Kentucky USDA Rural Housing Approval Guidelines for Tax payments, debt ratio, income, assets and appraisals
How are delinquent federal income taxes without a payment plan handled?
An applicant with delinquent Federal tax debt is ineligible unless they have a repayment plan approved by the IRS and have made a minimum of three timely payments on the most recent IRS approved repayment plan.
Timely is defined as payments that coincide with the most recently approved IRS repayment agreement. If the borrower has an existing repayment plan, all plans and payments must be shown on the IRS repayment plan in order to satisfy Rural Development Guidelines.
The applicant may not prepay a lump sum at one time to equal three monthly payments to meet this requirement. The lender must retain evidence of the repayment agreement and payment history in their permanent file. The tax debt may be paid in full at closing as long as loan funds or seller concessions are not used to pay off the debt.
In cases where debts are paid by others, if only a portion of the debt is paid by another party, can that portion be excluded in the DTI ratio?
No, the Agency does not allow a portion of the debt to be excluded. Co-signed obligations must be considered in the total debt ratio unless the applicant provides evidence another obligor has made the payment on time for the previous 12 months prior to loan application. Additional guidance for co-signed obligations can be found in Chapter 11.
Dwellings owned by the applicant’s business: Such dwellings are not owned by the individual applicant(s) and thus would not be considered a retained dwelling. The requirements for retained dwellings in Chapter 8, Section 8.2 would not apply. However, transferring a home into a business name to meet this requirement is strictly prohibited.
Sourcing of funds: Lenders are reminded that USDA relies on the lender’s underwriter to review 2 months of bank statements to determine if there are two or more deposits from the same or a similar entity that are not attributable to wages, which may indicate additional unreported income. The lender will need to determine if the deposit is recurring or not. If it is recurring (happens more than once from same or a similar entity), the lender will need to investigate regardless of the dollar amount. If it is not recurring (does not happen more than once from the same or a similar entity), the lender is only required to investigate the deposit if it exceeds $1,000 (assuming it is not attributed to wages or other income earned).
Bank Statements: Underwriter review of bank statements is required of lenders for all loan types (including GUS Accepts, for which the statements are retained in the lender’s file and not submitted to USDA). For those files not receiving a GUS Accept recommendation, the 2 months’ bank statements are required to be included as part of the underwriting submission, regardless if the applicant is required to bring cash to close or verify reserves.
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Explanation of transfers between accounts: When a transfer of funds between bank accounts occurs, lenders should investigate to determine if the applicant is the owner of those accounts. Explanations are required to have a complete and accurate picture of their finances related to program eligibility.
Income calculations: Lenders are reminded that for all submissions that do not have an Accept recommendation through GUS, income calculations must be submitted to USDA as part of the loan application package. For loans receiving an Accept recommendation, the lender must retain all income calculations in their permanent loan file. For USDA loans, this includes the following 3 income types:
• Annual Household Income,
• Adjusted Annual Household Income, and
• Repayment Income (stable and dependable income of the note signers).
Cash back at closing: Frequently, GUS indicates the borrower will receive cash back at closing in an amount that exceeds allowable reimbursable expenses. This also artificially inflates reserves in GUS, potentially causing an incorrect GUS recommendation. Lenders are reminded to ensure all cash received by borrowers at closing is offset in GUS by reimbursable expenses.
