When applying for a home loan most borrowers like to have an idea of what lenders like to see in an application. Although the USDA home loan is a mortgage and is very similar to other home loans there are a few differences in expectation from the lender.
Lender Looks at Credit in Two Ways
First and foremost the lender will review the credit score for the borrower. Most of the time a minimum score of 620 is needed to get approved for the USDA mortgage although some borrowers will need a higher score to overcome things such as a short time on a job.
Besides the actual score the lender will look at the overall history of the person’s credit report. Ideally, the lender would like to see a mixture of different types of debt such as credit cards, car loans and installment loans scattered across at least 12 months. The longer the history the better.
Besides the credit, the lender will pay close attention to the home that is being purchased. Unlike other mortgages, the USDA program requires the property to be located within a certain zone. These zones are called USDA eligible areas. Your mortgage lender can tell you if a home falls within an appropriate area.
Besides the location of the property, USDA also looks at the type of property. The USDA is actually very lenient towards the type of home. Most homes are allowed except for a multi-use property like a duplex or four-plex. Manufactured homes can be approved, however the guidelines are quite strict and some lenders avoid them completely. Most of the time only new manufactured homes are approved. It is better to talk to a lender that has success with approving loans for manufactured homes prior to putting an offer on a property.
Other examples of homes that are not eligible for USDA mortgage are
- Homes located on dirt roads
- Hobby farms
- A home in which the water is hauled to the home