The minimum credit score for the USDA home loan program is 640 although borrowers with lower scores may be able to qualify in some cases.
In order for you to be approved for a USDA loan with a credit score of less than 640, your lender is required to submit a "credit exception" with your mortgage application. A credit exception is a written explanation of the derogatory credit event that contributed to your lower score and the steps the applicant took to address the issue. Depending on the circumstances such as what caused the issue, if it was a one-time situation and other factors, your credit exception and USDA home loan application may be approved or rejected.
The scenarios when credit exceptions are usually permitted include events that were temporary or short-term in duration, outside of the borrower's control and the event was addressed and resolved at least one year prior to submitting your loan application. Examples of acceptable credit exception situations include a medical issue or illness, temporary job loss, decrease or loss of benefits or a business dispute.
The other case when a credit exception is allowed is if your new USDA loan reduces your total monthly housing expense, including your mortgage payment, property tax, homeowners insurance and FHA insurance fee, by at least 50%.
Simply put, if the situations outlined above apply to you, then the USDA is likely to grant you an exception and approve you for the mortgage even though your credit score is low.
Please note that including a credit exception requires additional work by the borrower and the lender because it involves the lender manually submitting your loan application, a process also called manual underwriting. For example, the lender is required to include documentation that verifies the cause of the negative credit even along with the written credit exception, as part of your application.
Not all lenders are willing to perform this additional work so you may need to contact multiple lenders to find one you can work with. To summarize, getting approved for a USDA home loan with a credit score of less than 640 is not impossible but it can be highly challenging.
We provide a comprehensive overview of the USDA home loan program on FREEandCLEAR for you to review. You can also use our USDA Mortgage Qualification Calculator to determine what size USDA loan you can afford.
Finally, we always recommend that you contact multiple lenders to understand how they would handle your unique situation. You can review lenders in your area by clicking MORTGAGE RATES We advise you to contact at least four lenders as USDA home loan qualification guidelines vary. Plus, shopping multiple lenders is the best way to save money on your mortgage.