Kentucky USDA Rural Development Single Family Housing Guaranteed Loan Program

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Logo of the USDA Rural Development office, part of the Department of Agriculture. (Photo credit: Wikipedia)
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Kentucky USDA Rural Development Single Family Housing
Guaranteed Loan Program


 100 percent financing available with no down payment required. Eligible repairs and
closing costs may be included in the loan up to the appraised value of the property.
 Upfront guarantee fee may be included in the loan amount above the appraised value.
 Existing or new construction homes including all Planned Unit Development’s (PUD’s) are
 Condominiums may be eligible.
 30 year loan terms with fixed interest rates.
 No pre-payment penalties.
 Satisfactory credit and qualifying ratios apply. Nontraditional credit histories may be


The following information is not all inclusive. For complete information refer to RD
Instruction 1980-D, supplemented by applicable Administrative Notices (AN) available
online at 
The applicant must:
 Be a U.S. Citizen, legally admitted as a permanent resident, or be a qualified alien.
 Have the legal capacity to incur the loan obligation.
 Be unable to secure credit with rate and terms reasonable to the applicant without a
guarantee from the Single Family Housing Guaranteed Loan Program (SFHGLP).
 Not own a home within the local commuting area at the time of loan closing. Applicants that
do own a home that is structurally unsound or functionally inadequate, or is located outside
of the local commuting area may still be eligible for guaranteed loan consideration.
 Occupy the home purchased in an eligible rural area as their permanent primary residence.
 Have stable and dependable income to ensure repayment ability. Households may not
exceed the moderate income limit established for the applicable rural area.
 Have an acceptable credit history that demonstrates the willingness and ability to meet
financial obligations as they become due. If applicants exhibit unacceptable credit per RD
Instruction 1980-D, section 1980.345(d) the approved lender may still consider the
applicant if documented evidence of strong compensating factors as outlined in section
1980.345(d)(3) exists.


 Annual income includes the total gross income of the applicant, co-applicant, and any other
adult (age 18 and up) household members.
 Adjustments to annual income may be deducted for program eligibility determination.
Deductions may be made for dependants, eligible annual childcare expenses, disability
expenses, and annual medical expenses for elderly families. Please discuss eligible
deductions with your SFHGLP contact.
 Income limits are published for each county as an Exhibit to RD Instruction 1980-D and are
available online at:


 Repayment ability is determined by calculating the following ratios:
– PITI (Principal, Interest, Real Estate Taxes, and Homeowner Insurance): The total PITI
payment divided by the repayment income must be 29 percent or less.
– Total Debt (TD): The PITI payment plus all other monthly debt obligation payments
divided by the repayment income must be 41 percent or less.
 Repayment ratios that exceed 29 and/or 41 percentmay be approved by Rural
Development when a ratio waiver request is provided by the approved lender. The ratio
waiver must document and provide evidence of strong compensating factors to support the
request. USDA Rural Development Single Family Housing Guaranteed Loan Division October 2012
1400 Independence Ave., S.W. Washington D.C. 20250-0784
Examples of strong compensating factors include but are not limited to:
– Current rent/housing payment is equal to or less than the proposed PITI.
– Applicant has a history of devoting a similar percentage of income to housing expense
similar to the PITI over the previous 12 months.
– Strong credit score and repayment history.
– Reserves are available post loan closing, which evidence the applicant’s ability to
accumulate savings.


The property must be located in an eligible rural area as defined in 7 CFR 3550.10 as:
1. Open country which is not part of or associated with an urban area.
2. Any town, village, city or place, including the immediate adjacent densely settled area,
which is not part of or associated with an urban area and which:
a. Has a population not in excess of 10,000 if it is rural in character, or
b. Has a population in excess of 10,000 but not in excess of 20,000, is not contained within
a Standard Metropolitan Statistical Area, and has a serious lack of mortgage credit for
very low, low and moderate income households as determined by the Secretary of
Agriculture and the Secretary of HUD.
Property eligibility is available online and through GUS.


 Properties must meet HUD Handbooks 4150.2 and 4905.1. An FHA Roster appraiser or
licensed residential appraiser deemed qualified by the approved lender may certify to this
 A separate home inspection report prepared by the appraiser or a home inspector deemed
qualified by the approved lender is an acceptable option to ensure properties meet
minimum standards.
 Homes must be structurally sound, functionally adequate and in good repair, or will be
improved to meet good repair.
 There are no thermal performance standards for existing homes.
 Private water systems/wells: The local health authority or state certified laboratory must
perform a water quality analysis, which must meet state and local standards.
 Private septic systems: The septic system must be free of observable evidence of failure. An
FHA Roster appraiser, government health authority, licensed septic professional or
qualified home inspector may perform the septic system evaluation.
 Termite: If required by the lender, appraiser, inspector, or State law, a pest inspection must
be obtained to confirm the property is free of active termite infestation.
 Repairs: Any repairs necessary for the dwelling to be structurally sound, functionally
adequate and in good repair must be completed prior to the request of the loan note
guarantee. Exception: Escrow accounts that meet the requirements of RD Instruction
1980-D, section 1980.315 are allowed for exterior weather delayed repairs. When eligible
escrow accounts are established per section 1980.360(2)(ii) the loan note guarantee will be
issued without the repairs complete.
 Existing homes have been completed for more than 12 months or have been completed for
less than 12 months but have been previously occupied. USDA Rural Development Single Family Housing Guaranteed Loan Division October 2012


