Monday, February 19, 2018

USDA Rural Housing Guaranteed Loans and Escrow for Repairs in Kentucky



The Kentucky Mortgage  USDA Loan Repair Escrow program is intended to help Kentucky  borrowers utilizing the Rural USDA Housing Loan Programs to  save money by rolling in the cost of the purchase plus the repairs in the same loan, but cannot exceed 10% of the final loan amount. To qualify for this program, borrowers must meet the standard income, locations, size and additional factors set forth by USDA. The funds for the repairs can be used for both exterior and interior repairs.
Examples of Eligible Repairs
  • Replace HVAC
  • Repair and paint rotted facia boards
  • Repair holes in kitchen floor
  • Install safety eyes on garage door
  • Install a stove and dishwasher that are drop in
  • Install hot water heater

Repair escrows, post issuance of the Loan Note Guarantee, are acceptable provided the home is habitable, as determined by the lender. All items of new construction or repairs must be 100 percent (100%) complete in accordance with plans and specifications except for minor items not affecting the livability of the structure or that cannot be completed due to weather conditions.

The lender assumes responsibility for completion of repairs in accordance with the conditions set forth in this Section for any repair escrow established. The combination of both exterior AND interior repair escrows cannot exceed 10 percent of the final loan amount.

 Most repairs items will be required to be completed within 180 days of loan closing. This period may be extended, at the discretion of the Agency, for homes that need exterior repairs but are in an area experiencing inclement weather conditions. The maximum exterior repair escrow period when an extension is granted is limited to 240 days. Extensions may be granted beyond 180 days for exterior escrows only.

 Escrow for Exterior Development When exterior development work is planned and cannot be completed because of inclement weather, material shortages, or other acceptable reasons, an escrow account Evidence of thermal standards for new construction.

 The Lender’s file must contain evidence thermal standards meet or exceed the International Energy Conservation Code (IECC) in effect at the time of construction.

 Documentation of conformance may be by one of the following options:

1. The builder may certify confirmation with the IECC standards.
 2. A qualified, registered architect or a qualified, registered engineer may certify confirmation with IECC standards. HB-1-3555 12-24 may be established. The Agency may issue a Loan Note

Guarantee prior to the completion of repairs provided all of the following conditions are met:

  The cost of any remaining work is not greater than 10 percent of the final loan amount, provided an interior escrow is not required;
  The livability of the dwelling is not affected; 
 A signed contract between the borrower and the contractor is in effect for the proposed work;
  The funds to be escrowed are not less than the repair cost contract. The loan underwriter may determine the escrow amount, which could exceed the repair cost;

  The Closing Disclosure 1 reflects the holdback;
  The development will be complete within 180 days of closing, unless an extension is granted by the Agency for inclement weather conditions; 
 The escrow account is established in a federally supervised financial institution. 
 An inspection report certifying the defect/repair has been properly repaired. Certification of completion is required to verify the work was completed and must: 
 Be completed by the appraiser;
  State that the improvements were completed in accordance with the requirements and conditions in 






.Personal funds of the applicant utilized to fund the repair escrow (excluding loan funds or a seller concession) may be returned to the applicant. A seller’s personal funds utilized to fund the repair escrow (excluding a seller concession as part of the sales contract) may be returned to the seller. Escrow for Interior Development Repair escrows for interior repairs are subject to 10 percent when an exterior escrow for repairs has not been established. Otherwise, the combination of both an interior AND exterior repair escrow is subject to a maximum of 10 percent of the loan amount.

When the dwelling is complete with the exception of minor interior development work, the Agency may issue the loan note guarantee on the loan if the following conditions are met when establishing an interior escrow:

  The cost of any remaining interior work is not greater than 10 percent of the final loan amount provided an exterior escrow is not required ;
  The livability of the dwelling is not affected;
  A signed contract between the borrower and the contractor is in effect for the proposed repair work; 
 The funds to be escrowed are not less than the contractor’s repair contract. The loan underwriter may determine the escrow amount, which could exceed the repair cost ;
  The Closing Disclosure reflects the holdback;
  The development will be complete within 180 days of closing; and
  The escrow account is established in a federally supervised financial institution;
  An inspection report certifying the defect/repair has been properly repaired. Certification of completion is required to verify the work was completed and must:
  Be completed by the appraiser, 
 State that the improvements were completed in accordance with the requirements and conditions in the original appraisal report, and HB-1-3555 12-26
  Be accompanied by photographs of the completed improvements
;  The individual performing the final inspection of the property must sign the completion report.

