Kentucky Pilot program is designed to assist existing Kentucky Rural Development Section 502 borrowers to refinance their homes with greater speed and ease. The program will be available to
borrowers in “Hardest Hit” states (see list of applicable states below), where steep home
price declines have made refinancing a current mortgage to more affordable terms very
Must be current Rural Development Section 502 Guaranteed Loan borrowers
Must meet Current income eligibility requirements
Must have made timely mortgage payments for the 12 months period prior to the refinance
NO CASH OUT IS PERMITTED TO THE BORROWER!! THERE IS NO TOLERANCE
FOR CASH BACK!!
A Kentucky Rural Refinance Pilot loan may include the existing principal balance of the loan,
accrued (non-delinquent) interest, eligible closing costs & pre-paids, plus the
upfront guarantee fee. The applicable upfront refinance guarantee fee is 2%.
Closing costs and pre-paids can also be paid in cash or through premium pricing.
The new interest rate must be a fixed rate 100 basis points below the current interest
The new term of the refinance loan must be 30 years
An annual fee also applies. For FY 2012 the applicable annual fee is 0.40%
The home must remain the borrower’s primary residence
A new appraisal, new credit report, HUD Handbook determination and additional
property inspections are not required. The original appraisal amount may be used from
Guaranteed Loan System to process the loan.
Ratio calculations are not required. Therefore debt ratio waiver requests will not be
Kentucky Rural Refinance Pilot loans must be manually underwritten. They cannot be processed
through the Guaranteed Underwriting System.
Evidence of previous 12 months mortgage payment history is required. The lender must
secure evidence to document the borrower(s) has paid the loan on time for the previous
12 months. The lender may utilize a Verification of Mortgage obtained from or
provided directly by the loan servicer that lists the payment history for each of the
previous 12 months. As an alternative, the lender may submit a “single trade line”
credit report which reflects a satisfactory mortgage payment history of the past 12
7. If borrower will need cash at closing it must be documented with the standard 2 months
Adjustments to income - $480 per child <18 or 18+ if full time student, 100% child care
Borrower must be within income limits. Refer to: http://eligibility.sc.egov.usda.gov for
Salary Income – VOE – 24 month history plus most recent paystub or 2 pay check stubs
covering most recent 30 days and W-2 for previous 2 years.
Self-employed and commissioned borrowers or employed by a relative – 2 years tax
All household income must be included in the total eligibility income, even if not on the
USDA Rural Refinance Pilot Guidelines
1. The existing loan must be a Section 502 Direct or Guaranteed loan.
2. The new interest rate must be a fixed rate, and a minimum of 1.000 point below the
current interest rate. The interest rate must not exceed that described in RD Instruction
1980-D, Section 1980.320.
3. The new term of the refinance loan must be thirty years.
4. Borrowers may be added but not removed (unless deceased) from the current loan.
5. A Rural Refinance Pilot loan may include the principal balance of the loan plus a portion
or the full amount of the applicable upfront guarantee fee, accrued interest and eligible
loan closing costs. No cash out is permitted to the borrower. Subsidy recapture due for
direct loan borrowers is not eligible to be part of the refinance loan. Subsidy recapture
must be paid in full by the borrower or subordinated.
6. The applicable upfront guarantee fee is 2.00% and the annual fee is 0.40%.
7. The home must remain the borrower’s primary residence.
8. A new appraisal, new credit report, HUD Handbook determination and additional property
inspections are not required. A credit report is required for pricing purposes.
9. Direct loan borrowers may require a new appraisal to calculate subsidy recapture that may
be due, but it will not be used for loan-to-value purposes. The cost of this appraisal is an
eligible loan closing cost. If the direct loan borrower has never received subsidy and the
statement of loan balance from the Centralized Servicing Center (CSC) confirms that
subsidy was not utilized at any time for the loan, a new appraisal will not be required.
