KENTUCKY USDA RURAL HOUSING LOAN PROGRAM GUIDELINES





KENTUCKY USDA RURAL HOUSING UNDERWRITING GUIDELINES


Kentucky Rural Development Mortgage Guide


No Down Payment Required, Zero NADA! – Kentucky Rural Housing USDA loans allow someone to buy a home without putting any money down.
Lower Mortgage Insurance costs – Mortgage Insurance, is much lower on KY USDA loans than on FHA This can save you a lot of money.
30 year fixed Interest Rates for Kentucky Rural Housing Loans with no prepay penalty The interest rates are lower on USDA loans, which results in lower payments, and plenty of money saved overtime.



Would You Like to Get Prequalified or Apply For a Kentucky USDA Loan Now?

Click Here to Get Pre-Approved for a Kentucky USDA Mortgage Loan


How to Qualify for a Kentucky USDA Loan


Property Eligibility – The home you want to finance with a KY USDA loan must be an eligible property. The property must be located in a rural area which is generally defined to have the following characteristics: Under certain conditions, towns and cities with populations between 10,000 and 25,000. The USDA makes the eligibility determination, which may be verified at the following link: http://eligibility.sc.egov.usda.gov/eligibility/welcomeAction.do.

Job History – Similar to all other mortgage loans, a two year employment history is required. You must show that you have been consistently employed for the past two years in order to qualify for Kentucky USDA financing; however in certain circumstances a small gap in employment may be permitted with a reasonable explanation. Additionally, if you have just completed schooling or military service and are newly employed but do not yet have a 2 year history, your income may also be eligible.

Income Limits – The Kentucky Rural Housing USDA program is intended to assist low and moderate-income Kentucky households, therefore to be eligible for a USDA loan, your household income may not exceed the moderate-income limits established for the specific county in which you are financing a home. you may view the eligibility requirements on this page of the USDA website:

Most Kentucky Counties are $82,900 for a household income of four, and up to $109,000 for a household family of five or more.

DTI Ratio or debt to income ratios. One of the main criteria in determining if you will be approved or not is your debt-to-income ratio. While you must not make too much money, you also must not have too much debt. Your debt-to-income ratio is how much monthly debt you have (only those debts which show on your credit report are counted) compared to your qualifying income.

Credit Score – The minimum credit score for a Kentucky USDA Mortgage Loan goes down to a 581 credit score, however most loans get approved at 640 or higher .varies from lender to lender, but most want to see at least a 640 credit score for you to be approved.

Mortgage Insurance – USDA loans have their own version of mortgage insurance. It is called the “Guaranteed Fee” and works similarly to FHA loans which have an upfront and monthly mortgage insurance premium (MIP). With USDA loans, there is a 1.00% upfront guarantee fee which may be financed on top of your loan, and a 0.35% annual guarantee fee that is divided into 12 payments each year. The amount of your annual fee (paid monthly) adjusts each year and goes down as your loan balance does. Use our USDA calculator to get an idea of what your monthly payment will be


CREDIT UNDERWRITING


This attachment illustrates the approach to reviewing credit history when a loan is

manually underwritten by an approved lender.


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 verification 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.


Foreclosure and Bankruptcy Guidelines



 Foreclosure within 3 years:

 Including pre-foreclosure activity, such as a pre-foreclosure sale or short sale

in the previous 3 years (refer to Attachment 10-B for additional guidance);

 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;

 Late mortgage payments if any mortgage trade line during the most recent 12

months shows 1 or more late payments of greater than 30 days


Collections Accounts

.

In an effort to minimize future risk of open collections left unpaid, the lender will

consider the following during the capacity analysis of the loan request, regardless of the

method utilized to underwrite:

1) Determine if the total outstanding balance of all collections accounts of all

applicants is equal to or greater than $2,000. Unless excluded by state law,

collection accounts of a non-purchasing spouse in a community property state are

included in the cumulative balance of all collections.

2) Remove all medical collections and all types of charge off accounts from the total

balance. Medical collections and charge off accounts must be clearly identifiable

on the credit report.

3) If the remaining outstanding balance of collection accounts are equal to or greater

than $2,000, any of the following actions will apply:

a. Payment in full of all collection accounts at or prior to closing.

b. Payment arrangements are made with each creditor for each collection

account remaining outstanding. A letter from the creditor or evidence on

the credit report is required to validate the payment arrangements. The

agreed upon monthly payment for each outstanding collection account

will be included in the borrower’s debt-to-income ratio.

c. In the absence of a payment arrangement, the lender will utilize in the

debt-to-income ratio a calculated monthly payment. For each collection
utilize 5% of the outstanding balance to represent the monthly payment.




