Tag: Underwriting

Kentucky USDA Rural Housing Loan Program

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.

 
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.

 
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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