The lender is responsible for monitoring the completion of the work and the release of funds to pay for the work. All documentation supporting the development and confirmation of the completion will be retained in the lender’s permanent mortgage file and is subject to the certification of Form RD 3555-18/18E.

Any funds remaining in the escrow account upon completion of the work, that are representative of loan funds or a seller concession as part of the sales contract, will be used to reduce the unpaid principal balance of the mortgage.

Personal funds of the applicant utilized to fund the repair escrow (excluding loan funds or a seller concession) may be returned to the applicant. A seller’s personal funds utilized to fund the repair escrow (excluding a seller concession as part of the sales contract) may be returned to the seller.

Escrow completion for interior or exterior repairs on an existing dwelling – without the assistance of a contractor

When a borrower will complete the planned interior or exterior development on an existing dwelling without the services of a contractor, the requirement for an executed contract noted in this section is waived when these three conditions are met:

  The estimated cost to complete the work is not greater than 10 percent of the total loan amount; an
  The escrow amount is less than or equal to $10,000; and
  The lender has determined the borrower has the knowledge, skills and time necessary to complete the work within the maximum 180 day limit.






Joel Lobb
Senior  Loan Officer
(NMLS#57916)
 Company ID #1364 | MB73346
text or call my phone: (502) 905-3708
email me at kentuckyloan@gmail.com
The view and opinions stated on this website belong solely to the authors, and are intended for informational purposes only. The posted information does not guarantee approval, nor does it comprise full underwriting guidelines. This does not represent being part of a government agency. The views expressed on this post are mine and do not necessarily reflect the view of my employer. Not all products or services mentioned on this site may fit all people. NMLS ID# 57916, (www.nmlsconsumeraccess.org). USDA Mortgage loans only offered in Kentucky.
All loans and lines are subject to credit approval, verification, and collateral evaluation


Friday, February 9, 2018

Kentucky USDA Mortgage Loan Requirements

Kentucky USDA Home Loan Requirements

USDA loans require One of the biggest eligibility requirements is that the property be located in a designated rural area of Kentucky. You can use this map for Kentucky USDA Rural Housing Eligible Areas for 2018  below to determine if the property you have your eye on is eligible for a Kentucky USDA home loan.



Generally, these areas are outside of major metropolitan areas of Kentucky to include Jefferson County, Fayette County, and parts of Northern Kentucky are not eligible.  There are some smaller towns like Frankfort, Richmond,  Winchester, Bowling Green, Paducah, Owensboro, Henderson and Radcliff that are not eligible for the USDA loan program--(see brown shaded areas on map link)
The second crucial element for qualfyying or a USDA in Kentucky is the income limits. USDA income limits can’t make more than 115% of the median family household income for the area in which you wish you purchase the home. For most Kentucky counties the maximum income household is $78,200 for a family of four, and up to $103,200 for a household income size of five or more members 
With regard to income, the max DTI ratio is 29/41, meaning the housing payment can’t exceed 29% of gross monthly income and total liabilities can’t exceed 41% of income. You can go higher with an automated GUS approval. 
You must also occupy the property you’re buying – no second homes or investment properties are permitted. But manufactured homes are USDA eligible. And there area loan limits just like there are on conventional mortgages and FHA loans..
 The Kentucky USDA home loan program is not limited to just first-time home buyers. Repeat buyers are also eligible!

Types of Kentucky USDA Home Loans

The USDA home loan only comes in one flavor; a 30-year fixed-rate mortgage. Nothing fancy or exotic here to ensure borrowers don’t get into any trouble with an ARM.
The 15-year fixed also isn’t an option because such a loan would imply that the borrower could afford a conventional loan and not need to rely on the USDA and its zero down financing program.
However, you can use a USDA home loan to both purchase a new property or refinance your current mortgage under certain circumstances. But no cash out is permitted if you perform the latter.
There is a sister program known as the Section 502 Direct Loan Program that assists low- and very-low income borrowers by providing subsidies that lower monthly mortgage payments for a select period of time.
The income limits for this program are significantly lower than those for the main USDA loan program, but the benefits are pretty amazing. For example, you can obtain an interest rate as low as 1% and get a 38-year loan term.

