I am a Kentucky based USDA Mortgage Lender that has originated over 200 KY Rural Housing Mortgage Loans in Kentucky, Put my expert advice to use. Kentucky Rural Development RHS loans give KY Rural Homebuyers a zero down mortgage loan with a low 30 year fixed rate loan. A Local Kentucky Rural Housing Mortgage Lender offering same day free approvals and credit report. This website is not affiliated with USDA or any other government agency. NMLS#57916 Equal Housing Lender Text or call today 502-905-3708 with your mortgage questions about USDA Rural Housing Loans in Kentucky. Free Pre-Approvals on most applications within the same day. Kentuckyloan@gmail.com
How to Qualify for a Rural Housing Loan in Kentucky with Student Loans.
For potential home buyers with student loans that are either in a deferred payment status or being paid back through an income based or graduated repayment program, the treatment of this liability needs to be considered.
When student loan debts are not currently being paid upon, due to the loan applicant still being in school or recently graduating from school, the monthly liability will be calculated based on the lower of 1/2 of 1% of the outstanding loan balance or the monthly payment listed on the credit report.
Example if you owe $100,000 in student loan debt the monthly payment will be $500. Also, if the student loan is being paid upon, but at a lesser amount than originally agreed, such as the payment being determined based on repayment ability (i.e. Income Based Repayment Plan), the monthly payment will be calculated the same as above (monthly liability = 1/2 of 1% of the outstanding loan balance).
This offers a significant improvement compared to the FHA Loan guidelines, in which student loans that are in deferment or under an income based repayment plan will have the monthly payment calculated at 1% of the outstanding loan balance.
If the student loan is being paid upon as originally agreed upon when the loan was first obtained, the monthly liability will be the amount specified on the credit report.
Or if the student loans have been consolidated into a new loan, so long as the monthly payment is based on a fixed repayment schedule, that payment will be used when calculating the borrower’s debt to income ratio.
There are two types of Kentucky USDA Rural Housing Home loans available to rural Kentucky Home buyers through Rural Development:
Direct homeownership loans and guaranteed home ownership loans.
Let’s first look at the 502 Direct USDA Loan in Kentucky
502 Direct USDA Loan in Kentucky:
With a Kentucky Direct Loan 502, the applicant applies directly to the USDA office serving their location in Kentucky. There are about 13 different locations . They lend the money direct from USDA , 100 percent financing, for the low rate currently at 3 percent on a 33 year term.
For a direct home loan, the purchase, construction, repair and rehabilitation of a single family home in rural areas must be used for the applicant’s permanent residence. “For manufactured housing, only new construction can be funded,” he explained.
Credit scores of 640 or greater are typically acceptable with a minimum number of trade lines (2 usually for 12 months can be opened or closed) that have been open and active.
No down payment typically is required- Loans may be up to 100 percent of the appraised value. Homebuyer education is required prior to closing for the Direct USDA Loan 502 program
Mortgage payments are based on what the applicant can afford to pay. USDA offers payment assistance/subsidies to make it affordable. When you go to payoff the USDA Direct loan, you may incur a subsidy recapture fee.
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There are two types of Kentucky USDA Rural Housing Home loans available to rural Kentucky Home buyers through Rural Development:
Direct homeownership loans and guaranteed home ownership loans.
