- Annual Qualifying Income – The requirement for calculations to be included on the Income Calculation worksheet have been removed and should now be included on Attachment 9-B, the underwriter transmittal summary, FNMA form 1008/Freddie form 1077, or equivalent
- 4506-T – The requirement for asset statements to be reviewed to ensure borrowers have no additional income sources has been removed.
- Repayment Income – MCC income must now be included in repayment income.
- Boarder Income – USDA now considers a boarder as a household member and a boarder’s income must now be included in annual income calculation. Rent paid by boarders that is reported on tax returns must also be included in annual income.
- Capital Gains – USDA removed requirement from Repayment Income to provide evidence showing borrowers own additional property or assets that may be sold if additional income is needed to support the mortgage obligation
- Commission – The borrower must now show one year history in same or similar line of work to include commission in repayment income.
- Fellowship, Stipend, Scholarship – Scholarship award letters must now provide date of termination and USDA will no longer presume benefits with no expiration date will continue. USDA also added guidelines for GI Bill income and stated it cannot be included in annual or repayment income.
- MCC – This income must now be included in repayment income, but no history is required. A copy of the W-4 from employer is required to verify borrower is taking tax credit on monthly basis. Note: MCC’s are ineligible with FWL as qualifying income.
- Unreimbursed Business Income – only taxable income is allowed to be included in repayment income
- Section 8 – USDA removed requirement for section 8 income to be deducted from the monthly PITI to determine DTI if it is paid directly to the loan servicer when included in the repayment income.
- Self Employed Income – Federal tax returns must now be reviewed to determine gross income for annual calculations. Removed requirement to deduct business loss before entering as repayment income into GUS or on loan application. Clarified documentation requirements as most recent 2 years of federal tax returns / transcripts & YTD P&L may be audited or unaudited
- Social Security Income – clarified documentation options and will allow social security benefit statement or form SSA-1099/1042S to source
- Temporary Leave – The history requirements for repayment income has been changed and now income must be received by loan closing.
- Cash on Hand – The underwriter must review the reasonableness of accumulation based upon income stream, spending habits, etc. and cash on hand can no longer be included in reserves
- Gift Funds – Clarification provided on how gift funds must be sourced when gift funds have been deposited into borrower’s account, not deposited into borrower’s account, or if funds are being wired directly to the settlement agent.
- Large Deposits – USDA no longer addresses lump sum additions.
Kentucky Rural Housing Loan Program Update for 2021 Single Family Housing USDA Guaranteed Loan
New Income limits for most counties (*) in Kentucky are $90,300 for a household family of four and household families of five or more can make up to $119,200.
Boone, Kenton & Campbell Counties (N. KY)
$99,250 (family size 1-4)
$131,000 (family size 5 or more)
$90,300 (family size 1-4)
$119,250 (family size 5 or more)
Most are familiar with USDA Rural Housing Loan Program being a great no money down program available and it is not just for Kentucky first time buyers.
What is KY USDA Rural Development Guarantee in Kentucky?
- 100% financing on purchases and 100% Zero Money Down
- Low 30 year fixed rates on all loans. They don’t offer any other terms or offer cash-out refinancing.
- A small Rural Housing monthly guarantee fee or sometimes called annual fee of .35% of the loan amount divide by 12 months to get total monthly mi payment.
- Upfront Rural Housing funding fee of 1% of the loan amount and is financed into new loan
- Minimum credit scores of 581, but helpful to have 640 and get an automated underwriting approval thru Rural Housing’s underwriting engine – GUS–GUS stands for the Guaranteed Underwriting System to pre-approval all Kentucky USDA loans.
- No rental verification needed with GUS approval if Approved Eligible Findings.
- Flexible trade line requirements with GUS approval with only 1 trade line needed on credit for 12 months
- No foreclosures in the last 36 months, but need explanation if < 36 months
- Bankruptcy discharged at least 36 months
Issues to avoid or be aware of with Rural Housing property search:
- Avoid homes in flood zones – RD is very restrictive for homes in flood zones
- Avoid homes with cisterns – they are extremely difficult to get financed
- Be aware that homes with wells and septic systems needed extra tests for contamination
- Avoid homes with any income producing activities such as working farms, detached buildings with offices or car lifts for auto repairs, or anything else related to income producing activities.
