Can You Purchase the Home You Are Renting With a USDA Loan?

Can you purchase the home you are renting with a USDA loan?

As more and more renters transition into looking to purchase a home, this is becoming a common question and today’s short video tip will go over the details and how to be prepared. This topic is excellent for any property manager, landlord, Realtor, or homebuyer.

By the way, don’t forget to sign up for our USDA Real Estate Network LinkedIn Group. It is now open to both home buyers and Realtors. The group is designed as a way for Buyers and Real Estate Professionals to network, connect, and to help market your USDA area eligible listings.
 

 
So, how can you purchase the home you are renting with a USDA loan?
 
As we know, USDA loans offer high flexibility and are sought after by consumers, but they can also help you purchase the home you are renting and take advantage of 100% financing.

In this situation, the nice part is that since you are purchasing the home you already live in, now we can focus on the qualifying aspect. Let’s get started by reviewing rental history first.

• Is your landlord a private owner or is it through a property management company or Real Estate brokerage handling the rental management?

This is important, because when verification of rental history is required, documentation from a company managing the rental holds more weight and strength with the approval process compared to a private landlord verification.

• Do you pay rent by check, cash, or money order?

I know you have heard me say this many times in the past, but paying by check is by far and away the most concrete form of rental verification – especially if paying to a private landlord.
 
Next on the list, would be minimum credit scores required. Currently the minimum qualifying credit score is 640 for automated approval processing and we can work with scores down to 620 under manual underwriting guidelines.

However, in addition to scores we are looking for established payment histories to document the overall credit reputation of the buyer. In this case, we are looking for how many accounts have been open, active, and paid on time for at least 12 months.
 
Remember, in cases where accounts are not reporting on the credit report, USDA guidelines will also permit for the verification of non-traditional account references such as cable, electric, water, and phone bills for example.
 
Next on the qualifying checklist will be employment history. Guidelines will require earnings to be adequate and dependable and we will need to document a two year work history to support qualifying ratios. Please remember that while at least two years on the same job is preferred, it is not a requirement. Documenting a stable two year work history will take into consideration any job gaps of over 30 days along with trends of having inconsistent job history or short term employment in various fields. If inconsistent job history is the case, be prepared to build towards the future once an established dependable work history has been earned.