USDA Home Loan Requirements Updates

The USDA Home Loan NC program is experiencing its next major underwriting requirement updates. These USDA Home Loan requirements are in use with each new borrower we talk to, some of them are already “in force” with the Automated Underwriting System the USDA Loan system uses.  The USDA Home Loan requirements updates are taking place April 1, 2016.

One of the biggest changes in our company is that we are STILL allowed to approve loans under a “manual” system.  This is exactly what it sounds like.  We normally send loans through a computer program to see if the loan can be approved. Even with all of the changes, we still have the ability to sidetrack the Automated Approval System and have a REAL LIVE PERSON underwrite the USDA Loan.  There are tighter restrictions, but it is a way to have a borrower who is slightly outside of the guidelines still qualify for a mortgage!!

General USDA Home Loan Requirements for North Carolina

The USDA Home Loan program in North Carolina really only has 4 basic underwriting requirements for borrowers to meet. 

• The Household income has to be below the maximum limit set for the County. This can be a very different income than the income we use to qualify you for the mortgage.  Let’s say there’s an aging parent living in the home – their income would be used to see if you meet the maximum income limit, but they might not be on the loan for “qualifying” purposes.  These income limits are subject to change at the end of each year.
•  The Household income on the Application (so everybody who will be on the loan) must be enough to meet the debt to income guidelines. The Income must be able to support the 29/41 ratios set by USDA Home Loan Requirements – meaning your TOTAL house payment (including taxes and insurance and paying the mortgage back) can be no more than 29.000% of your GROSS monthly income.  So for easy math, let’s say your total income (before taxes, etc) is $3000 a month.  For a USDA Home Loan, your total monthly payment should be no more than $870.  If your monthly gross income is $3000, then with your car loan, and student loans and credit car payments AND your total house payment – your monthly debts should be no more than $1230.
  • We can ask for Debt Waivers if you are over the 29/41%.  However, you will need some “offsetting” or Compensating Factors for us to work with… for instance, low payment shock or higher credit scores, or savings left over after closing.
• The Credit Scores of everyone on the loan needs to be above 640 – this is a change. If you read that you can get a USDA Home Loan with a 620 credit score – that’s changing.  The “target” score in the new USDA Home Loan requirements 2016 Updates is 680, but they will allow us to go down to 600, under very specific circumstances.
• The house must be located within the USDA Loan Eligibility Map “footprint.”  The USDA Loan Eligibility Map NC is also changing .  For instance, in the Raleigh area, there are more than 2 dozen neighborhoods that will no longer qualify for the USDA Loan Raleigh program.

UPDATES:  USDA Home Loan Requirements for North Carolina

The handbook with USDA Home Loan Requirements and their updates is more than 20 chapters long with over 10 appendices – so I can not highlight all of the changes here – but there are some significant ones, that you should be aware of.

Credit Scores and Credit Requirements USDA Loans NC /UPDATE

• USDA Home Loan Requirements now demand that we document that borrowers have not been 30 days late on rent in the past 12 months.  There’s also language that says if you have scores under 680, and you have not paid rent for the past 12 months (perhaps you were in college or the military) it’s considered a RED FLAG.
• Being an Authorized User is not going to help you raise your credit scores as much.  “When the loan is manually underwritten, the primary wage earner should be treated as the applicant and all other applicants are considered co-applicants.  Credit trade – lines that list the applicant as an “authorized user” cannot be considered in the underwriting decision unless another applicant in the mortgage transaction is the owner of the trade line, or the owners of the trade line is the spouse of an applicant, or the applicant can provide documented evidence that they have made the payments on the authorized user account for 12 months preceding application.”  THIS IS A HUGE CHANGE  If you are added to a parent’s account (for instance) so that you have 2 trade lines, with history – we will no longer be able to consider that credit in qualifying you, unless we can prove that you’ve been making the payments – which almost never happens.
• The new underwriting guidelines for USDA Home Loans state that borrowers under a 640 credit score must provide evidence of Extenuating Circumstances – these loans are going to be more and more difficult to get approved.  You will need to have cash left over after closing from savings, and very low debt ratios to qualify.  Also a HUGE UPDATE – and we are already seeing this in the Automated Approvals we receive.

