Tag: GUS

RHS increase in Annual Fee for Kentuky Rural Development Loans October 1, 2014

RHS Increase in Annual Fee for Rural Housing Mortgage Loans in Kentucky
RHS Increase in Annual Fee
Kentucky USDA Mortgage Lenders must underwrite the loan using an annual fee of .5 percent and resubmit the application to RD in GUS after October 1, 2014

On Wednesday, October 1, 2014, the annual fee for both purchase and refinance loans will increase from .4 percent to .5 percent. The Guaranteed Underwriting System (GUS) has been updated to allow lenders to select and underwrite at either the .4 percent or .5 percent annual fee structure. Lenders should communicate with Rural Development (RD) offices to understand current processing time-frames.

GUS “Final Submissions” with an annual fee of .4 percent, that areissued a conditional commitment by RD prior to the close of business on Tuesday, September 30, 2014, will not be affected by the annual fee change. Those submissions that are not issued a conditional commitment by RD prior to the close of business on Tuesday, September 30, will be affected by the annual fee change.

Lenders must underwrite the loan using an annual fee of .5 percent and resubmit the application to RD in GUS.

Joel Lobb
Senior  Loan Officer

(NMLS#57916)
American Mortgage Solutions, Inc.
800 Stone Creek Pkwy, Ste 7,
Louisville, KY 40223
 Fax:     (502) 327-9119
 
 Company ID #1364 | MB73346

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Kentucky USDA Guaranteed loans applicant’s household income cannot exceed adjusted annual income limits

Kentucky USDA Guaranteed loans applicant’s household income cannot exceed adjusted annual income limits


7 CFR 1980.347 Annual Income

To participate in the SFHGLP, an applicant’s household income cannot exceed adjusted annual
income limits as set forth in 7 CFR 1980 1980.345(a). The calculation of annual income, as set forth in
7 CFR 1980.347, require the lenders to document the annual income for all adult members of the
household. All sources of income in the household must be considered in the determination, regardless
of whether the household member is a party to the note. Current verified income should be used to
estimate the household’s annual income over the ensuing 12 months, unless there is verified evidence
of a likely change in circumstances, or historical data which does not support current income. Lenders
should use the gross amount before any payroll deductions of base wages and salaries, overtime pay,
commissions, fees, tips, bonuses, housing allowances, income from deposit accounts, investments and
other assets, unemployment benefits and other compensation for personal services of all adult members
of the household.
Once the income source is verified, the lender must project the expected income from this source for
the next 12 months. This calculation is used only to determine the household eligibility for the
SFHGLP. This calculation does not necessarily represent stable and dependable income for
repayment of the loan. This projection should be based on a comparison and analysis to establish
earning trends and avoid underestimating annual income for the household. The following methods
represent examples of calculating annual income. The lender should choose the most representative
calculation method which most accurately reflects the applicant’s income to be received during the
next 12 months and validated by supporting documentation.

Income Type Definition of Income Example Guidance Example Calculation

Straight Income Straight is based upon the
wage or benefit amount
and converted to the annual
equivalent.
For example, if an applicant is
paid hourly and works 40 hours
per week, income would be
derived by multiplying the hourly
wage by 2080 hours (for part-time
For example:
$20/hour x 2080 hours per year
(40 hours/week x 52 weeks/year)
= $41,600.
Overtime paid at $30/hour x 50 employment use anticipated
annual hours). If paid weekly, the
weekly wage is multiplied by 52
weeks. Bi-weekly paid
employee’s wages are multiplied
by 26 weeks and a monthly wage
is multiplied by 12 months.
hours/year = $1,500.
Total wages in this example:
$43,100.
Averaging Income Averaging income is
permissible if reported on
the pay stubs or benefit
statements for the last 30
days and covert to the
annual equivalent.
An example is of an applicant
who has submitted income
records for the period of the last
30 days.
For example:
The gross income received in the
past 30 days is $5,192 as verified
by pay stubs.
Multiply $5,192 by 12 to arrive at
the annual income of the
household.
$5,192 x 12 = $62,304.
Year-to-date
(YTD)
Year-to-date (YTD) gross
earnings divided by the
YTD interval, which is the
number of calendar days
elapsed between January 1
of the current year and the
date of the most recent
income verification,
multiplied by 365.
The YTD interval should be
closely examined to determine the
appropriateness of this method.
Lenders should not use this
method if the duration of the
YTD interval is insufficient, i.e.,
too short, to make a credible
annual projection. Generally,
there should be at least 3 months
of earnings when using this
method.
For example:
The applicant worked 230 days to
date (e.g. August 18) and income
earned during that time period is
$40,000.
Divide $40,000 by 230 days;
arrive at $173.91/day, then
multiply by 365 to arrive at the
annual income of $63,477.15.
Historical Income Historical income as
reported on the previous
year’s tax return is used.
Consider the time of year and the
reasonableness of this approach.
For example, if the income
documentation submitted is for
January of the current calendar
year, the historical data from the
previous year may be utilized.
For example:
The date is January 15. The most
representative income for the
applicant is the previous 12
months. The applicant earned
$60,000, in the previous tax year.
The applicant worked all year.
The anticipated annual income for
the ensuing year is $60,000.