Minimum Credit Scores for a Kentucky USDA Home Loan Approval

Technically, there is no minimum credit score required to obtain a USDA home loan. However, lenders often impose overlays over USDA guidelines to ensure the borrowers are creditworthy.
Generally, you’ll need a credit score of 640 or higher to get approved for a USDA loan, though it’s possible to go lower with an exception or a manual underwrite.
When doing a manual underwrite, you should have compensating factors (such as long-term employment, assets, decent income, positive rental history etc.) to allow for the lower credit score. Your mortgage rate will also be higher to account for increased risk.
Also note that a higher credit score may be required if your DTI exceeds the allowable ratios.
In any case, you should really try to attain much higher credit scores if you want to get any type of mortgage, and favorable terms on said loan.
As with any other mortgage, it’s advisable to check your credit several months in advance to ensure your credit is on good shape, and if not, take steps to improve it before applying.



Credit score over 680: 

Perform a basic level of underwriting to confirm the
applicant has an acceptable credit reputation. Perform additional analysis if the
applicant’s credit history has indicators of unacceptable credit as noted in Paragraph 10.7
of this Chapter.

Credit score 679 to 640:

 Perform a comprehensive level of underwriting.
Underwrite all aspects of the applicant’s credit history to establish the applicant has an
acceptable credit reputation. Credit scores in this range indicate the applicant’s
reputation is uncertain and will require a thorough analysis by the underwriter of the
credit to draw a logical conclusion about the applicant’s commitment to making
payments on the new mortgage obligation. The applicant’s credit history should
demonstrate his or her past willingness and ability to meet credit obligations.

Credit score less than 640:

 Perform a cautious level of underwriting. Perform a
detailed review of all aspects of the applicant’s credit history to establish the applicant’s
willingness to repay and ability to manage obligations as agreed. Unless there are
extenuating circumstances documented in accordance with this Chapter, a credit score in
this range is generally viewed as a strong indication that the applicant does not have an
acceptable credit reputation.

Little or no credit history: The lack of credit history on the credit report may be
mitigated if the applicant can document a willingness to pay recurring debts through
other acceptable means such as third party verifications or cancelled checks. Due to
impartiality issues, third party verifications from relatives of household members are not
permissible. Lenders can develop a Non-Traditional Credit Report for applicants who
do not have a credit score in accordance with Paragraph 10.6 of this Chapter.

An applicant with an outstanding judgment obtained by the United States in a
Federal court, other than the United States Tax Court, is not eligible for a guarantee
unless otherwise stated in this Chapter. 

Validating the Credit Score. 

Two or more eligible tradelines are necessary to validate
an applicant’s credit report score. Eligible tradelines consist of credit accounts
(revolving, installment etc.) with at least 12 months of repayment history reported on the
credit report. At least one applicant whose income or assets are used for qualification
must have a valid credit report score. 

Confirm the applicant has at least two eligible tradelines reported to the credit bureau.
The tradeline may be open, closed and/or paid in full by the applicant. Eligible tradelines
include:

 Loan (secured or unsecured);
 Revolving (generally a credit which is not repaid by a certain number of
installments);
 Installment credit (generally repaid through a specified number of
installments such as automobile, recreational vehicle, or student loans);
 Credit card (offered by banking institutions, commercial enterprises and
individual retail stores. Consumers make purchases on credit and if payment
is made within a stipulated period of time, no interest is charged);
 Collection (an account whereby an original creditor transfers an unpaid,
delinquent balance to a collection agency to retrieve any monies owed);
 Charge-off (is the declaration by a creditor that an amount of debt is unlikely
to be collected)
 Authorized user accounts may not be considered in the credit score and credit
reputation analysis unless the applicant provides documentation that they have
made payments on the account for the previous 12 months prior to

application. 

Indicators of unacceptable credit.


