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 $103,200 for a  4 unit household and household families of five or more + can make up to  $136,000.
  • The Northern Kentucky Counties (***) of Boon, Kenton, Campbell, Bracken, Gallatin, and Pendleton are $109,500 for a household of four or less and up to $145,400 for a family of five or more.

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.

As a reminder, annual income differs from repayment income. Annual income for the household will be used to calculate the adjusted annual household income to determine eligibility for a USDA-guaranteed loan. The main purpose of the following revisions in paragraph 9.3 is to ensure that lenders are aware that they are to calculate and properly document all adult household members’ income for annual income eligibility purposes…not just parties to the loan note.

It’s important to be aware of income sources that are counted and NOT counted as well as how to properly determine both “annual” and “repayment” income. I recommend that you thoroughly read Chapter 9 and refer to Attachment 9-A and Attachment 9-D in HB-1-3555 to review income and asset types, guidance for annual and repayment purposes, and documentation options acceptable to verify the income or asset source.

Paragraph 9.3 is being revised as follows:

  • To clarify that lenders must verify the income of each adult household member for the previous 2 years.
  • To clarify, under “full income documentation”, the lender must obtain W-2s or IRS Wage and Income transcripts in addition to paystubs.
  • To change the term “streamlined documentation” to “alternative income documentation” to remove confusion with the streamlined refinance product.
  • To clarify under “self-employed income documentation,” if ownership interest is less than 25%, neither the “Business Owner” nor “Self-Employed” options should be selected in GUS (Guaranteed Underwriting System).
  • To clarify the Verbal Verification of Employment must be obtained within 10 business days of loan closing, and confirmation a self-employment business remains operational must be obtained within 30 days of loan closing.
  • Restructured guidance on tax transcripts to emphasize a failure to timely file tax returns is not an eligible explanation to forgo obtaining tax transcripts.

Paragraph 9.8: STABLE AND DEPENDABLE INCOME

Gaps In Employment: The Agency clarifies that it is the lender’s responsibility to analyze any gaps in employment to make a final determination of stable and dependable income. The Agency does not impose specific criteria regarding when a gap in employment is acceptable. It is the approved lender’s responsibility to analyze the complete employment history to determine stable and dependable income.

Business loss from a closed business:

The Agency clarifies that any loss incurred by a self-employed business (full-time or part-time) that is closed may be removed from consideration when the applicant provides a letter of explanation and documentation to the lender which details:

  • When the business was closed;
  • Why the business was closed;
  • How the business was closed; and
  • Evidence satisfactory to the lender to support the closure of the business.

Attachment 9-A: INCOME AND DOCUMENTATION MATRIX

Considerations for Income Calculations: The Agency added additional considerations to the “Considerations for All Income Calculations” section of the matrix to provide important reminders to lenders regarding reviewing and calculating income. The full text of the revision is as follows:

  • Annual and adjusted annual income calculations must include all eligible income sources from all adult household members, not just parties to the loan note.
  • Annual income is calculated for the ensuing 12 months based on income verifications, documentation, and household composition.
  • Include only the first $480 of earned income from adult full-time students who are not the applicant, co-applicant, or spouse of an applicant in annual and adjusted annual income.
  • Income from assets that meet the criteria of Section 9.4 must be included in annual and adjusted annual income.
  • Repayment income calculations include the income sources of the applicants who will be parties to the note that meet the minimum required history identified in this matrix and have been determined to be stable and dependable income by the approved lender.
  • Income used in repayment income calculations must be confirmed to continue a minimum of three years into the mortgage. If the income is tax-exempt, it may be grossed up to 25 percent for repayment income. “Documentation Source Options” lists eligible documentation. Every item listed is not required unless otherwise stated. Lenders must obtain and maintain documentation in the loan file supporting the lender’s income calculations.

Automobile Allowance: Revised “Automobile Allowance” guidance to allow the full allowance to be included as repayment income and the full expense (debt) counted in DTI, as well as updating the required history to two years.

Comment: Previously, a 1-year history was required. The wording in this section is much better in that it clarifies the intent of the agency to allow for the automobile allowance to be counted as income and the debt associated with that income, if any (such as a car payment), counted in the DTI.  

