicants may not have an established credit history, but credit verified through alternative sources may indicate a willingness to pay recurring debts. Neither the lack of a credit history nor the applicant’s decision to not use traditional credit can be used as a basis for rejection.
What this means is that USDA wants to see that buyers have demonstrated experience with credit in hopes that taking on the responsibility of paying a mortgage is not going to be a shock to their finances. In our experience, it is very helpful for borrowers to have experience in paying rent to a company on-time or by paying an individual with cancelled checks or sometimes third party verification.
If you have very limited traditional credit or no credit scores, there are ways to obtain a USDA loan documenting alternative credit sources. Learn how to document alternative credit sources here
We are USDA home loan experts and are able to help you when looking to purchase a home with no money down or refinance an existing USDA mortgage even without an appraisal.
USDA Question: Does the USDA have a minimum credit score requirement?
ANSWER: No, the USDA program does not have a minimum score requirement. A credit score in its self does not indicate that the applicant’s credit reputation is acceptable. Even when the credit score exceeds the minimum requirement, the lender must determine that each applicant, individually, and all applicants collectively, have an acceptable credit reputation. In general, a lower score represents a higher credit risk, while a higher score indicates a lower credit risk.
Contact our USDA home loan experts with Team Move today for your no money down USDA questions and qualification.