10. Debt-to-income ratio calculations are not required; therefore, debt ratio waiver requests
will not be necessary. Income documentation/verification is required. All borrowers are
required to be employed at the time of closing on the refinance or have alternate sources of
income such as: retirement income, social security income, disability income, alimony or child
11. Rural Refinance Pilot loans must be manually underwritten. They cannot be processed
through the Guaranteed Underwriting System (GUS).
12. Customary and reasonable closing costs and other fees may be collected from the
borrower by the lender. Such charges may not exceed the cost paid by the lender or
charged to the lender by the service provider.
13. An origination fee not to exceed 1 percent of the total loan amount is allowed for
“borrower paid” or “lender paid” compensation. “Borrower paid” compensation is an
eligible loan closing cost and may be included in the loan amount.
14. All the following documentation is required:
a. Form RD 1980-21 “Request for Single Family Housing Loan Guarantee.”
b. Full income verifications/documentation for all adult household members.
c. Uniform Residential Loan Application.
d. Evidence of qualified alien status, if applicable.P a g e | 2
e. FEMA Form 81-93. Appropriate flood insurance must be obtained if the property is in a
flood zone at the time of the new loan closing, even if the area was not in a flood zone at
the time of the original loan closing. A flood elevation survey is not required for this
f. Evidence of previous 12 month mortgage payment history. The lender must secure
evidence to document the borrower(s) has paid the loan on time for the previous 12
months. The lender may utilize a Verification of Mortgage obtained from or provided
directly by the loan servicer that lists the payment history for each of the previous 12
months. As an alternative, the lender may submit a credit report which reflects a
satisfactory mortgage payment history over the past 12 months. If the lender submits a
credit report to Rural Development as proof of payment history, only the payment history
of the current mortgage will be considered. Credit waivers or explanations for adverse
credit that may be present on the report are not required.
g. A copy of the payoff statement on the existing USDA loan must be included in every file.
15. All additional requirements of RD Instruction 1980-D and applicable Administrative
Notices continue to apply.
Instructions to obtain a “Statement of Loan Balance” or payoff/subsidy recapture
due for a Section 502 Direct loan borrower:
Lenders may determine an applicant has a direct loan when the credit report reflects the
mortgage loan creditor as “USDA, “ or the applicant informs the lender they applied and
received their mortgage loan through a USDA Service Center. SFH Direct loans are serviced by
the CSC located in St. Louis, MO. When lenders have a direct loan applicant they may make a
payoff request to and obtain a “Statement of Loan Balance” letter from the CSC.
Steps for obtaining a “Statement of Loan Balance” letter:
1. Submit a request on letterhead suitable for fax transmission which includes the borrower’s
name, account number, address and the date for which the payoff should be valid. If
available at the time of payoff request, also include a copy of the good faith estimate or
estimated closing cost statement and a recent appraisal of the direct loan property. If a current
appraisal is not remitted at the time of the loan payoff request, the “Statement of Loan
Balance” will reflect the maximum amount of subsidy recapture that may be due. When a
current appraisal is submitted to the CSC, the payoff will reflect the actual amount of subsidy
2. The “Statement of Loan Balance” will also include instructions for the lender to follow
regardless of information submitted at the time of payoff request.
The CSC will not provide payoff quotes verbally or over the phone. The CSC also assists
lenders with subordination agreements when direct loan borrowers elect to subordinate subsidy
recapture due. Lenders and direct loan borrowers that have questions regarding a direct loan
account may contact the CSC at (800) 414-1226. P a g e | 3
Maximum Loan Amount Calculation
The United States Department of Agriculture Rural Development (RD) has clarified in
Administrative Notice (AN) 4634 that Rural Refinance Pilot loans can now finance eligible
closing costs with loan proceeds.
• Unpaid Principal Balance (UPB)
• Accrued Interest
• Cost to establish a new escrow account
• All other eligible closing costs that are reasonable and customary, including the USDA
upfront Guarantee Fee
Unpaid late charges due the current servicer are not eligible to be financed with loan proceeds.