Let’s first look at the 502 Direct USDA Loan in Kentucky
502 Direct USDA Loan in Kentucky:
Rural Home Loans (Direct Program) What does this program do? Also known as the Section 502 Direct Loan Program, this program assists low- and very-low-income applicants obtain decent, safe, and sanitary housing in eligible rural areas by providing payment assistance to increase an applicant’s repayment ability. Payment assistance is a type of subsidy that reduces the mortgage payment for a short time. The amount of assistance is determined by the adjusted family income. Who may apply for this program? A number of factors are considered when determining an applicant’s eligibility for Single Family Direct Home Loans. At a minimum, applicants interested in obtaining a direct loan must have an adjusted income that is at or below the applicable low-income limit for the area where they wish to buy a house and they must demonstrate a willingness and ability to repay debt. Applicants must: • Be without decent, safe, and sanitary housing • Be unable to obtain a loan from other resources on terms and conditions that can reasonably be expected to meet • Agree to occupy the property as your primary residence • Have the legal capacity to incur a loan obligation • Meet citizenship or eligible noncitizen requirements • Not be suspended or debarred from participation in federal programs Properties financed with direct loan funds must: • Be modest in size for the area • Not have market value in excess of the applicable area loan limit • Not have in-ground swimming pools • Not be designed for income producing activities Borrowers are required to repay all or a portion of the payment subsidy received over the life of the loan when the title to the property transfers or the borrower is no longer living in the dwelling. Applicants must meet income eligibility for a direct loan. Please contact your local RD office to ask for additional details about eligibility requirements. What is an eligible area? Generally, rural areas with a population less than 35,000 are eligible. Visit the USDA Income and Property eligibility website for complete details. How may funds be used? Loan funds may be used to help low-income individuals or households purchase homes in rural areas. Funds can be used to build, repair, renovate, or relocate a home, or to purchase and prepare sites, including providing water and sewage facilities. How much may I borrow? The maximum loan amount an applicant may qualify for will depend on the applicant’s repayment ability. The applicant’s ability to repay a loan considers various factors such as income, debts, assets, and the amount of payment assistance applicants may be eligible to receive. Regardless of repayment ability, applicants may never borrow more than the area loan limit (plus certain costs allowed to be financed) for the county in which the property is located. Rural Home Loans (Direct Program) What is the interest rate and payback period? • Fixed interest rate based on current market rates at loan approval or loan closing, whichever is lower. • The monthly mortgage payment, when modified by payment assistance, may be reduced to as little as an effective 1% interest rate. • Up to 33 year payback period – 38 year payback period for very low income applicants who can’t afford the 33 year loan term. How much down payment is required? No down payment is typically required. Applicants with assets higher than the asset limits may be required to use a portion of those assets. Is there a deadline to apply? Applications for this program are accepted through your local RD office year round. How long does an application take? Processing times vary depending on funding availability and program demand in the area in which an applicant is interested in buying and completeness of the application package. What governs this program? • The Housing Act of 1949 as amended, 7 CFR, Part 3550 • HB-1-3550 – Direct Single Family
Kentucky USDA Rural Development zero down kentucky home loan Rural development
How USDA Government Underwriters calculate your Debt-to-Income or DTI ratio.
One of the most frequent questions that come from perspectives Kentucky home buyers is
“How Much House Can I Afford?”
Answering this question is determined based on calculating what are known as the borrower’s Debt-to-Income or DTI ratios. The established standard DTI ratio used for a USDA Loan is based on two sets of ratios, which are as follows:
Front-end or housing ratio – the monthly mortgage payment cannot exceed 29% of the gross monthly income.
Back-end or total debt ratio – the total debts, including the new monthly mortgage payment, cannot exceed 41% of the gross monthly income.
A monthly mortgage payment includes the principal and interest payment on the mortgage note, as well as the monthly pro-rated portion of the annual fee, property tax and homeowner insurance premium.
Specific to the USDA Rural Loan program is the pro-rate portion of the USDA Annual Fee, which is often referred to as a monthly mortgage insurance payment. If there are any Condominium or Homeowner Association (HOA) fees, these fees must be included in the monthly mortgage payment as well.
Total debts include the anticipated monthly mortgage payment and all monthly re-occurring credit obligations.
Examples of reoccurring credit obligations include monthly car payments, minimum payment on credit cards, and student loan payments. If the borrower is obligated to make any alimony or child support payments, these payments will be included within the total debt calculations as well.
If the total debts exceed 41% of the gross monthly income, the maximum monthly mortgage payment must be reduced in order to bring total DTI back down to 41%. For example, assume a monthly income of $5,000.
Based on the 29%/41% ratio requirements, the maximum housing expense will be $1,450 and total debts will be $2,050. If the non-housing expense exceeds $600 ($2,050 – $1,450), the housing expense will need to be reduced by an equal amount to keep the total ratio at 41%.
While the 29%/41% ratio is considered to be the Underwriting standard guideline, the USDA Loan Program will allow for DTI ratios as high as 33.99%/45.99%.
What determines the ability to qualify at a higher ratio is a combination of factors, such as an approval through Guaranteed Underwriting System, which is USDA’s automated approval, and other compensating factors such as:
680 or higher credit score
No or low “payment shock” – less than a 100% increase in proposed mortgage payment vs. current rental housing expenses
Fiscally sound use of credit
Ability to accumulate savings
Stable employment history with 2 or more years in current position or continuous employment history with no job gaps
Cash reserves available for use after settlement
Career advancement as indicated by job training or additional education in the applicant’s profession
Trailing spouse income – as a result of a job transfer, in which the house is being purchased, prior to the secondary wage-earner obtaining employment. This assumes that the secondary wage-earner has an established history of employment and has a reasonable chance to obtain new employment in the area upon relocating to the area
If you are an individual with disabilities who needs accommodation, or you are having difficulty using our website to apply for a loan, please contact us at 502-905-3708.