7 CFR 1980.348 Adjusted Annual Income

Deductions may be made to determine the adjusted annual income which will be used to determine
eligibility. Adjustments to the annual income determination, in accordance with 7 CFR 1980.348,
include:
 deductions for dependants
 deductions for child care expenses
 deductions for qualifying elderly household member(s)
 deductions for the care of household members with disabilities
 deductions for medical expenses related to elderly households
To be eligible, the adjusted annual income must be within the applicable published income limits of
the county in which the subject property is located. Current income limits may be found at

http://eligibility.sc.egov.usda.gov/eligibility/.

 

Attachment A to this AN is provided as an aid to document eligibility of the household for the
SFHGLP. Completion of the attachment will demonstrate the lender has accurately computed
eligible income for the household. The determination of eligible household income should be
retained in the lenders permanent case file in accordance with 7 CFR 1980.347.

Documentation of Eligible Household Income

The lender’s permanent case file must retain supporting documentation that Agency guidelines have
been met. Attachment A provides lenders a format for documenting their income determination from
the various household income sources. An example of a case study of household income and an
example of a completed income determination follows the attachment.
The lenders calculation and determination of eligible household income should be submitted for all
requests for guarantee in accordance with 7 CFR 1980.353(c).
Lenders who utilize the Agency’s automated underwriting system are not required to submit
documentation of the household’s income verifications when receiving an “Accept” underwriting
recommendation, except as otherwise provided below. All documentation will be retained in the
lender’s permanent loan file for audit purposes.
The loan application package forwarded to the Agency must include copies of all income verification
documents from all sources/types of income from all household members in the following cases:
 Manually underwritten loans that were not submitted through the Agency’s Guaranteed
Underwriting System (GUS).
 Manually underwritten loans receiving a “Refer” or “Refer with Caution” underwriting
recommendation when utilizing GUS.
Lenders receiving an “Accept” underwriting recommendation do not need to submit income
verifications except when the GUS underwriting findings indicate the loans were selected for a quality
control review (Lender Condition 31063 on the GUS Underwriting and Findings Report). Lender
Condition 31063 is a quality control message requiring lenders to submit documentation supporting
their commitment request. The GUS system randomly selects final applications receiving an “Accept”
underwriting recommendation. When triggered, the lender should submit documentation noted on
Attachment C to this AN when requesting a commitment. This quality control measure ensures
lenders are accurately identifying, verifying, calculating and documenting eligible household income.
It also validates the integrity of the lender’s data in GUS.

Confirming Lender’s Determination of Eligible Household Income

For manually underwritten loans, agency staff should recalculate the lender’s determination of eligible
income if the lender’s adjusted annual income calculation is within 10 percent of the income limit. Agency staff will utilize Attachment B to this AN to record the Agency’s calculation. Attachment B
will be imaged with essential documents in the Agency’s Imaging Repository.
Lender Action:
Identify, Verify, Calculate and Document Repayment Income to Qualify the Loan
7 CFR 1980.345 Adequate and Dependable Income
Repayment income often differs from annual adjusted income; repayment income must be treated
independently of the household’s adjusted annual income. Lenders use repayment income to
determine if applicant(s) have sufficient income to repay the mortgage in addition to other recurring
debts. To compute repayment income, the lender will count only the income of persons who will be
parties to the note.
The anticipated repayment income, and its likelihood of continuance, must be established to determine
the applicant’s capacity to repay the loan. Income from any source that cannot be verified, is not
stable, or cannot be reasonably expected to continue for at least the next three years, must not be used
in calculating the applicant’s repayment income. The lender must determine the sources of all income
and that the income is stable. There is no minimum length of employment to consider the income as
adequate and dependable. However, the lender must verify the applicant’s employment for the most
recent two full years and verify that the applicant’s income has been and will be stable. In most
instances, a two-year history of receiving income is required in order for the income to be considered
stable. The lender should focus on the applicant’s occupation, tenure, past employment history and
probability of continuation.
Many income sources such as commission, bonus, overtime, tips and income from a second job should
have a documented two year history. If less than a two year history is utilized for qualifying the loan,
the lender must document in their underwriting analysis a credible basis for determining the income as
stable and dependable.
Non-employment income sources such as child support, alimony, public assistance payments, social
security, retirement, etc., can be considered stable to the extent that they are reasonably expected to
continue for at least the next three years.
Generally, income from self-employment is considered stable and dependable if the applicant has been
self-employed for two or more years documented by not less than two years of income tax returns.
Projected or hypothetical income from any source is not acceptable for repayment purposes.
The Guaranteed Underwriting System (GUS) does not evaluate the stability and dependability of
repayment income in the overall risk evaluation. The lender must determine the history and stability of
earnings prior to entering repayment income into GUS. Lender Action:

