Tag: Underwriting

Debt Ratio Waivers and Compensating Factors for Kentucky USDA Rural Housing Development Loans for 2014

Kentucky First Time Home Buyers---Zero Down Loans Still Exist
502 USDA, guarantee loan, Kentucky Rural Development Frequently Asked Questions (Real Estate Professionals), rhs loans kentucky, Rural Housing Guidlines, USDA, USDA Rural Housing Guidlines

 Kentucky USDA Rural Housing Development Loans for 2014

Effective May 1, 2013, Agency concurrence of a debt ratio may be granted if all of
the following conditions are met:

1. The PITI is between 29 and 32 percent or the TD ratio is between 41and 44
2. The credit score of all applicant(s) is 680 or greater; and
3. At least one of the acceptable compensating factors listed below is identified and
supporting documentation is provided to the Agency.

Acceptable Compensating Factors and Supporting Documentation:

 The proposed PITI (proposed housing expenses) is equal to or less than the
applicant’s current verified housing expense for the 12 month period preceding loan
application. Verification of housing expenses may be documented on a Verification
of Rent (VOR) or credit report. The VOR or credit report must include the actual
payment amount due and report no late payments or delinquency for the previous 12
months. Rent or mortgage payment histories from a family member will not be

 Accumulated savings of liquid assets or cash reserves available post loan closing are
equal to or greater than 3 months of PITI payments. A Verification of Deposit or two
consecutive bank statements, dated within 45 days of loan application, that document
the average balance held by the applicant is required. Cash on hand is not eligible for
consideration as a compensating factor.

 The applicant(s) (all employed applicants) has been continuously employed with their
current primary employer for a minimum of 2-years. A “Request for Verification of
Employment” (VOE) (Form RD 1910-5, equivalent HUD/FHA/VA or Fannie Mae
form, or other equivalent), or VOEs prepared by an employment verification service
(The Work Number, etc.) must be provided. This compensating factor is not
applicable for self-employed applicants.

Kentucky RHS Mortgage Rates
Kentucky RD Mortgage Rates for the Ky USDA Guarantee Home 502 Program








Debt Ratio Waiver Request and Agency Approval:

Debt ratio waivers must be requested and documented by the approved lender, otherwise
the loan file will be denied. The Agency will review the debt ratio waiver request when
all of the following conditions are met:

1) The lender requests Agency concurrence with the debt ratio waiver by submitting
a signed underwriting analysis that captures one or more of the above
compensating factors. Lenders may utilize Fannie Mae 1008 / Freddie Mac 1077,
“Uniform Underwriting and Transmittal Summary,” or similar form;

2) The PITI is between 29 and 32 percent or the TD ratio is between 41 and 44

3) The underwriting credit score is 680 or greater for all applicants; and

4) The lender provides evidence of the compensating factor(s).

The Agency will notify the lender of concurrence with the debt ratio waiver request by
issuance of Form RD 1980-18, “Conditional Commitment for Single Family Housing
Loan Guarantee.” The Agency must check the ratio waiver box in the Guaranteed Loan
System for manually underwritten loans or on the USDA Administration page in GUS for
“Refer” or “Refer with Caution” underwriting recommendation files. All supporting
documentation of the compensating factors must be imaged as an essential document in
the Rural Development Imaging Repository.


There will be no exceptions to the defined ratio thresholds and minimum credit score
requirements. Only the compensating factors listed in this AN with supporting
documentation will be considered for Agency concurrence with a debt ratio waiver.

This AN does not apply to any GUS loan file that receives an “Accept” underwriting


Joel Lobb (NMLS#57916)
Senior  Loan Officer
American Mortgage Solutions, Inc.
 800 Stone Creek Pkwy, Ste 7,
Louisville, KY 40223
(: (502) 905-3708 | 7 Fax: (502) 327-9119|

 Company ID #1364 | MB73346


This website is not acting on behalf of or at the direction of HUD/FHA, USDA, KHC,  VA  or the Federal Government.

HUD Settlement Cost Booklet | CHARM Booklet
Company NMLS Consumer Access Page

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


 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

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

: 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
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
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.

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

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









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
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

 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
 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.






 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.

Joel Lobb (NMLS#57916)
Senior  Loan Officer
502-905-3708 cell
502-813-2795 fax

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

Credit Scores and the Kentucky USDA Rural Development Loan Program

Credit Scores and the  Kentucky  USDA Rural Development Loan Program


The Kentucky USDA Rural Development Loan Program is by far the most credit score friendly loan program currently available. While USDA is willing to work with scores lower than 640 most lenders won’t. Thus, pragmatically the minimum credit score required by USDA is 640.


