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Underwriting plays a pivotal role in determining your eligibility for a USDA loan. The USDA underwriting process involves a thorough examination of your financial situation and the property you wish to purchase. The underwriter's goal is to ensure that your loan meets specific guidelines and poses an acceptable level of risk for your lender.
USDA Underwriting Process
USDA underwriters focus on two primary areas when considering applicants for a USDA loan: the property’s eligibility and the borrower’s level of risk. When evaluating your level of risk, some of the key aspects your USDA underwriter will look at include your income, credit score, debt-to-income ratio and desired loan amount.
The USDA underwriting process extends from preapproval to closing, with several key considerations throughout the process:
| Stage of Underwriting Process | Key Considerations |
|---|---|
| Preapproval | Your USDA underwriter will conduct an initial evaluation of your financial circumstances to determine if you meet the basic eligibility requirements for a USDA loan. |
| Closing | After you’ve entered a purchase contract, your underwriter will conduct a more comprehensive evaluation of your loan file to assess your potential credit risk and determine the USDA loan amount you may qualify for. |
Guaranteed Underwriting System (GUS)
The Guaranteed Underwriting System (GUS) is a platform used by the USDA to streamline the underwriting and approval process for USDA loans. GUS is an automated underwriting system that assesses a borrower’s creditworthiness, income eligibility and property eligibility based on USDA guidelines and criteria.
Overall, GUS helps USDA lenders make faster and more consistent underwriting decisions by automating the process and returning its results in the “GUS Underwriting Findings Report.”
The USDA Underwriting Report
When a USDA lender requests a GUS evaluation of a loan applicant, they will receive a GUS Underwriting Findings Report. This report contains a two-part summary of the file's results to deliver an underwriting recommendation and risk evaluation for a prospective borrower. Your Underwriting Findings Report is characterized by two outcomes:
Potential GUS Outcomes: Credit, Capacity and Collateral
The first portion of your GUS Underwriting Recommendation specifically considers your credit, capacity and collateral.
Your GUS Underwriting Findings Report will assign one of the following underwriting recommendations to your loan file:
- Accept: You satisfy the criteria to qualify for a USDA loan.
- Refer: GUS has flagged potential issues or risks associated with your loan file. Manual underwriting is required.
- Refer with Caution: GUS has flagged multiple or greater potential issues or risks associated with your loan file. Manual underwriting is required.
- Ineligible: Your loan file does not satisfy the criteria to qualify for a USDA loan.
Potential GUS Outcomes: Property, Income and Applicant
The second portion of your GUS Underwriting Recommendation focuses on the property, income and applicant eligibility.
Your Underwriting Findings Report will assign you one of the following three results based on your eligibility criteria:
- Eligible: You satisfy USDA eligibility requirements.
- Ineligible: You do not satisfy USDA eligibility requirements. You will receive this result if your property is not in a designated rural area, you exceed your area’s income limit or have any other characteristic that does not meet USDA eligibility criteria.
- Unable to determine: Your lender may require additional information to evaluate your level of risk.
Your GUS Underwriting Recommendation will list one result for each category of consideration. For example, a result of “Accept/Eligible” identifies you as a qualified USDA applicant of an acceptable level of risk to your lender.
USDA Manual Underwriting Guidelines
Manual underwriting is used when an applicant doesn't meet the standard automated underwriting requirements. If your GUS Underwriting Recommendation assigns you a “refer” or “refer with caution” result, your loan file will require manual underwriting to proceed. This involves a more in-depth evaluation of financial documents, credit history and compensating factors to determine your eligibility.
During the manual underwriting process, your underwriter will assess your loan file without relying on GUS’s automation. For USDA loans, this is often necessary for prospective borrowers who fall outside of the standard guidelines, such as those with complex financial situations or credit issues.
How long does USDA underwriting take?
The timeline for USDA underwriting can vary, but it typically takes anywhere from 30 to 60 days. This timeline may be extended for loans requiring manual underwriting.
The underwriting turn time for USDA loans is sometimes longer than other mortgage options due to additional requirements, such as the USDA appraisal. After the underwriting process is complete, your USDA lender must also send your loan file to your state's Rural Development Office for final approval before you can close on your new home.
Understanding USDA underwriting guidelines is a key factor in streamlining your underwriting timeline. By ensuring you meet the eligibility criteria and preparing yourself for the underwriting process, you can reduce the likelihood of unnecessary setbacks. If you're considering a USDA loan, reach out to a specialist here at Neighbors Bank to guide you through the process!
