Source: 2016 KY USDA Rural Housing Income Limits for Kentucky Counties for the Guaranteed RHS Loan
Before applying for a Kentucky Rural USDA loan, it’s helpful to understand their requirement in more detail, so they’re explained further below. Loan requirements can change at any time.
1. Credit Requirements for a Kentucky USDA Mortgage When applying for a USDA home loan, the lender will pull the borrowers credit report from all three credit bureaus. This is called a tri-merge credit report. The lender then looks at credit scores and the credit history to determine if the applicant is eligible, credit-wise.
Eligible borrowers must to have a middle credit score of 640 or above with no late housing payments for at least one year. If the applicant had a bankruptcy or foreclosure in their 3 past years, they must show that an acceptable amount of time has passed since then over the 3 year period with no lates.
USDA loan credit requirements use the following conditions for approval:
- Middle FICO credit score of 640 or above. USDA will on paper say they go down to a 580 score but it is very difficult to get them approved and closed through the automated process of getting loans approved in the modern day mortgage era.
- All bankruptcy payments made on time during the last year (Chapter 13).
- At least three years passed since a foreclosure or bankruptcy (Chapter 7).
Check Your Credit Eligibility for a USDA Loan
2. Income Requirements –
USDA mortgages are unique in that they have minimum income requirements as well as maximum income limits that borrowers must meet. Simply put, there is a ‘sweet spot’ in between the lower and upper limits applicant’s must fall between. To see if a borrower falls within the ‘sweet spot’, USDA employs debt-to-income ratios (DTI) to check the minimum limits and set maximum household limits for various areas around the country. All income must be documented properly though pay stubs, W-2’s and tax returns, otherwise it doesn’t count.
Debt-to-Income Ratios (Minimum Income)
The first DTI ratio for a KEntucky USDA loan requirements employ is the “Top Ratio”, or “Front Ratio”. This ratio measures the borrower’s total income against the new housing payment including principal, interest, taxes and insurance (PITI). To qualify, the proposed new payment PITI cannot exceed 29% of the borrowers income.
The second DTI ratio, known as the “Bottom Ratio”, “Back Ratio” or “Total Debt”, weighs the borrowers total debt load, including the new housing payment against the borrowers total income. To qualify, the total of the borrowers new proposed monthly debt load, including housing payments, credit cards, car notes and student loans can not exceed 41% of their total documented income.
Think back to the last time you financed a purchase — be it a home, automobile, or what have you… You may remember having heard the term “debt-to-income ratio
.” Today I want to spend some time going over exactly what this ratio is, and to also touch on how it can effect your personal finances
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).
Call us today for a free pre-qualification for your next mortgage loan in Kentucky. We are available 7 days a week to take your call..502-905-3780 or email us at firstname.lastname@example.org
Maximum Household Income
Since USDA loan guidelines have maximum limits set for income, borrowers must also show that they don’t make too much money to qualify. The most popular USDA loan program, Section 502 ‘Guaranteed Loans’, contains maximum income limits equal to 115% median household income for a particular area. USDA ‘Direct Loans’ for low income borrowers have lower maximum income limits than their guaranteed counterparts. Maximum income limits vary from county to county so USDA provides a useful calculator to help figure it out: USDA Income Calculator. Calculating USDA loan income eligibility can be tricky so it’s always smart to seek an experienced USDA lender to assist you.
In review, the following income and employment guidelines must be followed for approval:
- To get an automated approved through GUS, the underwriting engine that USDA uses for the pre-approval, they typically don’t like to see the bottom ratio over 45%.
- The applicant must have a dependable two-year employment history.
- 29% Top Ratio – The new proposed housing payment with PITI may not exceed 31 percent of the applicants combined monthly income.
- 45% Bottom Ratio – The applicants proposed new monthly total debt load, including new housing payment, may not exceed 45 percent of their combined monthly income.
- The applicant’s adjustable income must be less than maximum allowed income by USDA RD for their area.
For a property to be eligible for a USDA Rural Development Loan, it must be located in an approved rural area, as defined by the USDA. The application of “Rural Area” can be quite loose and there are thousands of towns and suburbs of cities across America that are eligible for USDA financing. USDA also requires the property be Owner Occupied (OO), and it may be possible to purchase condos, planned unit developments, manufactured homes, and single family residences.
