Kentucky Rural Housing Loans and USDA Guaranteed Loan Underwriting Issues

Kentucky Rural Housing Loans and USDA Guaranteed Loan Issues

Seller Concessions:
Seller concessions cannot be used to pay down buyer’s debt.

Deferred Student Loans and Debt Ratio Calculations:
Deferred student loans should be included in the debt ratio calculations regardless of the
deferment period. If the credit report does not indicate a monthly repayment amount, Lender may use the monthly payment amount provided by the loan servicer, or 1% of the loan balance reflected on the RMCR.

Risk Layering:
Refers to the existence of multiple levels of risk in an application such as marginal credit, high repayment ratios, extensive use of other credit, payment shock, etc. Lenders should be very cautious when evaluating applications with multiple risk levels.

Payment Shock:
Measured by dividing the new PITI by previous housing expenses minus 1. In cases where payment shock is 100% or higher, no additional risk layering should be allowed unless strong compensating factors are present.
Example:
New PITI = $1,500
Current Rent = $650
$1500 ÷ $650 = 2.30 ‐ 1= 1.30 or 130%
The payment shock in this example is above 100% and therefore is a risk factor.

Credit Waivers:
The lender approves a credit waiver and supplies all back up documentation used in the decision making process. Lender must document that the instances of unacceptable credit must have been temporary in nature and beyond the applicant’s control or the result of a justifiable dispute relative to defective goods or services. A lender need not require collection accounts to be paid in full if there are mitigating circumstances as described in RD Instruction 1980.345 (d)(3). Credit scores of 640 and above may eliminate the need for lender documentation of credit waivers.

Interest Rate Buydowns:
Temporary interest rate buydowns are permitted with prior RD approval. Underwriting
requirements for temporary interest rate buydowns include:
 The mortgage loan must be underwritten at the note rate.
 Buydown funds may come from the seller, lender, or third party.
 Buydown funds may not come from the borrower.
 The initial interest rate is temporarily reduced no more than 2% below the note rate
and increased by no more than 1% annually for no more than 2 years.

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12 thoughts on “Kentucky Rural Housing Loans and USDA Guaranteed Loan Underwriting Issues

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