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 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
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.
Kentucky USDA Rural Max Income Limits:
PROPERTY: Must be in a rural area as determined by USDA Rural Development.
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
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
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.
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
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.
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).
Up front Guarantee fee of 2% and annual fee of 0.4% apply.
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
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
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
Student loan payments must be included in ratios even if loans are currently in
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 exceeded
Please note that the USDA Refinance Pilot program has different guidelines.
Senior Loan Officer