Boarder Income: The Agency clarified that “Boarder Income” refers to rental income received from an individual renting space inside the dwelling, making the property income-producing and, therefore, ineligible.

Comment: This revision to attachment 9-A, “Boarder Income,” makes it clear that boarder income will render the property ineligible for a guaranteed loan. The previous guidance made it somewhat appear as if boarder income was acceptable. It’s not.

Bonus Income: Revised “Bonus” income to clarify the one-year history must be in the same or similar line of work.

Comment: This is a significant revision in that previously, the guidance made it appear the income had to be on the same job…not the same or similar line of work. This gives the lender greater flexibility in counting this type of income.

Child Support: Revised the “Child Support” guidelines to simplify the guidance and remove inconsistencies. The Agency stated that child support that meets the minimum history but the payment amounts are not consistent must use an average consistent with the payor’s current ability/willingness to pay.

Comment: While perhaps not readily apparent, the wording in this revised guidance is significant in that it gives lenders greater latitude in using “Child Support” income. 

Employee Fringe Benefits: The Agency clarified that employer-provided fringe benefits that are reported as taxable income may be included in repayment income. The actual guidance states the following: Employer-provided fringe benefit packages documented on earning statements as taxable income may be included.

Expense AllowanceRevised “Expense Allowance” guidance to allow the full allowance to be included as repayment income and the full expense (debt) counted in DTI, as well as updating the required history to two years.

Comment: Previously, a 1-year history was required. The wording in this section is much better in that it clarifies the intent of the agency to allow for the expense to be counted as income and the debt associated with that income, if any, counted in the DTI.  

Guardianship/Conservatorship Income: The Agency added a category providing guidance on “Guardianship/Conservatorship Income.” This guidance does not apply to income earned from foster care. Include amounts that will be received in the ensuing 12 months. Exclusions may apply under 7 CFR 3555.152(b)(5).

Required History: None; the income must be received at the time of submission to the Agency. Lenders must document:

  • The applicant is currently receiving the income; and
  • The amount of income received each month.

Continuance: Benefits that do not include expiration dates on the documentation will be presumed to continue.

Documentation Source Options:

  • Documentation to support payment amounts and duration, such as a court order, legal documents, or other supplemental information
  • Online payment schedule from the Agency, bank statements, etc.
  • Federal income tax returns or IRS tax transcripts with all schedules.

Individual Retirement Account (IRA) Distributions: The Agency added a category providing guidance on “Individual Retirement Account (IRA) Income.” Include amounts that will be received in the ensuing 12 months.  Lump sum withdrawals or sporadic payments may be excluded under 7 CFR 3555.152(b)(5).

Required History:  None; the income must be received at the time of submission to the agency. The lender must document:

  • The applicant is currently receiving the income; and
  • The amount of income received each month.

Documentation Source Options:

  • IRA documents, IRS 1099, evidence of current receipt, bank statements, etc.
  • Federal income tax returns or IRS tax transcripts with all schedules.

Mileage: The Agency is simplifying the guidance on considering mileage income and deductions. For deductions claimed on tax returns, the Agency now refers to IRS guidance when a mileage deduction is claimed on income tax returns.

Mortgage Credit Certificate: The Agency removed the requirement to obtain a copy of the IRS W-4 document when an applicant uses a Mortgage Credit Certificate as income.

Comment: THANK GOODNESS!!! This was one of the biggest pains ever. No other agency required evidence that a new W4 form was filed with the employer in order to use a Mortgage Credit Certificate as additional income. This is a common-sense welcome revision.

Non-Occupant Borrower: The Agency removed the “Non-Occupant Borrower” category on the matrix since non-occupant borrowers are not permitted anyway.

Overtime: Revised “Overtime” income to clarify the one-year history must be in the same or similar line of work.

Comment: This is a significant revision in that previously, the guidance made it appear the income had to be on the same job…not the same or similar line of work. This gives the lender greater flexibility in counting this type of income.

Rental Income: Updated “Rental Income” guidelines regarding corresponding mortgage liabilities to be consistent with the guidance in Chapter 11.

