Kentucky Rural Housing Loans has made changes to the program guidelines for guaranteed loans, which will include the changes described below.
The 1980-D and all associated publications are replaced by the 7 CFR Part 3555. All effective Administrative Notices must reflect "3555". The new handbook is the HB-1-3555 and can be accessed by clicking the link here.
FLOOD ZONES:
Existing properties located in a flood zone are now eligible as long as flood insurance is available through FEMA's NFIP program.
New or proposed homes in a flood zone must still meet additional flood zone requirements.
Flood coverage must cover the lesser of the total loan amount or maximum allowed by NFIP.Maximum deductible is $1000 or 1% of the face amount of the policy
HAZARD INSURANCE:
Maximum deductible is $1000 or 1% of the face amount of the policy
BUILDINGS/LAND:
The subject property cannot contain any land or buildings that will be used principally for income. Minimal income producing activity is allowed (a garden, but not a farm). The value of the buildings no longer needs to be deducted from the appraised value.
RESUBMISSION POLICY:
Any request to release GUS for data updates after the issuance of a Conditional Commitment will be treated as a new request, processed in date order of applications received.
RETAINING A DWELLING:
Current homeowners are eligible for a guaranteed loan if ALL of the following are met:
Applicants are not financially responsible for another RD direct or guaranteed loan at closing.
Current home no longer meets applicants' needs.
Occupy the subject as primary residence.
Applicants are without resources or credit to obtain home.
Only one home may be retained.
Applicants must be financially qualified to own more than 1 home.
The commuting area restriction has been removed.
In order to meet the above requirement for the current home no longer meeting applicants' needs, the borrower must document a significant status change that requires immediate remedy. For example:
Severe overcrowding - Defined as more than 1.5 household members per room (not bedroom, just room)*, document overcrowding has existed for more than 90 days and will persist for 9 months into the future.
*Based on USDA's clarification of 1.5 per room, we do not anticipate many of these scenarios being acceptable and approved.
TRADELINE REQUIREMENT:
One borrower must have 3 trade lines that have existed for 12 months. If this requirement cannot be met, an accept decision must be downgraded to a refer and treated as a manual underwrite.
VERIFICATION OF RENT:
Scores 680 and above OR GUS accept = No VOR required.
Scores 679 and below = VOR required.
COLLECTIONS:
Determine if the total outstanding balance of all collections accounts and charge offs of all applicants is equal to or greater than $2,000. Unless excluded by state law, collection accounts and charge offs of a non-purchasing spouse in a community property state are included in the cumulative balance of all collections and charge offs.
Remove all medical collections and medical charge off accounts from the total balance. Medical collections and medical charge off accounts must be clearly identifiable on the credit report.
If the remaining outstanding balance of collection accounts and charge offs are equal to or greater than $2,000, any of the following actions will apply:
Payment in full of all collection accounts and charge offs at or prior to closing.
Payment arrangements are made with each creditor for each collection account and charge offs 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 and charge off will be included in the borrower's debt-to-income ratio.
In the absence of a payment arrangement, the lender will utilize in the debt-to-income ratio a calculated monthly payment. For each collection and charge off utilize 5% of the outstanding balance to represent the monthly payment.
STUDENT LOANS:
Include the greater of 1% of the outstanding loan balance or the verified fixed payment reflected on the credit report.
Exception: Monthly payment amounts listed on the credit report, which are less than one percent of the outstanding balance may be used when evidence from the loan servicer is obtained indicating; 1)the applicant is on a fixed repayment plan not subject to change under the terms of the current agreement and 2) and the monthly payment amount due. Fixed payments have a monthly amount that is not subject to change through the fixed repayment time frame. Income Based Repayment (IBR) plans, graduated plans, adjustable rates, interest only and deferred plans are examples of repayment plans that are subject to change and do not qualify for the exception.
EXCLUDING INSTALLMENT PAYMENTS:
Long-term obligations with more than 10 months repayment remaining, including all installment loans, revolving charge accounts, alimony, child support or separate maintenance payments, student loans and other continuing obligations. GUS will determine if the debt can be excluded. If GUS does not exclude the debt, we cannot override it and exclude.
DEBT WITH NO PAYMENT REPORTED:
Use the greater of 5% of the balance or $10.
Current payment from current monthly statement.
TRANSCRIPTS:
All household members must have 2 years IRS tax return transcripts pulled even if they are not a borrower on the loan. Transcripts for all household members are required prior to submission to USDA for conditional commitment. If the household member(s) is not a borrower on the loan, a separate 4506T form will be required.
If any adult member of the household is not presently employed but there is a recent history of such employment, that person's income will be considered in the calculation of annual household income. If the person involved is not presently employed and does not intend to resume employment in the foreseeable future, or if interest assistance is involved, during the term of the Interest Assistance Agreement, the applicant(s) and the person involved must sign a statement to such. The statement will be filed in the permanent loan file.
GIFT FUNDS:
Household members now can provide gifts.
TAX EXEMPT INCOME:
May be grossed up 25% for repayment income, cannot be grossed up for household income.
PROPERTY:
30% land value restriction has been removed.
Cannot include income producing land or buildings that use used principally for income purposes. No reduction of value is required for outbuildings.
No active farms are commercial enterprises.
Home based operations are allowed (home daycare).
Shared Driveways and private roads must have a recorded agreement/easement.
Swimming pool restrictions have been removed. Value reduction no longer required.
ADVERSE CREDIT SEASONING:
If any of these items exist on the credit report or other documentation provided, the loan is ineligible for USDA financing with Platinum Mortgage.
Foreclosure within 3 years of application date
Chapter 7 BK within 3 years of application date
Chapter 13 BK within 12 months of application date
Late mortgage payments if any mortgage trade line during the most recent 12 months of application date shows 1 or more late payments of greater than 30 days.
Late rent payments paid 30 or more days late within the last 12 months of application date.
CREDIT SCORE:
A minimum of 2 scores required per borrower.
SELLER CONCESSIONS:
USDA has placed a limit of 6% for seller concessions.
DOCUMENT EXPIRATION:
All documents expire after 120 days for both existing and new construction.
POC ITEMS PAID BY CREDIT CARD:
If the applicant pays for application fee/closing cost/appraisal with a credit card and new charges are not reflected in the credit report balance these new charges must be included in the total balance and the payment must be recalculated. The new payment must be included in the DTI.
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