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#57916http://www.nmlsconsumeraccess.org/
On the top left hand side, click “Single Family Housing Guaranteed”
Click “Accept”
Enter the property address to determine if a specific house or general area is located in an USDA eligible area
The household income must be moderate as determined by USDA. The USDA Loan evaluates household income, which includes the combined income of all adults living in the household; even if they are not on the mortgage loan. Click here to determine your household income eligibility.
If it appears that the household income exceeds the moderate income thresholds established by USDA, do not throw in the towel just yet. USDA allows for deductions for child care and medical expenses as well as for children, students, and elderly members of the household that will be living in the USDA financed property.
This is not a farmer’s loan. As a matter of fact, the property cannot have any income producing capabilities, and when the land value of the property exceeds 30% of the appraised value additional requirements must be met.
The house has to be in fairly good condition. The appraisal type being utilized is an FHA appraisal, so make sure that there are not any safety related challenges(i.e. missing banisters, peeling paint, exposed electric).
This is a true no money down loan program. Or stated differently, you do not need a down payment.
While there is a monthly mortgage insurance premium (or prorated portion of an Annual Fee), the cost of the monthly mortgage insurance is 59% less than a comparable FHA Loan. This makes the USDA loan more affordable than an FHA Loan when analyzing down payment requirements and monthly mortgage payments.
The seller can pay all closing costs and pre-paids (i.e. escrows). Often the home buyer’s only out-of-pocket cost as part of the purchase transaction is approximately $550 for the appraisal report.
If the house appraises for more than the purchase price, the difference can be used to pay for closing costs and pre-paids (i.e. escrows). Only the USDA Loan program allows for closing costs to be rolled on top of the purchase price.
USDA has no restriction on whether you are a first time home buyer or move-up home buyer.
This loan program is only for primary residence (i.e. no second home or investment properties).
You should not own any other functional property; although there are some circumstances under which USDA may waive this requirement.
The preferred minimum credit score is 640. However, if you have a documented rent history, no late payments on your credit cards, and no new collections within the last 12 months, a credit score as low as 620 may be considered.
All property types including single family homes, town homes, modular, and even condominiums qualify for this loan program. Manufacture homes such as single and doublewides constructed prior to January 1, 2006 do not qualify.
There is no maximum mortgage amount, but the house does have to be considered moderate in a size
Key reminders for income calculations:
• Look at the date of employment, date the recent pay stub pays through, and the VOE.
• Look for overtime, bonus, commission, or any additional income that should be counted and count it.
• Make sure you are calculating your days correctly when averaging the income.
• If there has been a recent increase in salary or hourly rate, use the higher salary or hourly rate when calculating the Annual Household Income.
• #1 Reminder: Document your process. USDA reviewers look for Underwriter notes and any sort of explanation. It helps them to review a file faster if they don’t have to recreate what has already been done.
Q. The applicant has a history of overtime, with a substantial amount received year to date; however, the VOE states the overtime is unlikely to continue. Do I need to include overtime in the annual income calculation?
A. Annual income is calculated based on what is expected to be received in the ensuing 12 months. If there is a history of overtime, it would need to be considered by the underwriter when calculating annual
income. Ultimately it is the approved lender’s responsibility to review the complete income history to determine what is expected to be received in the ensuing 12 months and to document the permanent loan file
to support their lending decisions.
Q. Does the IRS child tax credit need to be included in the annual income calculation?
A. No, tax credits, including the Child Tax Credit are not included in the Annual income calculation.
Q. Is per diem considered in annual income calculations?
A. If the per diem is taxable income, then it must be included in annual income. If the per diem is non-taxable income, it is considered reimbursement and therefore not included in annual income.
Q. The VOE states the applicant is expected to receive a 3% pay raise within the next 3 months. Do we have to count this expected increase in annual income?
A. Annual income is calculated based on what is expected to be received in the ensuing 12 months, including bonus income, projected pay raises, etc. If a pay raise is expected within the next 12 months, it would need to be included in the annual income calculation.
Q. We have a borrower that is divorced and has joint custody of a child that is only claimed on the tax returns as a dependent every other tax year. Can we consider this child a household member for the calculation of family size and income eligibility?
A. Applicants with shared custody may include their children as household members and receive the $480 per
child deduction.
Annual household income for Kentucky USDA Loans
All files must include an income calculation worksheet. Lenders may document their income calculations on their own in-house income worksheet
Defines Annual Income as: Income from all household members who live or propose to live in the dwelling as their primary residence for all or part of the ensuing 12 months. Adjusted annual income is used to determine whether an applicant is income-eligible for a guaranteed loan, or interest assistance, if applicable.
Adjusted annual income provides for deductions to account for varying household circumstances and expenses.
Kentucky USDA Mortgage Lender for Rural Housing Loans 