If you are looking to buy a home in Northern Kentucky, to either own a home on acreage in the country with 100% financing on your home loan with zero down, then you need to look at the Kentucky USDA Rural Housing Loan Program.
How Does the USDA Home Loan Work in Northern Kentucky?
Here are some of the Key Financial Elements of the USDA Home Loan in Northern Kentucky:
- Low to Middle-Income Households are generally eligible – If the Household Income is too high, you may be ineligible.
- 30 Year Fixed Term Loans at Today’s Low Interest Rates compared to FHA, USDA and other government mortgage loans
- Qualifying rations are 29% for Housing and 41% for total debt. or possibly higher with a credit score over 640.
- Rural Development Loan Guarantee Fee applies, currently 1% USDA funding fee and .35% monthly mi premium
- Zero Cash required for the Down Payment. If access to 20% down payment, then you cannot use this program.
- Flexible Credit Guidelines, where non-traditional histories may be accepted. USDA will do a no score loan, but it is very difficult to qualify for so your best bet is to get your credit scores to 620 to 640 range and go from there. You will need two trade lines on the credit report for last 12 months, so no limited credit history is allowed on this program.
- Eligible properties include: Existing Homes, New Construction, New Manufactured Homes, Modular Homes, and eligible Condos!—No used mobile homes.
- Eligible Repairs may be included in the loan as well! If home appraises for more than sales price, sometimes you can finance these repairs into the loan.
- They’re are two income tests. Compliance income and repayment income. See pic below for answers about Northern Kentucky Counties with max income limits for household
- Home must be in an eligible area. See map below of Northern Kentucky Eligibility for USDA Rural Housing Loans
What Parts of Northern Kentucky Are Eligible for the USDA Home Loan in 2020?
With Northern Kentucky being part of the metro area of Cincinnati, the USDA has provided a map of the Ineligible Northern part of the Counties of Boone, Kenton, Campbell counties which means, the remaining southern part of the counties of Boone, Kenton, Campbell being eligible. Here is the Northern Kentucky rural housing map courtesy of the USDA:
What are the income limits for a Rural Housing Loan in Northern Kentucky?
Households with 1-4 members have different limits as households with 5-8. Similarly, applicants living in high-cost counties will have a higher income limit than those living in counties with a more average cost of living.
|Northern Kentucky Counties
Boone, Kenton, Campbell, Bracken and Pendleton, Gallatin ***
|Cincinnati (OH, KY, IN FMR)||Household income of 4 or less:
|Household income of 5 or more:
|All Other Areas||$90,300||$119,200|
Here are a few more items to check off before looking into this loan or at a particular property:
- Must be Owner Occupied as the Primary Residence;
- Home must not be used to produce Income, nor can there be Income Producing Buildings or other Accessories that produce Income on the property; i.e. no working farms or cows, livestock, crops etc. Can be a small hobby farm.
- No foreclosed homes that that need a lot of work.
- Home must be structurally sound and in reasonably good repair and pass FHA standards on an appraisal.
- Home cannot be used for a Rental Property or, be a major fixer
Senior Loan Officer
2021 Kentucky Rural Development Mortgage Guide
- 30 year fixed rate only for Purchases and Existing USDA loans Refinances.
- Zero down Mortgage loan with no loan limits!
- Upfront funding fee is 1.0% and annual mi fee is .35% (very low compared to FHA)
- Typically cannot own other real estate. There are exceptions to this.
- You do not have to be a first-time home buyer in Kentucky
- Can refinance existing USDA loan as long as lowering rate by 1% and can do without an appraisal. There are overlays to this by lenders.
- Closing costs and prepaids can be paid by seller but must be put into contract
- Closing costs may be financed into the loan up to the appraised value.
- You will need two credit trade lines reporting at least for 12 months on your credit file. They don’t have to be open and active. Just reporting on your credit report.
- All Guaranteed Mortgage Loans are ran through GUS. GUS stands for the Guaranteed Underwriting System. USDA and their underwriters use this system to pre-approve you. They review credit score/history, income, debt to income ratio and assets to determine your loan eligibility. If your credit score is below 640 or your debt to income ratio is over 45%, it will get a refer and you will find most lenders will not approve the loan.