If you have access to 20% down payment you cannot use the USDA Program. Money in a retirement account does not account toward the 20% rule.

Properties must be located in an eligible area of Kentucky. Typically the large metro areas of Kentucky including the following: all of Jefferson County, all of Fayette County, Owensboro, Paducah, Hopkinsville, Bowling Green, Richmond, Frankfort and Northern KY cities of Covington, Florence, Erlanger, Beechwood, Richwood are not eligible



Kentucky USDA Rural Housing Eligibility Map for 2019












Type in your address below and hit go here to see if the home is in an eligible USDA Rural Housing Area for a Kentucky Property






Kentucky Rural Housing USDA Loans


USDA Eligible Areas In Northern Kentucky for Boone, Kenton, Campbell, Grant Counties



Independence

Burlington

Hebron

Highland Heights

Walton

Alexandria

Cold Springs


All Of Grant County, Pendleton County And Owen County





Search for Kentucky USDA Eligible Properties


A property must be located in an eligible area in order to use a USDA loan to purchase a home. Contrary to belief, Rural Development loans are not only for farms or very rural homes.


Actually, a property with an operating and income producing farm is not eligible for these loans!




Check Your Kentucky County for USDA Rural Housing Income Limits






Some More Facts about a Kentucky USDA loan:



It's a two step approval process. The chosen USDA lender must first underwrite the file and get it approved based on the income, assets, and credit report submitted. Then, the lenders must submit to USDA for a "conditional commitment". This conditional commitment is the final loan approval paperwork you are looking for.



Even though the lender may have approved the file, it still must go to USDA office in Lexington for an assignment to SFH underwriter for the final approval process. They typically are checking the appraisal and income at this stage. There have been instances where the lender would approve the file but USDA would not due to appraisal issues or income and job history.

This is very rare instances, so keep that in mind when it comes to final loan approval.


This two-step approval process usually adds 4-6 days to the final loan approval process, so keep that in mind when you are writing up your contract because it takes a little longer to close these loans vs FHA, VA, and Fannie Mae loans.


Well Test Treatments: Properties with a well as the primary drinking source will require a well water test. There are local labs to perform this test and the water must pass.



Septic Test: Sometimes they will require the septic tank to be inspected if called for in the appraisal report or home inspection.


Older Homes: As a general rule, USDA does not like homes older than 100 years old. They will sometimes require a home inspection in addition to the mandatory appraisal on older homes.


USDA Loan After a Short Sale: A short sale is not the end of the world. So it is very possible to obtain a USDA loan if 3 years have passed after the short sale. But a buyer would need re-established good rent and other credit history.



Bankruptcy and Foreclosure: If the mortgage debt that was foreclosed, was included in a Bankruptcy – then the USDA Home Loan waiting periods after foreclosure “waiting period” of 3 years, starts from the date of the discharge of the Bankruptcy. Because it can take 6 months or more for Banks to process the Foreclosure, and transfer title, this is a tremendous plus.


** If the mortgage debt that was foreclosed, was included in a Bankruptcy – then the USDA Home Loan waiting periods after foreclosure “waiting period” of 3 years, starts from the date of the discharge of the Bankruptcy. Because it can take 6 months or more for Banks to process the Foreclosure, and transfer title, this is a tremendous plus.



Labels: bankruptcy, debt ratio, first time buyer kentucky usda, foreclosure, GUS approval, Kentucky Rural Housing and USDA Loans, Kentucky USDA Rural Development For 2017 Guide, rd, rhs


Condo or town homes must be FHA approved

Manufactured homes must be from dealer lot and brand new. No existing manufactured homes are allowed

Property must be in good condition. “As is” appraisal not acceptable when repairs

listed.

Homes with in-ground pools are eligible on a case-by-case and value of pool must be

subtracted as no financing available for pools.

All appraisers must be currently approved by FHA. See most current list dated

October1, 2009.


The property must be non-farm, non-income providing tract.




Appraiser to certify property meets current requirements of HUD Handbooks–

150.2 and 4905.1.




If the builder is providing a one-year warranty for new construction, the following

inspections are required: framing inspection, footing inspection and final inspection. If

the builder is providing a 10-year warranty, only the final inspection and the thermal

certification are required.


Properties having community wells or sewage systems will require a state operating

permit, evidence of compliance with the Safe Drinking Water Act and Clean Water

Act and a legal binding contract to enforce the obligation of the operator to provide

satisfactory service at reasonable rates-must be maintained in our file.




INCOME:



Borrower must be within income limits. Refer to:

http://eligibility.sc.egov.usda.gov for validation.