Secondary Employment: Revised “Secondary Employment” guidance to clarify that the applicant must have a one-year history of working the primary and secondary jobs concurrently for the lender to be able to consider the secondary employment for repayment income.

Section 8 Housing Vouchers: Revised “Section 8 Housing Vouchers” to permit Section 8 vouchers to be treated as a reduction of the PITI when the benefit is paid directly to the servicer rather than solely an addition to repayment income. Subsequently, the Agency provided clarification that a manual file submission is required in this instance, and clarified that when lenders use the benefit as a reduction of the PITI, they must maintain documentation in their permanent loan file to support the benefit is paid directly to the servicer.

Comment: Wow! I cannot stress how significant this change is. Allowing for the Section 8 Voucher amount paid directly to the servicer to be a direct reduction to PITI instead of counted as additional income will help a tremendous amount of applicants obtain an agency-guaranteed loan.

Separate Maintenance/Alimony: Revised the “Separate Maintenance/Alimony” guidelines to simplify the guidance and remove inconsistencies. The Agency stated that “Separate Maintenance/Alimony” that meets the minimum history, but the payment amounts are not consistent, must use an average consistent with the payor’s current ability/willingness to pay.

Comment: While perhaps not readily apparent, the wording in this revised guidance is significant in that it gives lenders greater latitude in using “Separate Maintenance/Alimony” income.

Unreimbursed Employee or Business Expenses: Revised the “Unreimbursed Employee or Business Expenses” guidance to reflect instances where the IRS continues to allow these deductions.

Variable Income: The Agency added a category providing guidance on “Variable Income.” i.e., piece rate, union work, and other similar types of pay structures.

Annual Income:  Include amounts that will be received in the ensuing 12 months.  Exclusions may apply under 7 CFR 3555.152(b)(5).

Repayment Income:

Required History:  One year in the same or similar line of work.  Underwriters must analyze variable income earnings for the current pay period and YTD earnings.  Significant variances (increase or decrease) of 20 percent or greater in income from the previous 12 months must be analyzed and documented (i.e., variances due to seasonal/holiday, etc.) before considering the income stable and dependable.

Continuance:  Income will be presumed to continue unless there is documented evidence the income will cease.

Required Documentation:

  • Paystub(s), Earning Statement(s)
  • W-2s
  • Written VOE or Electronic Verifications
  • Federal Income Tax Returns or IRS Tax Transcripts with all Schedules
  • Section 9.3E provides additional information on employment verification options.

Assets and Reserves: In the “Assets and Reserves” portion of the matrix, the Agency reiterated that lenders have the option to underwrite to the most conservative approach, with no consideration of assets entered into GUS. The full wording of the text is as follows: “Although all household assets must be verified and documented in the permanent loan file, the lender may underwrite to the most conservative approach with no consideration of assets entered into GUS.”

Comment: the agency has always said Lenders must use caution and not overstate assets utilized for reserves. It’s good practice not to overstate assets, as that could lead to a GUS finding that will ultimately be determined to be in error. The bottom line, excess assets utilized for reserves can lead to a Gus “Accept” finding that could potentially move to a “Refer” finding with the corrected entry of borrower assets. Don’t fall into the trap of overstating assets/reserves.  

Depository Accounts: Checking, Money Market Accounts, and Savings: The Agency revised guidance for sourcing deposits in depository accounts. I’m going to start off by simply providing a clip of the exact wording for this revision.

Documentation:

Two months of recent bank statements; or

  • Verification of Deposit (VOD) and a recent bank statement; or
  • Alternate evidence (i.e., statement printouts stamped by the lender) to support account activity and monthly balances.
  • Investigate all recurring deposits on the account statements that are not attributed to wages or earnings to confirm the deposits are not from undisclosed income sources.  There is no tolerance or percentage of the amount of a recurring deposit that is not required to be investigated.
  • Investigate individual (non-recurring) deposits greater than $1,000 on the account statements that are not attributed to wages or earnings to confirm the deposits are not from undisclosed income sources.
  • If the source of a deposit is readily identifiable on the account statement(s), such as a direct deposit from an employer, the Social Security Administration, an IRS or state income tax refund, or a transfer of funds between verified accounts, and the source of the deposit is printed on the statement, the lender does not need to obtain further explanation or documentation.  However, if the source of the deposit is printed on the statement, but the lender still has questions as to the source of the deposit, the lender should obtain additional documentation.