Ratio Requirements and Student Loans with USDA Home Loans / UPDATE

• USDA Home Loan Requirements state that we must consider 1% of the outstanding Student Loan Balance or the FIXED loan payment, as reflected on the Credit Report.  Exception (directly from the USDA Loan Guidelines): “Monthly payment amounts listed on the credit report, which are less than one percent of the outstanding balance may be used when evidence from the loan servicers is obtained indicating; 1)the applicant is on a fixed repayment plan not subject to change under the terms of the current agreement and 2) and the monthly payment amount due. Fixed payments have a monthly amount that is not subject to change through the fixed repayment time frame.”  This means an underwriter is going to ask us for a letter for each of your student loans.  Just know that it’s not us, it’s the guidelines.
• Student Loans that have MORE than 24 months before payments become due will be considered in deferment (as best we can tell) and will NOT be counted against you. (It’s a new guideline, so this could change)
  • IBR Student Loan Payments are not fixed, and therefore do not meet the Exception above.  Previously, we could count $100, that does not appear to be in the new guidelines for IBR Student Loan Payments.  “IBR Student Loan plans, graduated plans, adjustable rates, interest only and deferred plans are examples of repayment plans that are subject to change and do not qualify for the exception.  They will require a calculation of one percent of the loan as these plan types do not represent a fixed payment. No additional documentation is required if a credit report is obtained and the lender can confirm the payment represented is a fixed payment.” Meaning, you are allowed to refinance them to a fixed loan to qualify for a USDA Home Loan.
• Car Allowance:  The amount of actual expenditures exceeding the amount of automobile allowance or expense account payments will be treated as recurring debt.

Property Requirement Changes with USDA Home Loans / UPDATE

• The “old” in ground swimming pool rule issues have been removed – meaning there are no “special” requirements for in ground swimming pools, they are okay.
• The 30% land value versus the value of the HOME also appears to be changed.  The property requirements now read that it must be “typical” for the area, meaning if there’s some land, and it’s typical for the area according to the appraisal – it’s okay.  There are still restrictions for outbuildings and land that is obviously used for commercial income use – however, it specifically says that “personal garden space” is okay.  Personal space for horses, for instance, appears to be okay as well.
• The WATER Source requirements appear to be the same, however there is language about rights and restrictions if part of the Water or Sewer System runs on an adjacent property (like Leach lines for instance).
• Street and Road Maintenance had a strike through regarding who will provide future maintenance for a shared or private road.   We do not believe lenders will agree to this and will continue to ask for Road Agreements.

Again – this is a VERY large document, with MANY changes.  These are only a few of the USDA Home Loan Requirements that will change at the beginning of December. The biggest changes are to the maps, of course, and to the qualifying credit scores and ratios. These are pretty darn hard “requirements” and so far, we are seeing few exceptions made by the Underwriting system.

Every county in NC has a portion that currently qualifies for USDA Home Loans, but those “boundary maps” are scheduled to change pretty SLIGHTLY in April of 2016.

If these changes mean that you might not qualify for a USDA Home Loan in NC – do not worry!  We are one of a handful of lenders in NC that also offer all of the NC Affordable Housing loans, which also provide Mortgage Tax Credits and Down Payment Assistance!  Best of all?  You don’t have to be a first time home buyer to qualify for these great programs!

For more information about USDA Home Loan Requirements in North Carolina, or to understand how these guideline updates are going to affect your ability to qualify – please contact Steve and Eleanor Thorne, 919-649-5058, Connect with us on Google Plus or via Facebook to keep up to date on any changes to the USDA Home Loan program in NC!