Salary Income– VOE – 24 month-history plus most recent pay-stub or 2 paycheck stubs

covering most recent 30 days and W2 for previous 2 years and processor

certification of employment within 10 business days of closing. Any gap of

employment beyond one (1) month must be explained by borrower.


Self-employed and Commissioned borrowers or employed by a relative– 2-year tax

returns required to reflect income is stable and will continue.


Part-time jobs–24-month history required.


Alimony, child support– must have received for 12 months and will continue for 3

years after application. Must document receipt for last 12 months consecutive

Reflecting no breaks in income.


3-year continuation for social security income, disability income, retirement income, etc.


Borrower’s adjusted annual income cannot exceed the appropriate moderate income

limit. Refer to http://eligibility.sc.egov.usda.gov.


All household income must be included in the total eligibility income, even if not on the

loan, however, for qualifying purposes, use the income for borrowers signing

the Note.


All qualifying income must be stable and likely to continue for the next 3 years.


Significant increase /decrease must be analyzed closely to make sure income used

to qualify will continue.



STREAMLINED REFINANCE


 Only USDA Guaranteed loans eligible

 The value of the new mortgage loan request can be supported by the original appraisal

report obtained in connection with the existing mortgage.


 The maximum loan amount cannot exceed the principal balance of the existing loan to be

refinanced, plus the guarantee fee. The new loan amount cannot include any accrued

interest, closing costs or lender fees.

 Loan must be manually underwritten (GUS is not run).


 Subject property must still be the borrower’s primary residence



 Any late mortgage payments within the past 36 months on the existing USDA loan, with

emphasis on the most recent 12 month period, must be analyzed and addressed by the

lender to determine if any late payments were a disregard for financial obligations, an

inability to manage debt, or factors beyond the control of the borrower when considering

the underwriting decision.


 Maximum ratios 29/41


 30 year fixed rate loan only

 Interest rate must be lower than the existing loan to be refinanced

 If the final settlement statement shows nominal cash back to the borrower, that amount

must be applied as a principal curtailment. The borrower can receive no cash back from

the transaction.


Debt ratio waivers may be requested for loans with ratios exceeding program guidelines

of 29/41 when compensating factors are present in the file. Applicants with credit

scores of 660 and higher do not require additional compensating factors to be identified

for debt ratio waiver requests. If co-applicants have a credit score of 659 or below,

additional compensating factors should be documented to further support the ratio

waiver request. There is no minimum credit score required to be eligible for a debt ratio

waiver request. Compensating factors include, but are not limited to, the following:


 Credit score of 660 or higher for any applicant

 Cash reserves after closing

 Potential for increased earnings and career advancement\

 Similar housing expenditure

 Conservative use of credit

 Additional compensation not included in qualifying income, such as part time job

income that lacks a stable job history, potential bonus or commission income

from a job.

 Low total obligation ratio. (A low total obligation ratio does not compensate for a

high PITI ratio; however, when other strong compensating factors are present a

low total obligation ratio should be viewed as a positive mitigating factor.

Debt ratio waiver requests are submitted by the lender in writing with the complete

submission package




 Applicants must have adequate and dependable income, typically with a history

of 24 months

 Qualifying ratios are 29/41; however, higher ratios considered with strong

compensating factors, including good credit scores (660+), stable employment

history, potential for increased earnings, and ability to save.

 Income to be verified with a written VOE and one month’s current paystubs, OR

one month’s paystubs and two years of W2’s.

 2/1 buydowns qualifying ratios are calculated using note rate.

 Debts with more than 6 monthly payments remaining must be included in

qualifying ratios

 Student loan payments must be included in ratios even if loans are currently in

deferment

 Self employed borrowers require two year history with 1040’s

 Disability and Social Security benefits – 3 year continuance documented with

award letter or 2 months bank statements, grossed up 125%

 Salary increases within 60 days of the first payment due date are acceptable

 Part time employment must have a history of no less than 12 months

 Alimony and child support income must continue for 3 years and have no less

than a 12 month history

 Any income of a non-purchasing spouse must be verified to make sure income

limits are not exceede

Please note that the USDA Refinance Pilot program has different guidelines.

Kentucky RHS USDA Mortgage Insurance Changes Below and Important Dates to Keep in Mind that could affect your loan closing and approval!












Joel Lobb
Senior Loan Officer


(NMLS#57916)



American Mortgage Solutions, Inc.


10602 Timberwood Circle, Suite 3


Louisville, KY 40223


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). Mortgage loans only offered in Kentucky.


All loans and lines are subject to credit approval, verification, and collateral evaluation and are originated by lender. Products and interest rates are subject to change without notice. Manufactured and mobile homes are not eligible as collateral.