Reserves:  Eligible

Lenders must use the lesser of the current month’s balance or the previous month’s ending balance when calculating reserves.  Deposited gift funds require further documentation and calculation.  Refer to the “Gift Funds” section of the attachment for further guidance.

Funds to Close:  Eligible

Comment: Holy cow! It’s about time. I’ve been preaching for years that this guidance needed to be revised. I’m literally dancing with joy along with every mortgage processor and underwriter. Previously a lender had to investigate all deposits on the account statements that were not attributed to wages or earnings. Since a USDA Guaranteed Housing loan has income eligibility limits, the Agency wanted lenders to confirm that deposits were not from undisclosed income sources. They gave us no tolerance or percentage of the deposit amount that was not required to be investigated. This means that lenders were required to have the borrower’s address/document every single non-payroll deposit…no matter how small… even deposits as little as $1. In a world of cash payment apps such as Zelle, Venmo , and PayPal, where a borrower can have numerous cash deposits, this became a daunting task. In other words…it really sucked.

This revision, while still requiring analysis and possible explanation/documentation, will give us some well-deserved relief.

Under the new guidance, lenders now have to investigate all “RECURRING” deposits on the account statements that are not attributed to wage and earnings to confirm that the deposits are not from undisclosed income sources. As before, the agency has provided no tolerance or percentage of the amount of a recurring deposit that is not required to be investigated. The key here is the word “recurring”. When analyzing the account statements, a lender now has to simply address “recurring” deposits. This will simplify the analysis and process tremendously.

As for “NON-RECURRING” deposits…the Agency requires lenders to investigate individual “non-recurring” deposits greater than $1,000 on the account statements that are not attributed to wages or earnings to confirm the deposits are not from undisclosed income sources.

They go on to say that if the source of a deposit is readily identifiable on the account statement(s), such as a direct deposit from an employer, the Social Security Administration, an IRS or state income tax refund, or a transfer of funds between verified accounts, and the source of the deposit is printed on the statement, the lender does not need to obtain further explanation or documentation. However, if the source of the deposit is printed on the statement, but the lender still has questions as to the source of the deposit, the lender should obtain additional documentation.

Bottom line, this will make all our lives much easier. Thank goodness! God bless USDA.

Gift Funds: The Agency revised additional guidance for Gift Funds as follows:

Documentation:

  • Gift funds are considered the applicant’s own funds; therefore, excess gift funds are eligible to be returned to the applicant at loan closing.
  • Gift funds may not be contributed from any source that has an interest in the sale of the property (seller, builder, real estate agent, etc.).
  • Gift Funds must be properly sourced.
    • If the funds have been deposited to the borrower’s account, obtain a gift letter to state the funds do not have to be repaid and a bank statement as evidence of funds from the donor’s account.  Cash on hand is not an acceptable explanation for the source of funds.
    • If the funds have not been deposited in the borrower’s account, obtain a gift letter to state the funds do not have to be repaid, a certified check, money order, or wire transfer, and a bank statement showing the withdrawal from the donor’s account.  Cash on hand is not an acceptable explanation for the source of funds.
    • If the gift funds will be sent directly to the settlement agent, the lender must obtain a gift letter to state the funds do not need to be repaid, a bank statement as evidence of funds from the donor’s account, and verification that the funds have been received by the settlement agent. Cash on hand is not an acceptable explanation for the source of funds.

Reserves:  Ineligible

Funds to Close:  Eligible

GUS Instructions: • Gift funds should be entered in the “Gifts or Grants You Have Been Given or Will Receive for This Loan” section of the “Loan and Property Information” GUS application page. If the funds have already been deposited into an asset account, select “deposited” and include the amount of the gift in the applicable asset account on the “Assets and Liabilities” GUS application page. If the funds have not been deposited into an asset account, select “not deposited” and do not include the gift in an asset account on the “Assets and Liabilities” GUS application page. • Gift funds applied as Earnest Money should not be reflected in the “Gifts or Grants You Have Been Given or Will Receive for This Loan” section of the “Loan and Property Information” GUS application page.