Determination and Documentation of Repayment Income

The lender’s permanent case file must retain supporting documentation stable and dependable income
in accordance with

Attachment A provides lenders a format for documenting the various sources and analysis supporting
the adequate and dependable income calculations.
The loan application package forwarded to the Agency must include copies of all income verification
documents supporting the calculation and determination of stable and dependable income for all
parties to the note in the following cases:
 Manually underwritten loans that were not submitted through GUS.
 Manually underwritten loans receiving a “Refer” or “Refer with Caution” underwriting
recommendation when utilizing GUS.
Authorized lenders receiving an “Accept” underwriting recommendation do not submit income
verifications except whether GUS underwriting findings indicate the loan was selected for a quality
control review (Lender Condition 31063 on the GUS Underwriting and Findings Report) Lender
Condition 31063 is a quality control message requiring lenders to submit documentation supporting
their commitment request. The GUS system randomly selects final applications receiving an “Accept”
underwriting recommendation. When triggered, the lender should submit documentation noted on
Attachment C to this AN when requesting a commitment. This quality control measure ensures
lenders are accurately identifying, verifying, calculating and documenting stable and dependable
income when qualifying the loan. It also validates the integrity of the lender’s data in GUS.

Confirming Lender’s Determination of Repayment Income

For manually underwritten loans, agency staff should recalculate the lender’s determination of
repayment income for manually underwritten loans, during the review process, if the lender’s
repayment ratios are within 10 percent of the maximum debt ratio limits. Repayment ratios greater than
26.0 percent of principal, interest, taxes and insurance (PITI), and/or greater than 37.0 percent total
debt ratio (TD) require Agency staff to recalculate repayment income. Agency staff will utilize
Attachment B to this AN to record the Agency’s calculation. Attachment B will be imaged with
essential documents in the Agency’s Imaging Repository. Agency Action:

Kentucky USDA Rural Housing Loan Program

Kentucky USDA Rural Housing Loan Program

Kentucky First Time Home Buyers---Zero Down Loans Still Exist

 

 

LOAN TERM: 30 year only

LOAN FEATURES:

 Maximum LTV– 100%No down-payment required if not financing guarantee fee.
 Guarantee Fee of 2% for purchase transactions (2%for refinances) can be
financed in the loan amount.
For existing site built single family. (More than 1 year old or previously lived in) and new
construction builder to borrower.
Full appraisal is required, appraiser must be HUD approved. (Note exception under
refinance.)

Effective October1, 2011 for commitments issued through USDA on all purchase
transactions, an up front guarantee fee equal to 2% of the loan amount and an annual fee
of 0.4%of the unpaid principal balance will be charged. Refer to the link below for
additional information through USDA. The upfront guarantee fee will be 2% for
refinances (with 0.4% annual fee) for commitments issued by USDA on 10/1/2012
and after (annual fee is collected monthly as part of regular mortgage payment).

