If you’re purchasing a home in a USDA-eligible area and received a “Refer” or “Refer with Caution” through GUS (Guaranteed Underwriting System), don’t give up. At North Star Mortgage Network, we help borrowers who don’t fit neatly into automated systems by offering USDA manual underwriting—a personalized loan review that goes beyond credit scores.

What Triggers USDA Manual Underwriting?

Manual underwriting is required when:

  • GUS returns a “Refer” or “Refer with Caution” finding
  • You have non-traditional credit or no credit score
  • Derogatory credit or recent disputes are present
  • Your loan includes debt not listed on your credit report
  • You’re using non-traditional trade lines for qualification

The good news? These are not disqualifiers. With strong documentation and the right guidance, manual underwriting may be your best route to approval.

USDA Manual Underwriting Guidelines: What to Expect

Rental History Requirements

  • Borrowers with rental history: A full 12-month Verification of Rent (VOR) is typically required, unless documented rent payments can cover the same period.
  • Borrowers without rent history: A rent-free letter may be requested and must include:
    • Relationship to property owner
    • Time living at the residence
    • Confirmation that you live rent-free
    • Proof the owner actually owns the home

USDA Manual Underwriting Debt Ratios

  • Max PITI (Principal, Interest, Taxes, Insurance) Ratio: 34% (strict cap for purchase loans)
  • Max Total DTI: 41%
    • May be increased to 44% if:
      • PITI ≤ 34%
      • Credit scores ≥ 680
      • At least one compensating factor is present

Acceptable Compensating Factors for USDA Manual Underwriting

To justify higher ratios or limited credit depth, North Star can help you document one or more of the following:

  • Credit scores of 680 or higher
  • 3+ months of reserves post-closing (cannot be cash on hand)
  • 2+ years with the same employer
  • Minimal increase in housing expense (≤ $100 or 5%)
  • Energy-efficient property that meets IECC standards

Note: These compensating factors are required if you’re requesting a debt ratio waiver.

Credit Score Validation and Tradelines

To validate a credit score:

  • You need 2 tradelines open for at least 12 months
  • Can include loans, credit cards, charge-offs, or collections

Authorized user accounts may be used if:

  • The account belongs to a co-borrower or spouse
  • Or you’ve made the payments for at least 12 months

Using Non-Traditional Credit

For borrowers with no score:

  • 2–3 non-traditional tradelines may be used, including:
    • Utility payments (gas, water, internet)
    • Auto insurance (if not payroll-deducted)
    • School tuition
    • Gym memberships
    • Cell phone bills
    • Childcare payments
    • Subscriptions
    • Rent or lease-to-own purchases
    • Verified consistent savings history

These tradelines must show 12 months of timely payments and must be independently verifiable.

Disputed Accounts & Credit Exceptions

  • Non-derogatory disputes: Must be documented but don’t need credit exceptions.
  • Derogatory disputes (collections, late payments): Underwriters must:
    • Consider monthly payment obligations
    • Explain the applicant’s extenuating circumstances
    • Determine that negative history is unlikely to recur

You may still qualify with documentation of job loss, divorce, or illness that temporarily affected your credit.

Why North Star Mortgage Network?

USDA manual underwriting isn’t something big banks like to deal with. That’s where we step in.

At North Star Mortgage Network, we:

  • Take time to personally review complex files
  • Help you gather rent-free letters, non-traditional credit, and documentation
  • Offer honest guidance and full transparency
  • Fight for families who just need a chance

We know USDA loans, and we know how to get them approved—even when others can’t.

Ready to Explore Your USDA Loan Options?

Whether you’ve been turned down or are just unsure if you qualify, we’ll take the time to go through it with you.

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