For this part of the update, we’ll be discussing what it’s like to go through the USDA loan process. While the USDA loan program is a bit more strict than other programs, especially income-wise, there are other more lenient requirements, as we’ll discuss below!
- 1 Minute | No Hard Credit Check
Getting Ready for Submission
In order to submit for a USDA loan, the applicant and the single family house in question needs to fulfill several requirements. The applicant must satisfy a household income requirement as there are income limits, and the home being purchased must reside in an eligible rural area.
The borrower will need to prove that their income is below the income limits by supplying their pay stubs, W-2 forms, tax returns, and bank statements. More specifically, the borrower will need to submit the last 30 days of pay stubs, the last 2 years of W-2 forms for all jobs, the last 2 years of tax returns, and the most recent 2 months of official bank statements
Reviewing Forms of Income For Verification
The underwriter needs to review the pay stubs as a cross reference check for the qualifying income put on the borrower’s loan application. The underwriter can also make sure that there aren’t any additional garnishments, like child support, that would otherwise make the borrower ineligible from a debt-to-income standpoint.
The underwriter will also look for other forms of income, which must all be documented. If a borrower is receiving child support, instead of paying it, this income must be included. The underwriter will request the last 12 months of child support payments to be able to use this to qualify.
Bank Statements and Asset Documentation
Bank statements are a huge part of the USDA submission process, as these items are audited a bit more strictly than other loan programs. The underwriter, instead of auditing these bank statements strictly for money laundering practices, will be paying close attention to any deposits that listed as payroll.
Bank statements can also shed light on any bad spending practices, like frequent overdrafts, for example. The underwriter will pay close attention to these and will always ask for an explanation, as well as additional information on how the borrower plans to prevent them from happening again.
The general rule is that any deposit that is more than 1% of the purchase price of the home is considered a large deposit and will need to be sourced and explained. However, this is up to underwriter discretion as well. For example, if there are an unusual amount of frequent deposits in a bank statement, these deposits may need to be sourced and explained as well. This is to make 100% sure that the applicant isn’t hiding any additional sources of income.
Additional Items Needed For Submission
If the borrower has had any divorces, they must provide a copy of all pages of the divorce decree for the underwriter to review. Divorce decrees usually have specified amounts of child support and/or alimony that is to be paid. If there is evidence of child support, than the full child support order will need to be furnished as well.
This is also how an underwriter can verify that the garnishments and withdrawals in a bank statement seem correct.
For part 3, we’ll be discussing a few more situations with the USDA Loan Program, including the Appraisal Report!
- 1 Minute | No Hard Credit Check
