Kentucky USDA Rural Development Loans Program Guidelines
Loan Purpose of Kentucky Rural Housing Loans
- Purchase
- One-time Close Construction Loan (very few lenders do this)
- Rate-term refinance for existing USDA Loans Only. Cannot refinance a Conventional loan, FHA, VA, or other loans into an USDA loan.
Credit Profile for a Kentucky Rural Housing Buyer
- 581 minimum middle credit score for all borrowers on the loan – purchase
- No score allowed with alternative trade lines
- Most Kentucky USDA lenders will want a 620 or 640 score or higher. A 640 middle score is required for a USDA loan through GUS, the automated underwriting system used by rural development to determine the max lending limits for a loan.
- No foreclosure, short sale, or Chapter 7 bankruptcy discharge within three years of contract ratification date on credit report not permitted
- Minimum of two tradelines on credit, with a positive pay history within the most recent 12-month period. Accounts can be open or closed
- If two tradelines aren’t on credit, alternative tradelines can be
- No mortgage delinquency in the last 12 months for a USDA-to-USDA Refinance
Loan Amount limits for USDA loans in Kentucky.
- No maximum loan amounts. A lot of borrowers think they're max limits on this because there is max limits on total household income by county in Kentucky, but there actually is no limit as long as the borrower gets approved on the ability to repay the loan.
Mortgage Insurance Requirements and Premiums for USDA Loans:
- USDA charges a 1% Commitment Fee that is financed into the loan. Not paid out of pocket but can be
- Commitment Fee can be financed into the loan
Example:
Purchase price - $100,000
Base Loan amount - $100,000
Commitment Fee - $1,010 ($100,000 [purchase price] /.99 - 100,000)
Maximum financed loan amount = $101,010
- USDA requires a monthly Annual Fee (i.e. mortgage insurance premium) with an annual factorial of .35%
- This is much lower than FHA's upfront 1.75% and the monthly mi of .85% so keep that in mind.
Ratios for USDA Loan Approval in Kentucky
- 33.99/45.99% (DTI) with GUS Accept/Eligible underwriting findings
- 29/41% debt-to-income (DTI) with GUS Accept/Refer underwriting findings and credit score less than 679
- 31.99/42.99 with GUS Accept/Refer underwriting findings and credit score greater than 680 and with compensating factors such as:
- 680 or higher credit score
- No or low "payment shock" - less than a 100% increase in proposed mortgage payment Vs. current rental housing expenses
- Fiscally sound use of credit
- Ability to accumulate savings
- Stable employment history with 2 or more in current position or continuous employment history with no job gaps
- Cash reserves available for use after settlement
- Career advancement as indicated by job training or additional education in the applicants profession
- Trailing spouse income - as a result of a job transfer, the house is being purchased, prior to the secondary wage-earner obtaining employment. If the secondary wage-earner has an established history of employment and has a reasonable chance to obtain new employment in the area
- Low total debt load
- Must be located in an eligible USDA Rural Development Location
- Owner-occupied properties---no rental properties or second homes
- Existing attached and detached single-family residences
- New construction with permanent financing only
- PUD's (i.e. Townhomes)
- Condo-units. HUD, VA, FNMA or FHLMC approved project
- Log cabin homes, provided Appraisal Report lists other comparable log cabin homes that have recently sold in the area
- No used or old mobile homes allowed. Only allows new mobile homes from dealer setup on land with mobile home land package deal...Kentucky only. ..
- All loans must be fully documented per Agency Guidelines. USDA likes to see a 2 year job history with stable employment. Does not have to be same employer, just a contiguous 2 year work history with no gaps over 30 days.
- If recently graduated form college, sometimes they will waive the 2 year job history rule if show transcripts and be on your job for 6-12 months. Case by case here.
- For Self Employed borrowers, in addition to Agency Guidelines, two years of the tax returns (personal and business) along with a year-to-date profit and loss (unaudited)
- If overtime or bonus income or second job is used to qualify, you can take a 2 year avg and as long as stable and not decreasing, you can usually this income to qualify.
- They usually will take your base gross income to qualify you on the mortgage loan. They don't qualify you off your net income.
- 0% down payment required, but if you have available 20% down payment in checking or savings, they will make you use that..If the money is in a tax-deferred or 401k plan, retirement plan, they will not hold this against you.
- Seller contribution toward buyers closing costs up to 6% of the purchase price
- Closing cost help can come from flexible sources including family member gifts and loans against a 401k retirement account
- If the appraised value of the property exceeds the purchase price, the difference can be used to cover closing costs---This is a key benefit of Kentucky USDA loans. This is the only type of loan that will allow this.
Terms
- Amortization period: 30-year fixed rate-They do not offer any other terms. Just a 30 year fixed rate loan with no prepay penalty.
Existing Properties Owned
- USDA primarily often won't allow applicants to own other properties
- Exceptions include when the other property owned is:
- Not owned in the local commuting area as the new property; or
- Not structurally sound and/or functionally adequate
- Manufactured home not on a permanent foundation
