This is an update based upon our own experience sending files through the GUS (the Automated USDA System) each day, and our conversations with Lenders across the US. These are NOT published changes to the USDA Automated System, however, we believe that more than 1/3 of borrowers who qualified for a USDA Home Loan in JULY of 2014, no longer qualify because of USDA Home Loan Eligibility Requirements that were due to change in September.
The change to USDA Loan Eligibility Requirements was announced as being delayed until December – but our “boots on the ground experience” tells us the changes have already been incorporated into the USDA Home Loan Eligibility Requirements and they are pretty tough.
Having said that – there are lenders, we are one of them, that have the ability to approve “Manual Underwrites.” HOWEVER – because of the stricter Automated Approval guidelines, we suspect that Underwriters, at least for the next 60 to 90 days will be more “wary” of over-riding the system to manually approve a now marginal borrower.
The USDA Rural Development program works their online approval process through an automated program referred to as GUS. This Automated Underwriting System holds all of the parameters for USDA Home Loan Eligibility Requirements for underwriting approval.
The process for a USDA Home Loan NC works such that you get a preliminary “run” through the system (at pre-qualification) – and then, right before the loan is shipped to the USDA Underwriter, a FINAL GUS pull is done.
In the last two weeks, the GUS system had a massive UN-ANNOUNCED update.
North Carolina home buyers, with pre-approved mortgages are finding out, in some cases, that they may no longer actually qualify for a USDA Home Loan.
There are borrowers who are under contract, folks in North Carolina who purchased a home that is being constructed for them – who are now finding themselves in a situation where it is difficult to meet the USDA Home Loan eligibility requirements.
Fortunately, mortgage interest rates have not gone significantly higher this summer, which would simply ADD to a difficult situation. The USDA Home Loan Approval system (GUS) implemented tougher guidelines with new “hard and fast” rules for debt to income ratios. These rules are NOT retroactive, or “grandfathered” – meaning just because you have a preliminary approval through the GUS system – all borrowers must meet the NEW guidelines before the loan goes to USDA Underwriters for review.
New USDA Home Loan Eligibility Requirements difficult for First Time Home Buyers
With the change, USDA Home Loans Eligibility requirements now include a higher credit score if you exceed the USDA Home Loan debt to income ratios of 29% and 41% . If the home buyer has ratios above either of those numbers, they must have a minimum credit score of 680. This minimum credit score is up from the 660 requirement earlier this summer.
This makes it even more difficult for First Time Home Buyers to qualify for the home of their dreams, because many of those folks who are in their 20s do not have YEARS of credit to build up a credit score this high – which is a SHAME. The First Time Home Buyers – especially those who just graduated from college and know that their income is going to go up in the next few years as they establish their career. The first time home buyers we talk to are willing to eat PBJs for a few months to get into a DREAM home, and not just something that is “meh.”
Under the new USDA Home Loan Eligibility Requirements, if you have a middle credit score of 640 or less, the debt to income ratios of 29/41 can not be exceeded. With a 680 middle credit score – we can do a manual underwrite, and request a ratio waiver ONLY IF the PITI ratio is between 29 and 32 percent OR the total debt ratio is between 41 and 45 percent.
In the past, as long as we were in the back-end ratio “range” of 46 to 48 percent, and the credit score was over 640 – we could get an acceptable loan approved by GUS. Now, you MUST be tightly within the debt to income ratios of EITHER the front end, OR the back-end. You can not be out of “tolerance” for BOTH debt to income ratios and expect to receive a ratio waiver. With a USDA Debt Ratio Waiver request, you should also meet one of the eligible compensating factors.
This is a massive change. If you are a Builder, with homes being built for buyers – I would QUICKLY contact all of the lenders working on their files and have them verify that the home buyers STILL qualify for a USDA Home Loan… because I can guarantee you, some of them won’t.
If you have questions about the USDA Home Loan eligibility requirements, the USDA Debt to Income Ratios – or the upcoming changes to the USDA Loan Eligibility Maps in North Carolina – please call Steve and Eleanor Thorne 919 649 5058. You can also hang out with us on Google Plus or Facebook! Leave any questions or comments below – I try to answer them all 🙂