Comment: You need to read this one thoroughly. This is much better guidance than previously provided, offering details for sourcing gift funds as well as how to enter gift funds into the Agency’s Guaranteed Underwriting System (GUS).

Lump Sum Additions: IRS Refunds, Lottery Winnings, Inheritances, Withdrawals from Retirement AccountsThe Agency added a category providing guidance on “Lump Sum Additions.”

Documentation:

  • Document the applicant’s receipt of funds.
  • Verify where the proceeds are held and confirm they are available to the applicant.
  • One-time deposits may not require annual income considerations under 7 CFR 3555.152(b)(5)(vi).
  • Do not enter into GUS separately if it is already included in the borrower’s depository account.

Reserves:  Eligible

Funds to Close:  Eligible

Comment:  Note that it says that withdrawals from retirement accountsare eligible as cash reserves; however, under the “Retirement: 401(k), IRA, etc.” section of the matrix, the Agency says that funds borrowed on retirement accounts are NOT allowed for cash reserves. To be clear, apparently, the term withdrawal does not include borrowing funds from the retirement account. In order to be able to use 401(k) funds as cash reserves, a borrower would have to either withdraw funds from the retirement account (not borrow) or leave the money in the retirement account so that 60% of the vested amount available to the borrower could be counted as cash reserves.

Retirement: 401(k), IRA, etc.: The Agency clarified that funds borrowed against retirement accounts (e.g., 401(k), IRA, etc.) are eligible for funds to close but are not considered in reserves.

Documentation:

  • Recent account statement (monthly, quarterly, etc.) to evidence the account balance, vested balance available for withdrawal, and early withdrawal penalty, if applicable.
  • Funds borrowed against these accounts may be used for funds to close but are not considered in reserves.  The borrowed funds should not be reflected in the balance of any asset entered on the “Assets and Liabilities” application page.

Reserves:  Eligible

  • 60% of the vested amount available to the applicant may be used as reserves.
  • Funds borrowed against these accounts are not eligible for reserves.  The borrowed funds should not be reflected in the balance of any asset entered on the “Assets and Liabilities” application page.

Funds to Close:  Eligible

Comment: I personally think this guidance is kind of weird. I can use 60 % of a vested 401(k), IRA, etc., as cash reserves, but if I borrow against it and put the cash into the bank, I can’t use any of those borrowed retirement funds beyond the amount of cash needed to close as cash reverse? Maybe it’s just me…but that does not totally make sense to me…but it’s their call.

Strategically, if you need cash to close from your retirement account and you need cash reserves, then you would need to only borrow just enough cash to close and leave the remaining funds in your retirement account, so it could be classified as cash reserves once the proper percentages (less the amount borrowed) are calculated.

Attachment 9-E: Information for Analyzing Tax Returns for Self-Employed Applicants

Attachment 9-E was revised to reflect a two-year required history for “Capital Gain or Loss” to be consistent with the current guidance in Attachment 9-A.

Chapter 15 – Submitting the Application Package

The following updates were made to HB-1-3555, Chapter 15 to make minor grammatical and formatting changes, correct discrepancies, and provide clarification for easier understanding of guidance.

Paragraph 15.7 C: Requesting Changes in Conditions: The Agencyclarifies that Conditional Commitment change requests should be made via email.

Attachment 15-A was REVISED as follows:

  • In Lender Instructions, the Agency states that electronic delivery to Rural Development is the preferred method for submission.
  • The Agency removed the requirement to submit evidence of qualified alien requirements on page 1, as it is not required to be submitted to the Agency on GUS Accept files.
  • The Agency changed the term “streamlined documentation” to “alternative income documentation” on page 2 to remove confusion with the streamlined refinance product.
  • The Agency clarified that a Verification of Rent is required for manually underwritten loans with credit scores less than 680.

Comment: Previously, the “Loan Origination Checklist” attachment 15-A stated that verification of rent “MAY” be applicable for a manually underwritten loan with a credit score of less than 680. Now the Agency states that it “IS” required for a credit score of less than 680 on a mainly underwritten loan.

 

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

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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