USDA Frequently Asked Questions Implementation of Annual Fee
PROPERTY

: Must be in a rural area as determined by USDA Rural Development. (Website–

http://eligibility.sc.egov.usda.gov)Minimum loan amount $75,ooo
No Condo’s.
No Manufactured homes.
Property must be in good condition. “As is” appraisal not acceptable when repairs
listed.
Homes with in-ground pools are eligible on a case-by-case and value of pool must be
subtracted as no financing available for pools. N/A on refinance loans.
Land value not to exceed 30% of total value.
Property must have public, state or county maintained roads and property must have
direct access to street or road.
If property is located in a subdivision, then subdivision must be approved by local,
regional, state or federal agency. Need documentation to support.
All improvements– repairs must be complete prior to closing, no escrow holdbacks
At closing.
All appraisers must be currently approved by FHA. See most current list dated
October1, 2009.
All electrical, plumbing, heating, water and waste disposal systems must meet HUD
requirements. If applicable, home Inspection report required by a qualified inspector.
All wells and septic systems must meet HUD requirements and must be cleared by
underwriter prior to closing.USDA Parameters 2 12/17/2012
PROPERTY:
(Continued)
Termite inspection required as determined by Rural Development Conditional
Commitment and must be cleared by underwriter prior to closing.
The property must be non-farm, non-income providing tract.
Appraiser to certify property meets current requirements of HUD Handbooks–
150.2 and 4905.1.
If the builder is providing a one-year warranty for new construction, the following
inspections are required: framing inspection, footing inspection and final inspection. If
the builder is providing a 10-year warranty, only the final inspection and the thermal
certification are required.
If property is not located in a platted subdivision, a survey will be required.
Appraisals are valid for 6 months. If over 6 months a new appraisal is required.
Properties having community wells or sewage systems will require a state operating
permit, evidence of compliance with the Safe Drinking Water Act and Clean Water
Act and a legal binding contract to enforce the obligation of the operator to provide
satisfactory service at reasonable rates-must be maintained in our file.
 Property must be held in Fee Simple, no leaseholds.

INELIGIBLE
AREAS:
See USDA website for eligible areas. http://eligibility.sc.egov.usda.gov

INCOME:
Adjustments to income– $480.00 per child < 18 or 18+ if fulltime student,
100% child care paid.
Borrower must be within income limits. Refer to:
http://eligibility.sc.egov.usda.gov for validation.
Salary Income– VOE – 24 month-history plus most recent pay-stub or 2 paycheck stubs
covering most recent 30 days and W2 for previous 2 years and processor
certification of employment within 10 business days of closing. Any gap of
employment beyond one (1) month must be explained by borrower.
Self-employed and Commissioned borrowers or employed by a relative– 2-year tax
returns required to reflect income is stable and will continue.
Part-time jobs–24-month history required.
Alimony, child support– must have received for 12 months and will continue for 3
years after application. Must document receipt for last 12 months consecutive
Reflecting no breaks in income.
3-year continuation for social security income, disability income, retirement income, etc.
Borrower’s adjusted annual income cannot exceed the appropriate moderate income
limit. Refer to http://eligibility.sc.egov.usda.gov.
All household income must be included in the total eligibility income, even if not on the
loan, however, for qualifying purposes, use the income for borrowers signing
the Note.
All qualifying income must be stable and likely to continue for the next 3 years.
Significant increase /decrease must be analyzed closely to make sure income used
to qualify will continue.

All collections and judgments must be satisfied unless the total is <$1,000 and
The accounts are at least 12 months old.
Credit 640 minimum– No Exceptions. All borrowers must have a minimum of 2 credit
scores (borrower with one credit score is unacceptable). Borrower’s
Ability to pay on time must be analyzed regardless of credit score. No collections in
last 12 months.
Borrower must not have any late rent/mortgage payments in last 24 months.
Except for obligations specifically excluded by state law, the debts of non purchasing
spouse in a community property state must be included in the qualifying ratios. This
must be documented by a credit report on the non-purchasing spouse. The GUS system
will only pull credit for applicant, so this must be pulled outside of GUS.
Previous Mortgage– all previous mortgages disposed of through a sale, trade or
transfer without a release of liability must be included in the debt ratio
calculation unless you can provide evidence the party other than our borrower
has made payments over the last12 months. In a divorce settlement, a divorce
decree, along with a release of liability from the mortgage credit or must be
presented as evidence reflecting our borrower is no longer legally responsible for
the mortgage payment. If this cannot be provided, you must include that debt in the
qualifying ratios. Quit Claim Deeds do not remove liability for mortgage debts.
Borrower cannot be delinquent on any tax or non-tax debts and there can be no
judgment liens against the borrower’s property for a debt owed to the Federal
Government. Crescent to check HUD’s Credit Alert Voice Response System for
each borrower.
3 years since Chapter7 and Chapter 13 discharged 1 year.
 Deferred student loans must be included indebt ratio. Calculate 1% of outstanding
balance.

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UNDERWRITING:

 

Age of credit/income docs – within 90 days of Note date.
All loans must be approved through USDA, GUS System
Debt Ratio– 29% PITI / 41% Total Debt. Exception to 45% with strong comp.

