- 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
RHS temporarily modified the calculation of non-fixed student loan payments for purposes of determining debt-to-income ratios. Per the modified requirements, lenders must now use the higher of .50% of the loan balance or the actual payment reflected on the credit report as the monthly payment (rather than 1% of the loan balance). The modified requirements went into effect September 23, 2019 and will be permanently incorporated into Chapter 11 of the Single Family Housing Loan Program Technical Handbook (HB-1-3555) in the near future.
BIG change announced for Kentucky Rural Housing USDA loans today regarding how minimum payments on your Student Loans are calculated. Reach out to see if you qualify for this awesome loan!
Have you or someone you know been turned down for a USDA loan recently because of student loans?
New guidelines effective today may allow you to qualify (or qualify for a little higher loan amount)
**This is not an offer for extension of credit or a commitment to lend. All loans must satisfy company underwriting guidelines. Information and pricing are subject to change at any time and without notice. Not all applicants will qualify for all loan products offered. This is not an offer to enter into a rate lock agreement under any applicable law. Not endorsed or part of USDA Federal Government Agency.
- Any gaps in employment must be analyzed in order to make a final determination of stable and dependable income. An employment gap does not automatically render an applicant ineligible. Applicants with job gaps due to maternity leave, medical leave, relocation, etc. are considered to have employment continuity. Applicants returning to the workforce after leaving a previous job to care for a child/family member, complete education, etc. will require a 12 month employment history.
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.
What is a Kentucky USDA Rural home loan?
A Kentucky USDA home loan is a zero-dollar-down mortgage option provided by USDA’s Department of Rural Development.
This government-backed loan program comes in two types: direct loan, which is reserved for lower-income households and issued by USDA, and the guaranteed loan, which is reserved for low- to moderate-income families. The guaranteed loan is funded by private lenders, and USDA guarantees a portion of the loan against default.
Is a Kentucky USDA loan more beneficial than a Kentucky conventional loan?
The KY USDA home loan program is generally more beneficial to rural families than a conventional lending program, particularly for first-time homebuyers with lower- to median-level incomes.
Some of the benefits of Kentucky Rural Housing USDA loans include:
• zero down payment
• competitive interest rates
• lower-than-average monthly mortgage insurance
• relaxed credit requirements versus conventional loans
• no loan limits
How do I determine eligibility for a Kentucky Rural Housing USDA loan? To be eligible for a USDA home loan, borrowers must meet the program’s basic eligibility requirements. These requirements are relaxed compared to other mortgage options and are in place to ensure borrowers can make their monthly mortgage payments.
Here are a few of the basic Kentucky RHS USDA eligibility requirements:
• Income. Applicants must not have annual adjusted income greater than 115% of the median household income for the area. Check your county’s USDA income limit. This called compliance income.
|Kentucky Counties||Cincinnati (OH, KY, IN FMR)||Household income of 4 or less:||Household income of 5 or more:|
|All Other Areas||$86,700||$114,150|
• Credit. Applicants must have a minimum credit score of 581 to qualify for USDA’s guaranteed underwriting credit requirements. However, most lenders will want a 620 or preferably to get an Automated Approval 640 is the magic number in most cases. With regards to bankruptcy, 3 years is usually the date needed to lapse since your discharge.
• Employment. Applicants must have proof of two years of stable income and employment.
: Income: They will take your gross monthly income and develop two ratios for you: The front end ratio, which is called your housing ratio, and then the back-end ratio or total debt ratio is the house payment plus the total monthly payments listed on the credit report. If you pay child support, this is included in the qualifying ratios but utility bills, car insurance, cell phone bills, water bills etc, is not included. Typically 28% is used for the housing ratio, and
Student Loans: They are pretty tough on student loans and qualifying with your current student loan debts. They will make us use 1% of your outstanding balance on student loans, so sometimes this will cause the loan to get denied because your debt to income ratio is too high. If they are in an Income-Based repayment plan they will still make us use the 1% balance so keep this in mind. For example, let’s say you owe $35k in outstanding student loans, and your IBR plan calls for a $50 monthly payment. RHS will make us use $350, not the $50 IBR payment so you can see where this will cause issue on higher debt to income ratios on some loans.**********
Effective immediately for all Kentucky USDA Rural Housing Mortgage Loans.
If you are a Kentucky USDA Mortgage applicant who has student loan calculations will be changed to the following 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.
• Property location. Homes must be located within a rural area, as defined by USDA. Rural areas are any that have a population less than 35,000 depending on the area’s designation. Use this tool from USDA to determine if a specific address is eligible.
