502 Direct USDA Loan in Kentucky:

NMLS 57916

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. KY RD Offices_August2014.jpg

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 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.

Northern Kentucky Mortgage Guidelines for the USDA Rural Housing Loan Home Program

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.

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?

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:

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What Parts of Northern Kentucky Are Eligible for the USDA Home Loan?

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:

***$99,250
Household income of 5 or more:

***$130,000
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




Joel Lobb (NMLS#57916)
Senior  Loan Officer
 
American Mortgage Solutions, Inc.
10602 Timberwood Circle Suite 3
Louisville, KY 40223
Company ID #1364 | MB73346
 


Text/call 502-905-3708
kentuckyloan@gmail.com

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 USDA Loans | Rural Housing Loans Kentucky

Kentucky USDA Loans | Rural Housing Loans Kentucky.

via Kentucky USDA Loans | Rural Housing Loans Kentucky.

DIFFERENCES BETWEEN THE SECTION 502 GUARANTEED AND DIRECT LOAN PROGRAMS

 

There are several other Section 502 loan programs, but the only one that approaches the guaranteed program in number of loans made is the Homeownership Direct Loan Program

This program once accounted for almost all the Section 502 loans, but the number of guaranteed loans has greatly increased in the last few years. In Fiscal Year 2001, the guaranteed program obligated approximately $2.3
billion for 29,326 loans, while the direct program obligated approximately $1.07 billion for a total of 14,789 loans. The important differences between the Section 502 guaranteed and direct loan programs are as follows:

ƒ The lender for Section 502 guaranteed loans is a private savings and loan institution, bank, or mortgage company which also handles all the loan servicing. The lender for the direct program is the Rural Housing Service; Rural Development handles the servicing.

ƒ Income levels for Section 502 guaranteed borrowers are capped at 115 percent of the area median income. Income levels for the direct program must be no more than 80 percent of the AMI. ƒ Payment assistance subsidy is not available 
through the guaranteed program. Payment assistance, which can reduce the interest paid on the mortgage to as low as 1 percent, is available for borrowers in the direct program and is based on the borrower’s income as a percent of AMI.
ƒ Borrower protections differ between the programs. Applicants for guaranteed loans do not have the rights of moratorium or of appeal that accompany the direct program. Also, in the case of default, Section 502 guaranteed loans are liquidated by
the commercial lender, while direct loans are liquidated by the government

 

 

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