The subject property must pass an appraisal inspection by an approved appraiser to obtain USDA financing. The appraisal requirements for USDA loans are very similar to those for FHA loans. The requirements are so similar, in fact that an approved FHA appraiser will perform the USDA property appraisal. The appraiser will make an value assessment of the property, which must meet or exceed this proposed loan amount. He or she will also look for other things about the home that could create problems such as structural issues, a leaky roof, missing paint and plumbing problems. Homes with in-ground swimming pools are not eligible for USDA home loans.
In recap, the fees charged by USDA Rural Development can be outlined as follows:
Up Front Guarantee Fee
- Upfront Guarantee Fee equals 1% of the loan amount for purchase and refinance
- Up Front Fee can be rolled into loan amount
- Annual Fee equals 0..35% of the remaining mortgage balance, which is divided by 12 and added to monthly payments.
One of the biggest advantages of USDA loans is the ability for the seller to pay all of the closing costs for the buyer (seller concessions), if properly negotiated in their purchase agreement.
What are USDA loan down payment requirements?
USDA Mortgages have no down payment requirement. Most other loan programs don’t allow this unless you are a military veteran.
How much can I can borrow?
To be eligible for Kentucky RHS USDA mortgage guidelines, it’s important to ask yourself “how much mortgage can I afford“. For starters, your monthly housing costs (mortgage principal and interest, property taxes and insurance) must meet a specified percentage of your gross monthly income (29% ratio). You must also have enough income to pay your new housing costs plus all additional monthly debt (45% ratio). Considering these requirements, maximum USDA loan limits are determined by:
Maximum loan amount: The is no set maximum loan limit for a USDA Loan. Instead, your debt-to-income ratios will dictate how much home you can afford (29/41 ratios). Additionally, your total household income must be within USDA loan guidelines and the maximum income limits for your area, which is usually 115% of area median income. Maximum USDA Loan income limits for your area can be found at here.
Maximum financing: The maximum USDA Mortgage amount will be 102% of the appraised value of the home.
What kinds of loans does USDA offer in Kentucky?
Fixed rate loans – All USDA loans are fixed-rate mortgages. In a fixed rate mortgage, your interest rate stays the same during the whole loan period, normally 30 years. They don’t offer adjustable rates, or 20, 25, 15, 10 year fixed rate loans.
Can I get a Kentucky RHS USDA loan after bankruptcy?
Criteria for Kentucky USDA loan approvals state that if you have been discharged from a Chapter 7 bankruptcy for three years or more, you are eligible to apply for an USDA mortgage. If you are in a Chapter 13 bankruptcy and have made all court approved payments on time and as agreed for at least one year, you are also eligible to make a USDA Loan application.
Kentucky USDA Rural Housing Eligibility Map for 2018
∘ What kind of credit score do I need to qualify for different first time home buyer loans in Kentucky?
Answer. Most lenders will wants a middle credit score of 640 for KY First Time Home Buyers looking to go no money down. The two most used no money down home loans in Kentucky being USDA Rural Housing and KHC with their down payment assistance will want a 640 middle score on their programs.
If you have access to 3.5% down payment, you can go FHA and secure a 30 year fixed rate mortgage with some lenders with a 580 credit score. Even though FHA on paper says they will go down to 500 credit score with at least 10% down payment, you will find it hard to get the loan approved because lenders will create overlays to protect their interest and maintain a good standing with FHA and HUD.
Another popular no money down loan is VA. Most VA lenders will want a 620 middle credit score but like FHA, VA on paper says they will go down to a 500 score, but good luck finding a lender for that scenario.
A lot of times if your scores are in the high 500’s or low 600’s range, we can do a rapid rescore and get your scores improved within 30 days.
∘ Does it costs anything to get pre-approved for a mortgage loan?
Answer: Most lenders will not charge you a fee to get pre-approved, but some lenders may want you to pay for the credit report fee upfront. Typically costs for a tri-merge credit report for a single borrower runs about $50 or less. Maybe higher if more borrowers are included on the loan application.
∘ How long does it take to get approved for a mortgage loan in Kentucky?