• Physical property. Homes must be the borrower’s primary residence, have direct access to a street, and have adequate utilities and water and wastewater disposal, among other things No working fams allowed or properties that income producing livestock or crops.
For those with lower incomes, a USDA direct loan provides greater opportunities for lending, as its credit and income requirements are more lax than the guaranteed loan option.
Senior Loan Officer
Here are a few reminders about the Kentucky USDA Rural Housing Service (RHS) Section 502 Guaranteed program which provides very-low-, low- and moderate-income rural residents access to affordable housing finance options with little or no down payment or out-of-pocket costs.
• Eligibility Link – Access the USDA Home page, click here.
• Income – To determine eligibility of an applicant/household, click here.
• Property Eligibility – To determine whether the property is located in a designated rural area, click here.s
30 year fixed rate loan terms only, Purchase or refinance, If refinancing must be existing USDA home loan. No cash out allowed.
• Occupancy – Owner occupied only.
• Maximum Loan Amount-No max loan amount
• Max DTI – GUS approved, generally 45% (front end sensitive)/ Manual 29/41.
• Guaranty Fee/Annual Fee – there is a 1.00%/ 0.35% (monthly).
• Down Payment – Down payment not required but if any cash to close, must be borrowers own funds. Gifts are not allowed.
• Interested Third Party Contributions – An amount of 6% of the sales price can be contributed towards closing costs.
If you meet income eligibility requirements and are looking to settle in a rural area, you might qualify for the KY USDA Rural Housing program. The program guarantees qualifying loans, reducing lenders’ risk and encouraging them to offer buyers 100% loans. That means Kentucky home buyers don’t have to put any money down, and even the “upfront fee” (a closing cost for this type of loan) can be rolled into the financing.
Fico scores usually wanted for this program center around 620 range, with most lenders wanting a 640 score so they can obtain an automated approval through GUS. GUS stands for the Guaranteed Underwriting system, and it will dictate your max loan pre-approval based on your income, credit scores, debt to income ratio and assets.
CREDIT SCORES UNDERWRITING USDA MORTGAGE FOR RURAL HOUSING
This attachment illustrates the approach to reviewing credit history when a loan is
manually underwritten by an approved lender.
Credit score over 680: Perform a basic level of underwriting to confirm the
applicant has an acceptable credit reputation. Perform additional analysis if the
applicant’s credit history has indicators of unacceptable credit as noted in Paragraph 10.7 of this Chapter.
Credit score 679 to 640: Perform a comprehensive level of underwriting.
Underwrite all aspects of the applicant’s credit history to establish the applicant has an
acceptable credit reputation. Credit scores in this range indicate the applicant’s
reputation is uncertain and will require a thorough analysis by the underwriter of the
credit to draw a logical conclusion about the applicant’s commitment to making
payments on the new mortgage obligation. The applicant’s credit history should
demonstrate his or her past willingness and ability to meet credit obligations.
Credit score less than 640: Perform a cautious level of underwriting. Perform a
detailed review of all aspects of the applicant’s credit history to establish the applicant’s
willingness to repay and ability to manage obligations as agreed. Unless there are
extenuating circumstances documented in accordance with this Chapter, a credit score in this range is generally viewed as a strong indication that the applicant does not have an acceptable credit reputation.
Little or no credit history: The lack of credit history on the credit report may be
mitigated if the applicant can document a willingness to pay recurring debts through
other acceptable means such as third party verifications or cancelled checks. Due to
impartiality issues, third party verifications from relatives of household members are not
permissible. Lenders can develop a Non-Traditional Credit Report for applicants who
do not have a credit score in accordance with Paragraph 10.6 of this Chapter.
An applicant with an outstanding judgment obtained by the United States in a
Federal court, other than the United States Tax Court, is not eligible for a guarantee
unless otherwise stated in this Chapter.They also allow for a manual underwrite, which states that the max house payment ratios are set at 29% and 41% respectively of your income.
See link here for more detailed guidelines for credit score, disputed accounts, foreclosures, trade line requirements bankruptcies below:
Indicators of unacceptable credit. The following indicators require documentation
meeting the criteria of Section 10.8 to approve an applicant’s loan request for manually
Foreclosure and Bankruptcy Guidelines
Foreclosure within 3 years:
Including pre-foreclosure activity, such as a pre-foreclosure sale or short sale
in the previous 3 years (refer to Attachment 10-B for additional guidance);
Bankruptcy within 3 years:
Chapter 7 bankruptcy discharged in the previous 3 years;
An elapsed period of less than 3 years, but not less than 12 months, may
be acceptable if the applicant meets the criteria of Section 10.8 of this
Chapter 13 bankruptcy that has yet to complete repayment (repayment plan in
progress) or has completed payment in the most recent 12 months.
