At the very end of the USDA RD Home Loan Underwriting Guidelines there’s a section that’s titled “Compensating Factors.”  This brief section is for the situation where a borrower is just outside the guidelines to qualify for a USDA Home Loan, meaning  someone with housing and debt ratios higher than 29/41.

We’ve seen folks who have income we can’t count – maybe they’ve only worked at a part time job for a year, or they receive bonus checks, but haven’t been paid for their bonus this year, or they are eligible for a raise in 90 days… folks who needed us to look at their situation a little differently.  In those “common sense” mortgage underwriting scenarios, USDA has this to say about Compensating Factors:

Debt ratio waivers may be requested for loans with ratios exceeding program guidelines of 29/41 when compensating factors are present in the file. Applicants with credit scores of 660 and higher do not require additional compensating factors to be identified for debt ratio waiver requests. If co-applicants have a credit score of 659 or below, additional compensating factors should be documented to further support the ratio waiver request. There is no minimum credit score required to be eligible for a debt ratio waiver request. [Read more...]