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USDA LOAN AFTER CHAPTER 7 BANKRUPTCY
I am a loan officer and realtor but am not too familiar with USDA loans. Anyone have information about getting qualified for a USDA loan after Chapter 7 Bankruptcy? What is the waiting period to qualify for a USDA loan after bankruptcy. What is the minimum credit scores required to qualify for a USDA loan? What are the eligibility requirements to be eligible and qualify for a USDA loan?
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USDA Loan Qualification After Chapter 7 BankruptcyWaiting Period
Chapter 7 Bankruptcy: The typical waiting period to qualify for a USDA loan after a Chapter 7 bankruptcy discharge is three years. However, there may be exceptions based on the circumstances leading to the bankruptcy and the borrower’s credit reestablishment.
Exceptions: Lenders can make exceptions for extenuating circumstances, such as a medical emergency or job loss, which can reduce the waiting period to as little as one year.
Minimum Credit Scores Required
Minimum Credit Score: USDA loans do not have a set minimum credit score requirement by the USDA itself, but most lenders prefer a credit score of at least 640. Some lenders may approve loans with lower scores if other compensating factors are present.
Eligibility Requirements for USDA LoansProperty Eligibility
- Location: The property must be located in a designated rural area. The USDA provides an online tool to check property eligibility.
- Type of Property: The home must be a single-family dwelling that will be the borrower’s primary residence. Investment properties and vacation homes are not eligible.
Income Eligibility
Income Limits: USDA loans have income limits based on household size and location. The borrower’s household income must be at most 115% of the area’s median income.
Adjusted Income: Certain deductions from household income, such as child care expenses and medical expenses for elderly members, are allowed to determine the adjusted income for eligibility.
Borrower Requirements
- Citizenship: Borrowers must be U.S. citizens, non-citizen nationals, or qualified aliens.
- Credit History: Borrowers must demonstrate the ability and willingness to repay the loan. This includes a satisfactory credit history, although exceptions can be made for those with no credit history if alternative forms of credit can be provided.
- Debt-to-Income Ratio: The maximum DTI ratio is typically 41%, but lenders can approve higher ratios with compensating factors.
General Steps to Qualify for a USDA Loan
Check Property Eligibility: Verify that the property is located in an eligible rural area using the USDA eligibility map.
Income Verification: Ensure that your household income does not exceed the USDA income limits for your area and family size.
Credit Review: Obtain a copy of your credit report and check your credit score. Aim for a score of at least 640 for smoother approval.
Document Preparation: Gather necessary financial documents, including income statements, tax returns, and any documentation related to your bankruptcy discharge.
Lender Selection: Choose a lender experienced with USDA loans to guide you through the process.
Application Submission: Complete the USDA loan application with your chosen lender, providing all required documentation.
Loan Processing and Underwriting: The lender will process your application, verify your eligibility, and underwrite the loan. This includes a thorough review of your credit history, income, and property eligibility.
Loan Approval and Closing: Once approved, you will proceed to the closing process, where you will sign final documents and officially obtain your USDA loan.
By understanding these requirements and following the necessary steps, you can effectively guide your clients or yourself through the process of obtaining a USDA loan after Chapter 7 bankruptcy.
https://gustancho.com/usda-loan-after-chapter-7-bankruptcy/