Plans that are completed for 12 months or greater do not require a credit
exception in accordance with Section 10.8;
Late mortgage payments if any mortgage trade line during the most recent 12
months shows 1 or more late payments of greater than 30 days
In an effort to minimize future risk of open collections left unpaid, the lender will
consider the following during the capacity analysis of the loan request, regardless of the
method utilized to underwrite:
1) Determine if the total outstanding balance of all collections accounts of all
applicants is equal to or greater than $2,000. Unless excluded by state law,
collection accounts of a non-purchasing spouse in a community property state are
included in the cumulative balance of all collections.
2) Remove all medical collections and all types of charge off accounts from the total
balance. Medical collections and charge off accounts must be clearly identifiable
on the credit report.
3) If the remaining outstanding balance of collection accounts are equal to or greater
than $2,000, any of the following actions will apply:
a. Payment in full of all collection accounts at or prior to closing.
b. Payment arrangements are made with each creditor for each collection
account 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
will be included in the borrower’s debt-to-income ratio.
c. In the absence of a payment arrangement, the lender will utilize in the
debt-to-income ratio a calculated monthly payment. For each collection
utilize 5% of the outstanding balance to represent the monthly payment.
They loan requires no down payment, and the current mortgage insurance is 1% upfront, called a funding fee, and .35% annually for the monthly mi payment. Since they recently reduced their mi requirements, USDA is one of the best options out there for home buyers looking to buy in a rural area.
A rural area typically will be any area outside the major cities of Louisville, Lexington, Paducah, Bowling Green, Richmond, Frankfort, and parts of Northern Kentucky.
There is also a max household income limits with most cutoff starting at $87,000 for a family of four, and up to $115,000 for a family of five or more.
Kentucky FHA, VA, USDA & Rural Housing, KHC and Fannie Mae mortgage loans.
Senior Loan Officer
Disclaimer: No statement on this site is a commitment to make a loan. Loans are subject to borrower qualifications, including income, property evaluation, sufficient equity in the home to meet Loan-to-Value requirements, and final credit approval. Approvals are subject to underwriting guidelines, interest rates, and program guidelines and are subject to change without notice based on applicant’s eligibility and market conditions. Refinancing an existing loan may result in total finance charges being higher over the life of a loan. Reduction in payments may reflect a longer loan term. Terms of any loan may be subject to payment of points and fees by the applicant Equal Opportunity Lender. NMLS#57916 http://www.nmlsconsumeraccess.org/
— Some products and services may not be available in all states. Credit and collateral are subject to approval. Terms and conditions apply. This is not a commitment to lend. Programs, rates, terms and conditions are subject to change without notice. The content in this marketing advertisement has not been approved, reviewed, sponsored or endorsed by any department or government agency. Rates are subject to change and are subject to borrower(s) qualification.
Kentucky Rural Housing USDA Highlights for 2021
Kentucky USDA Rural Development Guaranteed Lending Program is geared to assist low to moderate income families realize home ownership. Below are some important highlights:
If you have a credit score below 640 you will probably get referred for a manual underwrite which means the income and credit requirements are much tougher for scores below 640. We can do scores down to 620 but usually it is best to try and raise your score to 640 so we can get an automated approval thru GUS.
If GUS returns an refer/eligible, then we can consider doing a manul underwrite on your loan approval. This usually entails a verifiable rent history over the last 12 months with no lates, and the debt to income ratios are usually tied to the industry old standard of 29% and 41% respectively.
If GUS returns an ineligible status, then your loan is automatically denied and there is no chance of getting approved when this result shows.
If you have any delinquent back taxes, student loans they would need to be paid or brought current so you don’t have any liens to the government.
Delinquent Government Debt (back taxes, student loans
Medical bills are usually okay if they are not showing as a garnishment against you or on the title search.
Large unpaid utility bills, credit card charge offs, and car repos will usually have to be paid before closing. You will have to show you have funds to pay these off before closing.
You have to be 3 years removed from a foreclosure to qualify for a Kentucky RHS loan.
- Chapter 7 Bankruptices require a 3 year wait after the bankruptcy was discharged.
- Chapter 13 bankruptices only require 1 year wait after discharge.
Senior Loan Officer
phone: (502) 905-3708