All debts over 6 months must be in debt ratio. All co-signed debts must be included in
debt ratio unless you can provide evidence someone other than the borrower has made
payment for the last 12 months.
Gift letters OK.
6% of sales contract for seller contributions.
Escrows required–no exceptions.USDA Parameters 4 12/17/2012
UNDERWRITING:
(Continued)
Closing costs maybe included in the loan up to appraised value when the sales contract is
lower than the appraised value. Discount points cannot be financed unless
borrower’s income is in the low income household bracket as defined by Rural
Development, underwriter to establish.
The borrower must not have sufficient assets to meet the down payment and closing cost
requirements associated with a conventional uninsured mortgage (LTV<80%).
.
Secondary financing not allowed.

Non-occupant co-borrowers are not allowed.

Borrower cannot own other homes within local commuting area.

No lates in last 12 months.

 All student loan debt, including loans in repayment AND deferred, must be in qualifying
ratio.

 Loans secured against personal assets, such as a 401k account retirement or other liquid
asset are not considered in the debt ratio.

 The “Accept” recommendation in GUS will be downgraded to a “Refer” and manual
underwrite will apply when all debts on the application are not verified on the credit
report. This may require different documentation and a full underwrite through the
USDA office. Risk layers – (payment shock, credit waiver, ratio waiver) can only allow
1 risk layer and the file must have strong, documented compensating factors.

REFINANCE: RATE/TERM (Non-Streamlined) for Kentucky USDA Rural Housing Loans

 OnlyKentucky  USDA Guaranteed loans eligible (no Direct loans)
 Current appraisal required
 Closing costs, lender fees and the new guarantee fee may be financed in the new loan to
the extent that the new appraisal supports the loan amount (100% max LTV before
guarantee fee added).
 Unpaid fees, such as late fees due the servicer, are not eligible to be included in the new
loan amount.
 GUS should be run with favorable resultsUSDA Parameters 5 12/17/2012
REFINANCE:
(Continued)
 Up front Guarantee fee of 2% and annual fee of 0.4% apply.
 Subject property must still be the borrower’s primary residence
 Loan must have been fully documented, underwritten and originated in compliance with
RD instruction 1980-D, supplemented by published Administrative Notices.
 Any late mortgage payments within the past 36 months on the existing USDA loan, with
emphasis on the most recent 12 month period, must be analyzed and addressed by the
lender to determine if any late payments were a disregard for financial obligations, an
inability to manage debt, or factors beyond the control of the borrower when considering
the underwriting decision.
 Maximum ratios 29/41
 30 year fixed rate loan only
 Interest rate must be lower than the existing loan to be refinanced
 If the final settlement statement shows nominal cash back to the borrower, that amount
must be applied as a principal curtailment. The borrower can receive no cash back from
the transaction.

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KENTUCKY USDA RURAL HOUSING STREAMLINED REFINANCE

 Only USDA Guaranteed loans eligible (no Direct loans)
 The value of the new mortgage loan request can be supported by the original appraisal
report obtained in connection with the existing mortgage.
 The maximum loan amount cannot exceed the principal balance of the existing loan to be
refinanced, plus the guarantee fee. The new loan amount cannot include any accrued
interest, closing costs or lender fees.
 Loan must be manually underwritten (GUS is not run).
 Up front Guarantee fee of 2% and annual fee of 0.4% apply.
 Subject property must still be the borrower’s primary residence
 Loan must have been fully documented, underwritten and originated in compliance with
RD instruction 1980-D, supplemented by published Administrative Notices.
 Any late mortgage payments within the past 36 months on the existing USDA loan, with
emphasis on the most recent 12 month period, must be analyzed and addressed by the
lender to determine if any late payments were a disregard for financial obligations, an
inability to manage debt, or factors beyond the control of the borrower when considering
the underwriting decision.
 Maximum ratios 29/41
 30 year fixed rate loan only
 Interest rate must be lower than the existing loan to be refinanced
 If the final settlement statement shows nominal cash back to the borrower, that amount
must be applied as a principal curtailment. The borrower can receive no cash back from
the transaction.
Please note that the USDA Refinance Pilot program has different guidelines.
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Joel Lobb (NMLS#57916)
Senior  Loan Officer
502-905-3708 cell
502-813-2795 fax
jlobb@keyfinllc.com

Key Financial Mortgage Co. (NMLS #1800)*
107 South Hurstbourne Parkway*
Louisville, KY 40222*