Beginning May 1st 2013 USDA Guidelines will tighten up the once user friendly program, likely to head off losses the agency sees in the future. USDA, yes the same people that inspect your meat, guarantees loans for lower income, rural housing. Rural is defined on their website at www.usda.gov, and includes places such as most of Saratoga County in the Capital District of NY, Ballston Spa, Malta, and Stillwater are among the towns labeled as eligible. Just about every where in upstate NY is eligible as are most rural places in the country.
The program currently allows credit scores as low as 620 to be underwritten even with a “refer” response from GUS (Government Underwriting System). GUS is an automated underwriting system that weighs the risk factors in a file and produces a result that tells the underwriter what information to gather to approve the loan or that there is too much risk due to certain factors.
The new changes will only allow a file that recieves a “refer” response that requires a debt ratio waiver to be approved if there are three compensating factors.
The file must;
1. Have a credit score of 680
2. Have three months of reserves – the borrower must have three months of PITI payments in assets. There are a couple other factors that could be used here as well.
3. Have a back end debt ratio that does not exceed 42% – The back end ratio is the percentage of income the borrower spends for ALL of their consumer and housing debt including car payments, student loans, credit cards and housing payments (PITI).
With these restrictions now in place the consumer is, once again, one more step away from the American Dream. Or, will it weed out those that aren’t serious about buying? Let’s be honest, these restrictions prevent those that are NOT following the basic fundamentals of financial management from entering into the largest financial transaction most will do in their entire lives.
These changes may prevent some from buying a home today, but hopefully they will preserve the program – arguably the best loan program in the market place today – from going belly up for the rest of the responsible consumers.
For further information you can check out the actual letter on the USDA website at http://www.rurdev.usda.gov/SupportDocuments/an4710.pdf.
Victory Funding and Living Well Realty will continue to help clients purchase homes with this 100% financing program, regardless of the new restrictions.
