USDA Rural Home Loan
While your credit score is often the most important thing lenders look at when applying for a home loan, individuals with average to even no credit at all can still qualify for a USDA rural home loan. USDA rural home loans are specifically designed for moderate to low income families looking to buy a home in a small town or rural area. They offer some of the lowest fixed rate mortgages on the market, have minimal closing costs and require no down payment. If you’re looking to secure a USDA home loan, but you have little to no credit, there are steps you can take to still be eligible for this great loan opportunity.
USDA Guidelines For No Credit
If you have little to no credit you will need to meet these specific guidelines to be eligible for a USDA home loan. First of all, you must be able to provide verified rental history. You can do this by either providing a detailed verification of your rent history or 12 months of cancelled checks that were paid to your land lord. Receipts from cash or money orders is not usually an accepted form of verification.
Additionally, alternative credit will need to be established. Alternative credit is defined as the type of credit that does not reflect on your credit score. This can include payments made for car insurance, cable, water, electricity, or even your phone bill. Mortgage underwriters will need at least 2-3 good alternative credit examples that include no negative payment history. They will also need alternative credit examples with at least a 12 month payment history for each account.
Additional Compensating Factors
These additional compensating factors are not underwriting requirements but can go a long way for loan approval. These include such factors as job stability, and substantial verified reserves in either a checking, savings or 401 K account. While employment history is always a consideration when applying for a USDA home loan, in the case of limited to no credit, the more job stability you can show the greater your chances will be to get approved. You need to be able to show 2 or more years at the same job and you shouldn’t have large unexplained periods without employment.
Also, being able to show that you have money saved in either a checking or savings account is a strong factor when there is limited to no credit history. Being able to document a savings pattern of at least 3 months in any of these accounts will go along way towards getting your loan approved. Also, having a 401 K plan with at least 50,000 may also help your chances of getting approved.