For Kentucky homebuyers with a minimum credit score of 640 lenders may streamline the credit approval process normally required as part of the underwriting process. This means that a borrower:


With a lack of credit “depth” will not have to document non-traditional credit items such as utility or insurance payments
A negative past credit history may allow the Underwriter to not request letters of explanation for the cause of the past challenges
Collection accounts can remain open provided the Underwriter believes it unlikely that the account will eventually turn into a judgment

However, USDA is not willing to overlook certain overtly negative credit items even when the credit scores are over 640. For instance borrowers with any of the following adverse past credit should not expect to obtain credit approval using the Kentucky USDA loan program:


Foreclosure or short sale within the last 3 years
Chapter 7 bankruptcy discharged within the past 3 years
Chapter 13 bankruptcy debt restricting plan completed within the last 12 months
Late mortgage payments within the last 12 months
Applicant or co-applicant delinquent on a federal debt; such as taxes, student loans, or previous agency loan (i.e. VA loan in which the eligibility was forfeited due to a foreclosure)

Kentucky USDA may be willing to give a borrower an exception to a past bankruptcy or foreclosure prior to the three year period provided the borrower can document the cause of the past negative credit experience as being related to an illness or job loss and unlikely to reoccur.


Once the credit score exceeds 680, Kentucky USDA allows this score to be considered as justification for allowing the borrowers debt-to-income-ratio to exceed the target ratios of 29% for the housing costs and 41% for the total debt ratio. Frequently USDA will approve loans where the housing ratios are in the high 30% range and total debt ratios are in the high 40% range.


Bottom line the Kentucky USDA Rural Development Loan Program is more flexible in approving a perspective borrower than any other loan program. But like any loan program today, the Loan Officer shouldn’t assume that this level of credit flexibility will result in an automatic positive underwriting decision if the Underwriter doesn’t feel strongly that the borrowers chance of success at homeownership is strong.


Downpayment Requirement
No down payment is required
If borrower has adequate assets (i.e. 20% of the property purchase price) to obtain conventional financing the borrower may be ineligible for the USDA Rural Development Loan


Eligible Properties
Must be in an eligible USDA Rural Development Location
Owner-occupied properties
Existing attached & detached single family residences
New construction with permanent financing only
2-4 unit properties
PUD’s (i.e. Townhomes)
Condo-units. HUD, VA, FNMA or FHLMC approved project


Ineligible Properties
Manufactured homes
Log cabin homes
Single Family Homes:
The property must be “Modest” residential lot that can’t be subdivided
Land value exceeds 30% of the appraised value


Maximum Income Amount
County specific. Reference the USDA website for adjusted household income limits


Maximum Loan-To-Value
Maximum loan-to-value is 103.50%


Maximum Mortgage Amount
With in-ground swimming pool


Minimum Credit Score
Middle Credit Score – 640 for each applicant


Monthly Mortgage Insurance Premium (MIP) Requirements
0%. USDA Loan doesn’t require a monthly mortgage insurance premium


Multiple Property Ownership
USDA Rural Development primarily doesn’t allow applicants to own other properties
Exceptions include when the other property owned is:
Not owned in the local commuting area as the new property; or
Not structurally sound and/or functionally adequate


Occupancy Type
Owner occupied only


Qualifying Ratios
29/41% debt-to-income (DTI) – Target
39/49% debt-to-income (DTI) – With 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 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 applicants profession
Trailing spouse income – as a result of a job transfer, the house is being purchased, prior to the secondary wage-earner obtaining employment. If the secondary wage-earner has an established history of employment and has a reasonable chance to obtain new employment in the area
Low total debt


Seller Contribution
Unlimited Contribution towards closing costs, prepaids, discount points, buydown fees, and upfront Commitment Fee