- Some lenders will do a credit score down to 600, but they will want a lot of documentation to overturn the refer and compensating factors for the lower credit score. They typically will need to verify rent for last 12 months, with no lates, cash payments are not acceptable, and debt to income ratios are set at 29% and 41% respectively. Reserves are typically helpful too on lower credit scores, so keep in that in mind, if you have money in a savings account, for a rainy day fund, this will help sometimes get the loan approved.
- If you have access to 20% down payment you cannot use the USDA Program. Money in a retirement account does not account toward the 20% rule.
- Properties must be located in an eligible area of Kentucky. Typically the large metro areas of Kentucky including the following: all of Jefferson County, all of Fayette County, Owensboro, Paducah, Hopkinsville, Bowling Green, Richmond, Frankfort and Northern KY cities of Covington, Florence, Erlanger, Beechwood, Richwood are not eligible
USDA Eligible Areas In Northern Kentucky for Boone, Kenton, Campbell, Grant Counties
- Highland Heights
- Cold Springs
- All Of Grant County, Pendleton County And Owen County
A property must be located in an eligible area in order to use a USDA loan to purchase a home. Contrary to belief, Rural Development loans are not only for farms or very rural homes.
Actually, a property with an operating and income producing farm is not eligible for these loans!
2021 Kentucky USDA Rural Max Income Limits:
- New Income limits for most counties (*) in Kentucky are $90,200 for a 4 unit household and household families of five or more + can make up to $119,200.
- The Northern Kentucky Counties (***) of Boon, Kenton, Campbell, Bracken, Gallatin, and Pendleton are $99,500 for a household of four or less and up to $129,400 for a family of five or more.
- With the new changes for 2019 USDA Income limits, the Jefferson County Louisville, KY Metro area (**) saw an increase of $90,200 for a family of four and up to $119,100 for a family of five or more. The metro area includes Oldham, Bullitt, Spencer, Hardin, Larue and Meade are including in these higher income limits for USDA loans.Remember, Jefferson County Kentucky, Fayette County Kentucky are not eligible for USDA loans.,Below is the website where you can check and make sure
Some More Facts about a Kentucky USDA loan:
It’s a two step approval process. The chosen USDA lender must first underwrite the file and get it approved based on the income, assets, and credit report submitted. Then, the lenders must submit to USDA for a “conditional commitment”. This conditional commitment is the final loan approval paperwork you are looking for.
Even though the lender may have approved the file, it still must go to USDA office in Lexington for an assignment to SFH underwriter for the final approval process. They typically are checking the appraisal and income at this stage. There have been instances where the lender would approve the file but USDA would not due to appraisal issues or income and job history.
This is very rare instances, so keep that in mind when it comes to final loan approval.
This two-step approval process usually adds 4-6 days to the final loan approval process, so keep that in mind when you are writing up your contract because it takes a little longer to close these loans vs FHA, VA, and Fannie Mae loans.
Well Test Treatments: Properties with a well as the primary drinking source will require a well water test. There are local labs to perform this test and the water must pass.
Septic Test: Sometimes they will require the septic tank to be inspected if called for in the appraisal report or home inspection.
Older Homes: As a general rule, USDA does not like homes older than 100 years old. They will sometimes require a home inspection in addition to the mandatory appraisal on older homes.
USDA Loan After a Short Sale: A short sale is not the end of the world. So it is very possible to obtain a USDA loan if 3 years have passed after the short sale. But a buyer would need re-established good rent and other credit history.
Bankruptcy and Foreclosure: If the mortgage debt that was foreclosed, was included in a Bankruptcy – then the USDA Home Loan waiting periods after foreclosure “waiting period” of 3 years, starts from the date of the discharge of the Bankruptcy. Because it can take 6 months or more for Banks to process the Foreclosure, and transfer title, this is a tremendous plus.
- Fixed Payment Loans: A permanent amortized, fixed payment may be used when it can be documented that the payment is fixed, the interest rate is fixed, and the repayment term is fixed.
- Non-Fixed Payment Loans (i.e. deferred, income based, graduated, adjustable, etc.): The payment should be calculated as the greater of 0.5% of the loan balance or the actual payment reflected on the credit report. No additional documentation is required.