 Evidence the home was built in accordance with certified plans and specifications (e.g.,
International Residential Building Code, CABO, BOCO, etc.) must be obtained through an
eligible building permit, certificate of occupancy, or certification for a qualified individual or
organization that reviews plans and specifications.
 Evidence of construction inspections performed throughout the project in accordance with
section 1980.341(b)(2) must be retained. Acceptable documentation includes an eligible
certificate of occupancy or copies of three inspections performed: (1) inspections prior to
footing and foundation poured, (2) inspections of plumbing, electrical, and mechanicals
before the shell is enclosed, and (3) a final inspection will meet requirements.
 Evidence of a builder’s warranty. Minimum one year issued by the builder. If the builder
has offered a 10 year insured builder’s warranty acceptable to the Agency, this may be
accepted and evidence of construction inspections will be waived.
 Thermal performance requirements must meet the 2006 IECC code. An eligible building
permit, certificate of occupancy, final inspection, or 10 year insured builder’s warranty is
acceptable evidence this requirement has been met.
 New construction homes have been completed (as evidenced by a certificate of occupancy)
for less than 12 months and have never been occupied.
 New manufactured homes must be purchased from an approved dealer –contractors (your
SFHGLP contact can provide a list of those approved in your state). A unit is considered
new if the purchase agreement is dated within 12 months of the date the unit was
manufactured. The date of manufacture is available on the factory installed plate on the


 Loans must be secured by a first lien on real property in an eligible rural area.
Loan funds may be used to:
 Purchase an existing or new construction (stick built, modular, or manufactured) home.
 Purchase or pay off a site as part of a new construction package.
 Purchase and improve an existing home. Improvements must be complete before a loan
note guarantee will be issued. Exception: Escrow accounts are allowed for weather delayed
exterior repairs only.
 Include eligible loan fees, including legal fees, title services, and eligible closing costs.
 Refinance existing Section 502 Direct and Guaranteed loans. If only the principal balance
and the guarantee fee will be financed, no new appraisal is required. If the applicant wishes
to include eligible closing costs into the loan, a new appraisal is required. A new appraisal is
always required for Section 502 Direct loan refinances.
 The maximum loan amount is 100 percent of the appraised value plus the upfront
guarantee fee.

Joel Lobb (NMLS#57916)Senior  Loan Officer
502-905-3708 cell
502-813-2795 fax
jlobb@keyfinllc.comKey Financial Mortgage Co. (NMLS #1800)*
107 South Hurstbourne Parkway*
Louisville, KY 40222*

Credit Requirements for A Kentucky Rural Housing RHS Mortgage Loan

2013 Credit Requirements for A Kentucky Rural Housing RHS Mortgage Loan  Kentucky First Time Home Buyers---Zero Down Loans Still Exist
  • · Credit report must match GUS Findings.
  • · Must not be older than 120 days on the date of closing for existing properties and 180 days for proposed and new construction.
  • · Must contain complete information provided by all three repositories.
  • · The credit report must show the following three required FICO scoring models for the report to be valid with Platinum Mortgage, Inc.:

1. Equifax Beacon 5.0

2. Transunion FICO Risk Score, Classic 04

3. Experian/Fair Isaac Risk Model V2.

  • · Must reflect a minimum of 1 score per borrower.


GUS Approved: Each credit report must contain 2 acceptable tradelines with at least 12 month history and last active within the last 24 months (see below regarding acceptable tradelines).

Manual Underwrite: As determined acceptable by the underwriter.

  • · If more than one score is supplied by the same repository, the lesser of the scores will be used.
  • · Determining Qualifying Credit Score:

o Middle of 3

o Lower of 2

o If only one score is provided, that score is the qualifying credit score for that borrower.

Minimum credit score for:

  • · Manual Underwrite = 660
  • · GUS Approval = 660



  • · Court-ordered payments should be documented by a copy of the court order.
  • · Borrower(s) must have an acceptable existing repayment plan for any arrearages and proof of 12 months on time payments, and/or be required to pay account in full prior to, or at closing.
  • · See Collections/Chargeoffs for additional requirements if there are arrearages.
  • · If the borrower is a co-signer on an account paid by a 3rd party, the liability may only be excluded from the borrower debt ratios if evidence the primary obligor has been making the payments on time on the debt for a minimum of 12 months can be obtained.
  • · Court-ordered assignment of debt should be documented by a copy of the court order. Must have 12 months cancelled checks from the payer of the court ordered debt in order to exclude from the debt ratio.


