Get the reason in writing
The lender must tell you why. That tells us whether the fix is a different property, a recalculation, more time or a different lender.
The most common reasons
Debt to income too high. The most common USDA problem. With income capped and ratios tighter than FHA, a car payment or card balances can push a file over. Paying down debt or adjusting the price often fixes it. See USDA debt rules.** Household income over the limit.** The other side of the same squeeze. Check every deduction, confirm who actually lives in the home, and make sure student income was handled correctly. See USDA income limits.** The property isn't in an eligible area.** Or it's a type USDA doesn't allow, like a duplex. See eligible areas.** Credit score below the lender's minimum.** USDA sets no minimum. Another lender may approve the same file. See lender overlays.** Recent credit problems.** USDA generally wants three years after a Chapter 7 bankruptcy or foreclosure, longer than FHA or VA. Late payments in the last year also matter.** You own another adequate home nearby.** USDA is for buyers who need housing.** The appraisal.** Repairs, a low value or an older roof that insurance won't cover.
When USDA isn't the answer
If income or location rules you out, FHA has no income limit and works anywhere. Veterans should compare VA, which has no income limit and no monthly mortgage insurance. See USDA vs FHA.
Over the limit by a few thousand
Tasha was denied because her household income was $4,000 over the limit. The first lender hadn't counted her daughter's after school care.
With $6,500 a year in documented child care deducted, her adjusted income fell under the limit, and she was approved.
A truck payment and a narrow box
Corey's household income was comfortably under the limit, and his score was 655. But a $640 truck payment pushed his total debt ratio to 46%, and his file referred.
Without a 680 score, a waiver wasn't an option. He paid off a $2,800 credit card and moved to a slightly lower price. His ratio dropped to 40% and he was approved.
Frequently asked questions
Why was my USDA loan denied for income?
Usually because all adult household income was counted. Deductions for children, child care and elderly households can help.
How long after bankruptcy can I get a USDA loan?
Generally three years after a Chapter 7 discharge, or after 12 months of Chapter 13 plan payments.
Can another lender approve a USDA loan one lender denied?
Yes, if the denial was a lender overlay.
What if I don't qualify for USDA?
FHA, VA or conventional may fit.