Debt Waiver Request USDA Home Loan Update

The USDA Home Loan program in North Carolina is one of the most popular mortgages available.  It carries much cheaper costs than most other programs, and does not have a down payment requirement. 

The home must be within the USDA Home Loan Eligibility area, and every county in North Carolina has property that qualifies for the program.  Additionally, the household income must be under the maximum income allowances for the County you want to purchase a home in.  These are owner occupied loans, designed for folks with fairly good credit, since they don’t have any down payment requirements.

All in all – USDA Home Loans in North Carolina are fairly easy to qualify for, and many First Time Home Buyers in North Carolina take advantage of the program.

The USDA Home Loan System recently issued updated Eligibility Requirements for approval.  The update seems subtle enough – basically it says that the debt to income ratios for USDA Home Loans are not to be considered a range… they are hard and fast numbers.

For the past 5 years we’ve been granted exceptions within the USDA Home Loan housing ratio, allowing us to obtain approvals for home buyers who had “front end” ratios of 33 and 34 percent.  Those days are over.  The maximum housing / PITI ratio allowed with GUS is now 32% with the “standard” ratio of 29% pretty strictly enforced.  Newly updated USDA Home Loan Eligibility requirements also enforce a 41% total debt ratio – even though in months past, we were able to approve “back end” ratios of 47 to 48%.

USDA Guidelines issued that are to take place on September 1, 2014 state, “The presence of compensating factors does not strengthen a ratio exception when multiple layers of risk, such as a marginal credit history, are present in the application.”

IF the Bank Underwriter feels that the borrower should be considered for a USDA Home Loan Debt Ratio waiver, then the home buyer will need the following:

• A middle credit score of at least 680.  (The Co-borrower needs a middle credit score of at least 620).   If the Borrower has a middle score of at least 680, and there’s no evidence of payment shock, and the total debt is over 41% but less than 45%, then it’s an automatic approval for the USDA Home Loan Debt Waiver.  If the borrower has ratios that are within the 29/41 guidelines, then we can easily get a loan approved with median credit scores of 620 to 640.
• If the middle credit score is over 640, and the housing ratio is between 29 and 32, but the total debt ratio is under 41 – OR the Housing ratio is below 29% and the total debt ratio is between 41 and 45%, then we can request a USDA Home Loan Debt Ratio Waiver from the USDA Underwriters as long as we meet TWO of the following compensating factors:
  • Payment Shock:  The home buyers new housing payment (PITI and HOA) must be at least what the home buyer has been paying for the last year, or less than what they’ve been paying.  We will be required to obtain a written verification of rent, and that all payments have been made on time.  Living in a unit owned by a family member will not count as meeting this USDA Home Loan Debt Ratio waiver compensating factor.
  • Savings on Hand After Closing: The home buyers can get a USDA Home Loan debt ratio waiver if they can prove that they’ve accumulated savings.  It does not appear that a gift will be sufficient to meet this requirement, because we must provide 2 consecutive months of bank statements to document the savings.  The savings account must be equal to or more than three months of PITI.  So, if the total house payment is $1502, we will need savings of $4506 on bank statements that are dated within 45 days of loan application.
  • Stable Employment:   The home buyers can request a USDA Home Loan debt ratio waiver if they can provide us with evidence of 24 months Employment at the same employer over consecutive months.
  • Additional Household Income:  If there’s additional household compensation not included in the qualifying income, such as part time job income with less than a two year job history, we may be able to use that as a consideration for a USDA Home Loan Debt Ratio Waiver.
  • A college degree, or Job training that provides some potential for increased earnings MIGHT also be used as a compensating factor – in North Carolina, this has always been one of the USDA compensating factors for a debt ratio waiver that helps first time home buyers. However with the latest changes, it’s difficult to tell just yet if this still carries the same weight with USDA Home Loan Underwriters.
  • Conservative use of credit: Evidenced by a very low Total Debt Ratio, and higher credit scores.

You don’t have to wait until you’ve been employed for two full years to be approved for a USDA Home Loan.  The requirements above are only used in a situation where we are trying to get your loan approved with higher than “normal” debt ratios.

Many first time home buyers in North Carolina are considering this program as an important tool for buying their new home. The USDA Home Loan Eligibility Maps are scheduled to change on .  If you are interested in a home that is scheduled to lose the program, we are suggesting that folks be under contract prior to August 15th in order to get completely through the USDA Underwriting system.

Have questions about the USDA Home Loan Debt Ratios, or how you can qualify for a home with a USDA Loan? Call  Steve and Eleanor Thorne at 919-649-5058 , USDA Loan Experts in North Carolina.  You can also find us on Google Plus and Facebook