Quick Guide to Kentucky USDA Rural Development Loans Approval Requirements

Quick Guide to Kentucky USDA Rural Development Loans Approval Requirements

Quick Guide to USDA Rural Development Loans
Not every community qualifies—but if it does, it’s the best thing since sliced bread!
Check your listings to see if the property location qualifies. http://eligibility.sc.egov.usda.gov. Generous household income limits also apply, and you can check them out at this link as well.
Generate phone calls by letting everyone know 100% financing is still available for eligible properties and borrowers.
Add an additional note to the listing info and mention it in your ads.
Buyer Qualifications Highlights
• No down payment required, and zero move-in cost is possible.
• 30-year fixed rate loan.
• 6% seller contribution limit allowed.
• Lender closing cost contribution by premium pricing allowed. Does not count against 6% seller limit.
• 100% Loan up to appraisal allowed plus you can add the 1.00% Guarantee Fee on top of that.
• Low .35% Annual Fee included in monthly payment.
• Finance closing costs & prepaids if appraisal Is higher than sales contract.
• No stated maximum loan amount; maximum loan based on repayment ability.
• No cash contribution required from borrower.
• No pre-payment penalty
• Liberal income limits (by county)
• Gift funds and grants allowed.
• No cash reserve requirements.
Property Qualification Highlights
• Existing Home
• New Construction
• New Manufactured Homes (Existing MH allowed under test program in 22 states)
• Modular Homes
• Town Homes
• Condos (Must be approved projects)
Prohibited Loan Purposes
• Co-signors not residing in the household
• Furniture and personal property
• Income-producing property unless minimal income-producing activity.
• Previously occupied manufactured homes…unless refinancing existing Agency loan or home built on or after 2006 and in the certain states (22 test states).

Joel Lobb
Mortgage Loan Officer
Individual NMLS ID #57916

American Mortgage Solutions, Inc.

10602 Timberwood Circle 

Louisville, KY 40223Company NMLS ID #1364

click here for directions to our office
Text/call:      502-905-3708fax:            502-327-9119
email:

          kentuckyloan@gmail.com

https://www.mylouisvillekentuckymortgage.com/

Kentucky USDA Guideline Updates for

Kentucky USDA Homes for Sale

  • 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.

click link below

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KENTUCKY USDA RURAL DEVELOPMENT HOME LOAN

​ HOME LOAN BASICS

  • NO DOWN PAYMENT REQUIRED
  • Closing costs can be financed into the loan
  • Minimal credit score requirements – NO minimum score
  • Low monthly mortgage insurance
  • Home must be located in an eligible area
  • Home must meet property eligibility requirements
  • Fill out worksheet to get additional information about qualifying
  • Must be a regular stick-built home
  • Single Close Construction Program available
  • USDA to USDA Streamline Refinances available

SFH Direct Loan and Grant Programs

February 7, 2022

Fee Increases for Origination Appraisals and Conditional Commitments

An Unnumbered Letter (UL) dated February 4, 2022, has been issued which increases the appraisal fee to $750 and the conditional commitment fee to $825 under the direct programs.  The fee increases are effective March 6, 2022.  The increased fees reflect market price increases for origination appraisals in rural areas and the average cost of appraisals under the programs’ nationwide contract with the Appraisal Management Companies.

Rural Development staff will follow the implementation responsibilities outlined in the UL, which has been posted to https://www.rd.usda.gov/resources/directives/unnumbered-letters under Housing Programs (or click here for a direct link). 

When qualifying for a USDA Loan and the borrower already owns another house?

USDA Loan assumes a very conservative perspective on financing homeowners who already own a home, unless the borrower can prove that the current home is not “adequate or suitable” for the borrower’s needs.

The USDA Loan assumes a very conservative perspective on financing homeowners who already own a home, unless the borrower can prove that the current home is not “adequate or suitable” for the borrower’s needs. Owning a house can be defined as not only being on the mortgage loan but also being on title to the property without being on the mortgage loan for that property. Factors that can determine when a house is not “adequate or suitable” include the following:

  • Household size change in which the borrower’s family size now exceeds the room count of the current house. The assumption being made here is that there is more than 1.5 household residents per room. The room count generally includes a living room, dining room, kitchen, recreation room, and bedroom(s). Room counts do not include bathrooms, hallways, or foyers.
  • In the case of divorce where the borrower remains on the mortgage loan, but the Courts have awarded the house to the ex-spouse.
  • Job transfer in which the borrower has relocated more than 50 miles away from the current residence.
  • Manufactured houses (i.e. doublewides) not on a permanent foundation.
  • The current house is not suitable due to documentable health and safety related issue, which includes the disability or limited mobility of a household resident that cannot be accommodated without substantial retrofitting of the current house.

Under no circumstances will the borrower be able to obtain another USDA Loan if the existing home is already financed using a USDA Loan. When qualifying for a USDA Loan and the borrower already owns another house, the costs associated with the current house, including the mortgage payment, property taxes, homeowner insurance, condo or Homeowner Association Fees, and lot rent in the case of a manufactured home, will be considered a liability to the borrower when calculating their debt-to-income ratio.

If the borrower has two years of rental history, as documented on their tax returns, the mortgage liability can be offset by the rental income. Also, in the case of a court ordered divorce settlement where the borrower can document 12 months of on-time mortgage payments being made by their ex-spouse, the liability can be excluded.

 

Joel Lobb
Mortgage Loan Officer
Individual NMLS ID #57916
 
American Mortgage Solutions, Inc.
 
Text/call:      502-905-3708
fax:            502-327-9119
email:
          kentuckyloan@gmail.com
 

Kentucky Rural Housing Development Mortgage Guide for USDA Loans

Kentucky USDA Rural Housing Mortgage Lender

 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
  • Independence
  • Burlington
  • Hebron
  • Highland Heights
  • Walton
  • Alexandria
  • Cold Springs
  • All Of Grant County, Pendleton County And Owen County

Search for Kentucky USDA Eligible Properties 

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!


 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.

RHS Student Loans
Effective immediately for all RHS loans, 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.
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