 Foreclosure within 3 years:
 Including pre-foreclosure activity, such as a pre-foreclosure sale or short sale
in the previous 3 years\
 Bankruptcy within 3 years:
 Chapter 7 bankruptcy discharged in the previous 3 years;
 An elapsed period of less than 3 years, but not less than 12 months, may
be acceptable if the applicant meets the criteria of Section 10.8 of this
Chapter.
 Chapter 13 bankruptcy that has yet to complete repayment (repayment plan in
progress) or has completed payment in the most recent 12 months.
 Plans that are completed for 12 months or greater do not require a credit
exception in accordance with Section 10.8;
\


Kentucky USDA  Home Loan Mortgage Insurance Costs

One of the upside of the USDA home loan is the fact that there’s an upfront guarantee fee that the borrower must pay. It is currently set at 1.0% of the loan amount, and .35% monthly mi premium called the annual fee, which is much cheaper than FHA and Conventional loans on lower credit scores. 
This can be financed into the loan amount so it’s paid off over time, as opposed to upfront out-of-pocket at closing. And if the USDA guarantee fee is financed the LTV can exceed 100%.

Refinancing a Kentucky USDA Home Loan

It’s also possible to refinance an existing USDA home loan into another USDA loan, and actually quite easy thanks to a streamlined program that doesn’t require an appraisal, credit report, or a debt-to-income calculation.
The only requirement is that you must have been current on your mortgage for the past 12 months, and it must lower your interest rate by at least 1%. 
There is also a non-streamlined USDA refinance option that requires an appraisal to gain approval, but allows you to roll closing costs into the new loan.

Kentucky Rural Housing USDA Home Loan Frequently Asked Questions

Do I need to make a down payment on a USDA home loan?
No, you can obtain 100% financing with a USDA loan, which is the main draw of the program. The only other government housing loans that provide zero down financing are VA mortgages.
What credit score do I need to get a USDA loan?
You need a 640 credit score to get an automated approval for a USDA loan, but some lenders will go into the 500s with expensive pricing adjustments. If you have bad credit, you may want to take a hard look at your credit history and clean it up as much as possible before applying.
Do I need two years of job history to get approved for a USDA loan?
Not necessarily. If you’re new to the workforce or returning after a reasonable and explainable absence and likely to continue working it may be permitted.
Can I get a USDA loan if I’m self-employed?
Yes, but you’ll need to provide two years of tax returns to ensure it is stable and in the same line of work.
Are USDA mortgage rates high or low?
They’re generally pretty low relative to conventional mortgage rates (Fannie and Freddie) and pretty close to FHA mortgage rates. If an FHA 30-year fixed is 4.5%, the USDA 30-year fixed rate might be 4.5%. In other words, they’re low and competitive.
But you have to factor in the upfront and monthly mortgage insurance premiums as well.
Additionally, USDA loan rates can’t be more than 1% above the current Fannie Mae yield for 90-day delivery for 30-year fixed rate conventional loans. This regulates how high the rate can be based on the market average.
What loan types are available via the USDA loan program?
Just the 30-year fixed. No adjustable-rate mortgages and no other fixed products are available. Additionally, balloon mortgages and interest-only mortgages aren’t permitted, nor are prepayment penalties.
Can you buy a condo with a USDA home loan?
Yes, but it must be on the approved list from Fannie/Freddie, the FHA, or VA, and it must be located in a rural area.
Can I get a USDA loan on a second home or investment property?
No, USDA loans are only available on owner-occupied primary residences.
Can I get cash out via a USDA loan?
No, only rate and term refinances are available, along with purchase financing.
Can I roll closing costs into a USDA loan?
Yes, as long as the property appraises for more than the purchase price and the DTI isn’t exceeded as a result. You can also use seller concessions or a lender credit to cover closing costs.
Is there mortgage insurance on a USDA loan?
It’s technically called a guarantee fee, and includes both an upfront fee at closing (that can be financed) and a monthly fee that is ongoing.
!
How long does it take to get a USDA loan in Kentucky?
Like all other mortgages, it depends on your specific scenario, but the USDA loan approval process does require an extra step in sending the loan to the USDA for final approval. They basically check the lender’s work before they allow them to fund the loan. This step can add an extra few days to few weeks (or more) onto your closing date, so beware!

On average it takes 30-45 days to close a USDA loan in Kentucky, so about the same as any other government-backed mortgage loan like FHA, VA KHC etc. 


-- 
Joel Lobb
Mortgage Loan Officer
Individual NMLS ID #57916

American Mortgage Solutions, Inc.
Company NMLS ID #1364


Text/call:      502-905-3708
email:          kentuckyloan@gmail.com


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