  • · Section 1980.345(c)(1)(ii) requires all previous mortgage liabilities disposed of through a sale, trade, or transfer without a release of liability, to be included in the debt ratio calculation unless evidence can be obtained to confirm the remaining party has made payments over the last 12 months.
  • · In divorce settlements when one person retains ownership of a residence as a result of the proceedings, it does not imply that the person relinquishing ownership is automatically released of the financial liability associated with an existing mortgage debt. The divorce decree along with a release of liability from the mortgage creditor must be presented as evidence that an applicant is no longer legally responsible for the mortgage payment. If no release of liability is granted by the creditor then the applicant remains legally obligated for the debt. Quit claim deeds do not remove liability for mortgage debts.
DEFERRED INSTALLMENT DEBT May not be omitted from debt ratio. If the credit report does not reflect a monthly payment due at the end of the deferment period, the lender may request a copy of the applicant’s payment letter, or utilize the industry standard of estimating student loan payments as 1% of the loan balance.
NON-REIMBURSED EMPLOYEE EXPENSES If the borrower claims any non-reimbursed employee expenses (IRS Form 2106 or 1040 Schedule A), the borrowers monthly income should be reduced by the annualized monthly average.
BUSINESS DEBT IN BORROWER’S NAME When the account in question does not have a history of delinquency, the debt may be excluded with satisfactory evidence the obligation was paid out of company funds (such as 12 months cancelled company checks). If the account in question has a history of delinquency, the full debt obligation must be included in the borrower’s debt ratio.
FINANCED PROPERTIES Additional financed properties are generally not permitted as borrower may not own any other suitable housing at time of closing.
DEBTS WITH <6 REMAINING PAYMENTS The total debt ratio should include revolving debt regardless of when the debt will be retired. Installment loans will only be considered if the debt will be retired in more than six months. However, if the monthly payment on the debt is substantial, the payment will also be included in long term debt. The GUS system will automatically exclude debt that is eligible to be excluded. If not excluded by GUS the debt must be included in the debt ratio.
“PAYING DOWN” ACCOUNTS Not permitted. Settlement offers will not be considered as proof of balance
SETTLEMENT OFFERS Are acceptable on accounts that will be paid in full at closing as long as the offer is in writing from the creditor reporting on the credit report.
PAST DUE ACCOUNTS (NOT A COLLECTION OR CHARGE OFF) Recent derogatory credit >1×30 within the previous 12 months is not permitted unless approved by GUS. All past due accounts must be current at time of closing.
  • · No accounts converted to Collection/Charge off in previous 12 months allowed, unless approved by GUS.

GUS Approved:

  • · Medical Collections/Charge offs are not required to be paid.
  • · Other Collections/Charge offs, if >24 months, not required to be paid, otherwise accounts must be paid in full prior to, or at, closing.

Manual Underwrite:

  • · Medical Collections/Charge offs are not required to be paid.
  • · Other Collections/Charge offs must be paid in full prior to, or at closing.

Any unpaid Collections/Charge offs will require a satisfactory letter of explanation from the borrower.

OUTSTANDING FEDERALLY INSURED OR GUARANTEED DEBT Borrower(s) must have an acceptable existing repayment plan (minimum of 12 months), and/or be required to pay account in full prior to, or at closing. Borrower must also be cleared through CAIVRS.
  • · Must be paid at, or prior to, closing.
  • · Borrower(s) may not have any new Judgments/Liens within the previous 12 months, unless approved by GUS.
BANKRUPTCY (ALL) 3 years seasoning required from Discharge or Dismissal date.
FORECLOSURE 3 years seasoning required.
DEED-IN-LIEU OF FORECLOSURE 3 years seasoning required.
SHORT SALES 3 years seasoning required.
COMPENSATING FACTORS Some compensating factors include:

  • · Conservative use of credit
  • · Minimal increase in borrower’s housing expense
  • · Substantial cash reserves after closing
  • · Credit score >660
  • · Low total debt ratio (does not compensate for high housing ratio)
MULTIPLE RISK LAYERING Multiple risk layering is not allowed on manually underwritten loans:

  • · Payment Shock (>100%)
  • · Ratio Waiver
  • · Credit Waiver
  • · Credit Score <660
  • · Short Duration of Employment (less than 12 months employment with current employer)
Joel Lobb (NMLS#57916)
Senior  Loan Officer
502-905-3708 cell
502-813-2795 fax
jlobb@keyfinllc.comKey Financial Mortgage Co. (NMLS #1800)*
107 South Hurstbourne Parkway*
Louisville, KY 40222*


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