Kentucky Rural Housing USDA Loan Student Loan Debt Calculations

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.

If you have yet to apply for your Kentucky USDA Loan pre-qualification request, you can do so online

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

 

No Money Down Kentucky USDA Rural Loan Program

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
  • Low total debt load

Joel Lobb (NMLS#57916)
Senior  Loan Officer

American Mortgage Solutions, Inc.

10602 Timberwood Circle Suite 3

Louisville, KY 40223Company ID #1364 | MB73346

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

http://www.nmlsconsumeraccess.org/
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/

The difference between a front-end and a back-end debt-to-income ratio for a Kentucky Mortgage Loan FHA, VA, KHC, USDA, Fannie Mae

What is your debt-to-income ratio?

 
Commonly referred to as your “DTI,” your debt-to-income ratio is a personal finance benchmark that relates your monthly debt payments to your monthly gross income.
As an example… Let’s say that your gross monthly salary is $5,000 and you are spending $2,800 of it toward monthly debt payments. In that case, your DTI would be an unhealthy 56%.
This version of your DTI is sometimes referred to as your “back-end” DTI. This is often broken down further to give a front-end debt-to-income ratio, which is a component of your back-end DTI.
 

How to calculate your front-end DTI for a Kentucky Mortgage Loan Approval

 
Your front-end DTI is calculated by dividing your monthly housing costs by your monthly gross income. Front-end DTI for renters is simply the amount paid in rent, whereas for homeowners it is the sum of mortgage principal, interest, property taxes, and home insurance (i.e., your PITI) divided by gross monthly income.
From above, if that $2,800 in debt payments is attributable to $1,500 in housing costs and $1,300 in non-housing costs, then your front-end DTI is $1,500/$5,000 = 30% (and your back-end ratio is still 56%, as calculated above).
 

How lenders use your DTI for a Kentucky Mortgage Loan Approval

 
Kentucky Mortgage lenders typically use DTI (along with other variables) to determine whether or not you qualify for a loan, and to help determine your Kentucky mortgage rate. A high front-end DTI raises red flags with lenders because it is commonly associated with borrower default. In fact, reducing front-end DTI to reduce the risk of homeowner default was one of the main objectives of the loan modification programs introduced by the government in 2009.
There are specific limits for DTI that are used as cut-off points when evaluating borrowers. Current DTI limits for conventional conforming mortgage loans are typically 28% on the front end and 36% on the back end, though these limits are slightly higher for government subsidized Kentucky FHA loans.
While there are certainly other factors to consider w
 
 
 
 
 
 
 
 
 
American Mortgage Solutions, Inc.
10602 Timberwood Circle Suite 3
Louisville, KY 40223
Company ID #1364 | MB73346
 

Text/call 502-905-3708
kentuckyloan@gmail.com
 
 
 
http://www.nmlsconsumeraccess.org/
 
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/
— 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.
 
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