Answer: Typically if you have all your income and asset documents together and submit to the lender, they typically can get you a pre-approval through the Automated Underwriting Systems within 24 hours. They will review credit, income and assets and run it through the different AUS (Automated Underwriting Systems) for the template for your loan pre-approval. Fannie Mae uses DU, or Desktop Underwriting, FHA and VA also use DU, and USDA uses a automated system called GUS. GUS stands for the Guaranteed Underwriting System.
If you get an Automated Approval, loan officers will use this for your pre-approval. If you have a bad credit history, high debt to income ratios, or lack of down payment, the AUS will sometimes refer the loan to a manual underwrite, which could result in a longer turn time for your loan pre-approval answer
∘ Are there any special programs in Kentucky that help with down payment or no money down loans for KY First Time Home Buyers?
Answer: There are some programs available to KY First Time Home Buyers that offer zero down financing: KHC, USDA, VA, Fannie Mae Home Possible and HomePath, HUD $100 down and City Grants are all available to Kentucky First Time Home buyers if you qualify for them. Ask your loan officer about these programs
∘ When can I lock in my interest rate to protect it from going up when I buy my first home?
Answer: You typically can lock in your mortgage rate and protect it from going up once you have a home picked-out and under contract. You can usually lock in your mortgage rate for free for 90 days, and if you need more time, you can extend the lock in rate for a fee to the lender in case the home buying process is taking a longer time. The longer the term you lock the rate in the future, the higher the costs because the lender is taking a risk on rates in the future.
Interest rates are kinda like gas prices, they change daily, and the general trend is that they have been going up since the Presidential election in November 2016.
∘ How much money do I need to pay to close the loan?
Answer: Depending on which loan program you choose, the outlay to close the loan can vary. Typically you will need to budget for the following to buy a home: Good faith deposit, usually less than $500 which holds the home for you while you close the loan. You get this back at closing; Appraisal fee is required to be paid to lender before closing. Typical costs run around $400-$450 for an appraisal fee; home inspection fees. Even though the lender’s programs don’t require a home inspection, a lot of buyers do get one done. The costs for a home inspection runs around $300-$400. Lastly, termite report. They are very cheap, usually $50 or less, and VA requires one on their loan programs. FHA, KHC, USDAS, Fannie Mae does not require a termite report, but most borrowers get one done.
There are also lender costs for title insurance, title exam, closing fee, and underwriting fees that will be incurred at closing too. You can negotiated the seller to pay for these fees in the contract, or sometimes the lender can pay for this with a lender credit.
The lender has to issue a breakdown of the fees you will incur on your loan pre-approval.
How long is my pre-approval good for on a Kentucky Mortgage Loan?
Answer: Most lenders will honor your loan pre-approval for 60 days. After that, they will have to re-run your credit report and ask for updated pay stubs, bank statements, to make sure your credit quality and income and assets has not changed from the initial loan pre-approval.
How much money do I have to make to qualify for a mortgage loan in Kentucky?
Answer: The general rule for most FHA, VA, KHC, USDA and Fannie MAe loans is that we run your loan application through the Automated Underwriting systems, and it will tell us your max loan qualifying ratios.
There are two ratios that matter when you qualify for a mortgage loan. The front-end ratio, is the new house payment divided by your gross monthly income. The back-end ratio, is the new house payment added to your current monthly bills on the credit report, to include child support obligations and 401k loans.
Car insurance, cell phone bills, utilities bills does not factor into your qualifying rations.
If the loan gets a refer on the initial desktop underwriting findings, then most programs will default to a front end ratio of 31% and a back-end ratio of 43% for most government agency loans that get a refer. You then take the lowest payment to qualify based on the front-end and back-end ratio.
So for example, let’s say you make $3000 a month and you have $400 in monthly bills you pay on the credit report. What would be your maximum qualifying house payment for a new loan?
Take the $3000 x .43%= $1290 maximum back-end ratio house payment. So take the $1290-$400= $890 max house payment you qualify for on the back-end ratio.
Then take the $3000 x .31%=$930 maximum qualifying house payment on front-end ratio.
So now your know! The max house payment you would qualify would be the $890, because it is the lowest payment of the two ratios.
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