Transaction Types
Rate/Term Refinance on existing USDA loan


Kentucky USDA Rural Development County Specific Income and Location Guidelines


County Max Household Income Location Restrictions
  1 – 4 5 + People
Adair $74,050 $97,750 100% Eligible
Allen $74,050 $97,750 Partially Eligible
Anderson $74,050 $97,750 100% Eligible
Ballard $74,050 $97,750 100% Eligible
Barren $74,050 $97,750 Partially Eligible
Bath $74,050 $97,750 Partially Eligible
Bell $74,050 $97,750 100% Eligible
Boone $79,950 $105,550 Partially Eligible
Bourbon $75,350 $99,450 Partially Eligible
Boyd $74,050 $97,750 Partially Eligible
Boyle $74,050 $97,750 100% Eligible
Bracken $79,950 $105,550 Partially Eligible
Breathitt $74,050 $97,750 100% Eligible
Breckinridge $74,050 $97,750 100% Eligible
Bullitt $74,050 $97,750 Partially Eligible
Butler $74,050 $97,750 Partially Eligible
Caldwell $74,050 $97,750 100% Eligible
Calloway $74,050 $97,750 Partially Eligible
Campbell $79,950 $105,550 Partially Eligible
Carlisle $74,050 $97,750 100% Eligible
Carroll $74,050 $97,750 Partially Eligible
Carter $74,050 $97,750 Partially Eligible
Casey $74,050 $97,750 100% Eligible
Christian $74,050 $97,750 Partially Eligible
Clark $75,350 $99,450 Partially Eligible
Clay $74,050 $97,750 Partially Eligible
Clinton $74,050 $97,750 100% Eligible
Crittenden $74,050 $97,750 100% Eligible
Cumberland $74,050 $97,750 Partially Eligible
Daviess $74,050 $97,750 Partially Eligible
Edmonson $74,050 $97,750 100% Eligible
Elliott $74,050 $97,750 Partially Eligible
Estill $74,050 $97,750 100% Eligible
Fayette N/A N/A Completely Ineligible
Fleming $74,050 $97,750 Partially Eligible
Floyd $74,050 $97,750 100% Eligible
Franklin $75,550 $99,750 Partially Eligible
Fulton $74,050 $97,750 Partially Eligible
Gallatin $79,950 $105,550 Partially Eligible
Garrard $74,050 $97,750 100% Eligible
Grant $74,050 $97,750 Partially Eligible
Graves $74,050 $97,750 100% Eligible
Grayson $74,050 $97,750 Partially Eligible
Green $74,050 $97,750 100% Eligible
Greenup $74,050 $97,750 Partially Eligible
Hancock $74,050 $97,750 Partially Eligible
Hardin $74,050 $97,750 Partially Eligible
Harlan $74,050 $97,750 100% Eligible
Harrison $74,050 $97,750 Partially Eligible
Hart $74,050 $97,750 100% Eligible
Henderson $74,050 $97,750 Partially Eligible
Henry $74,050 $97,750 Partially Eligible
Hickman $74,050 $97,750 100% Eligible
Hopkins $74,050 $97,750 Partially Eligible
Jackson $74,050 $97,750 100% Eligible
Jefferson N/A N/A Completely Ineligible
Jessamine $75,350 $99,450 Partially Eligible
Johnson $74,050 $97,750 100% Eligible
Kenton $79,950 $105,550 Partially Eligible
Knott $74,050 $97,750 Partially Eligible
Knox $74,050 $97,750 100% Eligible
Larue $74,050 $97,750 100% Eligible
Laurel $74,050 $97,750 Partially Eligible
Lawrence $74,050 $97,750 100% Eligible
Lee $74,050 $97,750 Partially Eligible
Leslie $74,050 $97,750 100% Eligible
Letcher $74,050 $97,750 Partially Eligible
Lewis $74,050 $97,750 100% Eligible
Lincoln $74,050 $97,750 Partially Eligible
Livingston $74,050 $97,750 Partially Eligible
Logan $74,050 $97,750 100% Eligible
Lyon $74,050 $97,750 Partially Eligible
Madison $74,050 $97,750 Partially Eligible
Magoffin $74,050 $97,750 100% Eligible
Marion $74,050 $97,750 100% Eligible
Marshall $74,050 $97,750 Partially Eligible
Martin $74,050 $97,750 Partially Eligible
Mason $74,050 $97,750 100% Eligible
Mccracken $74,050 $97,750 Partially Eligible
Mccreary $74,050 $97,750 Partially Eligible
Mclean $74,050 $97,750 100% Eligible
Meade $74,050 $97,750 Partially Eligible
Menifee $74,050 $97,750 100% Eligible
Mercer $74,050 $97,750 Partially Eligible
Metcalfe $74,050 $97,750 Partially Eligible
Monroe $74,050 $97,750 100% Eligible
Montgomery $74,050 $97,750 100% Eligible
Morgan $74,050 $97,750 Partially Eligible
Muhlenberg $74,050 $97,750 Partially Eligible
Nelson $74,050 $97,750 100% Eligible
Nicholas $74,050 $97,750 100% Eligible
Ohio $74,050 $97,750 Partially Eligible
Oldham $74,050 $97,750 100% Eligible
Owen $74,050 $97,750 Partially Eligible
Owsley $74,050 $97,750 100% Eligible
Pendleton $79,950 $105,550 Partially Eligible
Perry $74,050 $97,750 100% Eligible
Pike $74,050 $97,750 Partially Eligible
Powell $74,050 $97,750 100% Eligible
Pulaski $74,050 $97,750 Partially Eligible
Robertson $74,050 $97,750 100% Eligible
Rockcastle $74,050 $97,750 Partially Eligible
Rowan $74,050 $97,750 100% Eligible
Russell $74,050 $97,750 Partially Eligible
Scott $75,350 $99,450 100% Eligible
Shelby $79,800 $105,350 Partially Eligible
Simpson $74,050 $97,750 100% Eligible
Spencer $74,050 $97,750 Partially Eligible
Taylor $74,050 $97,750 100% Eligible
Todd $74,050 $97,750 Partially Eligible
Trigg $74,050 $97,750 100% Eligible
Trimble $74,050 $97,750 Partially Eligible
Union $74,050 $97,750 100% Eligible
Warren $74,050 $97,750 Partially Eligible
Washington $74,050 $97,750 Partially Eligible
Wayne $74,050 $97,750 100% Eligible
Webster $74,050 $97,750 Partially Eligible
Whitley $74,050 $97,750 Partially Eligible
Wolfe $74,050 $97,750 100% Eligible
Woodford $75,350 $99,450 Partially Eligible