Hannah Almost Gave Up on Her Shallotte Home: Which Debts the USDA Actually Counts
Hannah almost gave up on her Shallotte home purchase because she thought her debts had already killed it. The USDA guideline treats those debts very differently than she assumed, and she nearly walked away before anyone showed her the rule.
Meet Hannah
Hannah is a fictional, illustrative home buyer near Shallotte, NC. She is not a real client, but her situation comes up often with USDA buyers. Her credit report shows three things: an installment car loan, a medical collection, and a deferred student loan. She looked at that list, assumed every item counted against her, and decided the purchase was over.
That assumption is the mistake. Not every debt on a credit report is treated the same way when a lender builds the total debt ratio.
What the USDA guideline says
The rule sits in USDA Paragraph 4.22.B.2. Here is the text exactly as written:
"Total debt includes long-term installment obligations with more than 10 months repayment remaining, including loans, alimony, and child support, but excluding revolving accounts. All medical debts (collections, judgments, etc.) are excluded from the total debt ratio. Payments that come due in the next 12 months are included. Deferred debt is included regardless of the length of the deferment period."
Read it slowly, because each sentence answers a different worry.
Her medical collection
The guideline says all medical debts, collections and judgments included, are excluded from the total debt ratio. The item Hannah feared most was not the obstacle she thought it was.
Her car loan
An installment loan is a long-term obligation with a set repayment schedule. The guideline counts installment obligations with more than 10 months of repayment remaining, and it also says payments that come due in the next 12 months are included. So the question for Hannah's car loan is how many months are left on it. That is a fact you can check on a current statement, not something to guess at.
Revolving accounts, such as credit cards, are excluded from this particular category under the text above.
Her deferred student loan
This is the one many buyers get wrong in the other direction. A deferred loan feels like it is not there, because no payment is due right now. The guideline says deferred debt is included regardless of the length of the deferment period. So Hannah's deferred student loan needs to be counted, and she is better off knowing that up front than being surprised later.
What Hannah did next
Instead of quitting, Hannah asked for the math. She wanted to see exactly which debts were in her ratio and why. Once she understood the sorting, the picture changed: one debt was out, one depended on the months remaining, and one was in. She could finally see which debts truly moved her ratio.
The question to ask today
If you are in a similar spot, ask your lender this:
"Can you list every debt in my total debt ratio, show me the months remaining on each installment loan, and confirm which ones you are counting under USDA Paragraph 4.22.B.2?"
Then request a current statement for each installment loan showing remaining payments, plus the deferment terms on any deferred loan. Those two documents let you check the lender's work line by line.
Why this matters before you give up
Most buyers who worry about debt are guessing. They assume medical collections sink a loan, assume a deferred loan does not count, or assume every account hits the ratio the same way. The guideline is more specific than any of those assumptions. Knowing which category each debt falls into lets you plan, rather than panic.
Every file is different, and your own debts, income and property will decide where you land. But the first step is the same for everyone: get the list, get the months remaining, and get the deferment terms in writing.
I am Jason Sharon, a licensed mortgage broker, and my approach is simple: I find the path. If you are worried your debts have already ended your USDA plans, call me at 843-LOW-RATE and I will walk through your list with you.
Home Loans Inc - Jason Sharon, Mortgage Broker. Company NMLS #1728740, Jason Sharon NMLS #1281448. Equal Housing Opportunity.
Learn more about this loan program: Hannah Almost Gave Up on Her Shallotte Home
