Kentucky Rural Housing and USDA Qualifying Guidelines

 

Kentucky Rural Housing and USDA Qualifying Guidelines 

Applicant Eligibility

Have the ability to personally occupy the dwelling

Be a citizen of the United States or be admitted for permanent residency

Non-occupant co-borrowers are not permitted

Generally, borrowers must sell their existing home

Income
Applicants must have adequate and dependable income, typically with a history of 24 months
Qualifying ratios are 29/41; however, higher ratios considered with strong compensating factors, including good credit scores (660+), stable employment history, potential for increased earnings, and ability to save.
Income to be verified with a written VOE and one month’s current paystubs,
OR one month’s paystubs and two years of W2’s.2/1 buydowns qualifying ratios are calculated using note rate.
Debts with more than 6 monthly payments remaining must be included in qualifying ratios

Student loan payments must be included in ratios even if loans are currently in deferment

Self employed borrowers require two year history with 1040’s

Disability and Social Security benefits – 3 year continuance documented with award letter or 2 months bank statements, grossed up 125%

Salary increases within 60 days of the first payment due date are acceptable

Part time employment must have a history of no less than 12 months

Alimony and child support income must continue for 3 years and have no less than a 12 month history

Any income of a non-purchasing spouse must be verified to make sure income limits are not exceeded

 

Income Calculations
USDA Rural Development determines applicant’s income in two manners:
Eligibility Income
 

 Adjusted Income

 

 

Allowable Deductions to Determine “Adjusted Income”:Member of Household      Amount of Deduction       
Each minor child under 18 years of age    $480   
Each disabled or handicapped individual who is not the applicant or co-applicant    $480   
Each full time student 18 years or older    $480   
Each elderly (62 years of age or older) or disabled applicant    $400   
Medical expenses for any elderly family member    Total that exceeds 3% of gross annual income   
Child care expenses for children 12 years old or under    Actual cost of care, supported by full documentation of cost   
– This is the applicant’s eligibility income less the total of any of the following deductions applicable to the loan. Income from all household members must be included in the total adjusted income. This adjusted income must not exceed 115% of the median household income for the area. (see spreadsheet).
– Includes all income (salary, tips, bonus, overtime, alimony, child support, etc..) received by the applicant and co-applicant(s). This income is used to calculate qualifying ratios.
 

 

Credit History
Applicants must have a credit history that indicates a reasonable ability and willingness to meet obligations as they become due. A credit history reflecting any or all of the following is considered unacceptable credit history:
More than one 30-day late within the past 12 months.

Bankruptcy or foreclosure discharged less than 36 months

Outstanding judgments within the past 12 months

Two or more rent payments 30 days late within the past 3 years.

Outstanding collection accounts with no payment arrangements

Outstanding tax liens or delinquent federal debt with no payment arrangements

Accounts converted to collections in the past 12 months.

Mitigating Factors to Unacceptable Credit:
Adverse credit waivers may be granted for mitigating factors to establish the applicant’s intent to good credit. Lenders must document these circumstances which were beyond the borrower’s control and have been removed:
Circumstances for adverse credit were temporary in nature, beyond the applicant’s control and have been removed. Examples: increased expenses due to illness and/or medical expenses, injury, death, etc.

Tri-merge credit reports are required and must be no more than 90 days old at the time the Conditional Commitment is issued

Applicants must not be delinquent on any debts owed to the Federal Government

CAIVRs must be checked and documented in the loan submission package.

 

Streamlined Underwriting Criteria
(Credit score 620 or higher)
For borrowers with a credit score of 620 or higher, lenders may evaluate loans utilizing USDA’s streamlined underwriting guidelines.
Lender shall not be required to document adverse credit history except for those involving a delinquent federal debt or previous agency loan.

Lender shall not be required to obtain a rental history rating

No action will be necessary for any derogatory items, (i.e. no letters of explanation, unpaid collection accounts not required to be paid off, etc…)

The credit score of the primary wage earner should be given the most emphasis; however, credit scores of other applicants will also be included in the overall review of the loan request. Use the middle of three (3) scores or the lower of two (2) scores for all borrowers.

Credit score of 619 to 580
Statistically, borrowers with credit scores within this range demonstrate a higher likelihood of default and therefore, lenders should evaluate loans carefully and be cautious of layered risk in addition to the lower credit score. For example, a ratio waiver should be avoided unless strong compensating factors are present. In addition, lenders should be cautious when applicants have no rent or housing history to verify.
If an adverse credit history waiver is requested, the lender must document that the circumstance:

 

Debt ratio waivers may be requested for loans with ratios exceeding program guidelines of 29/41 when compensating factors are present in the file. Applicants with credit scores of 660 and higher do not require additional compensating factors to be identified for debt ratio waiver requests. If co-applicants have a credit score of 659 or below, additional compensating factors should be documented to further support the ratio waiver request. There is no minimum credit score required to be eligible for a debt ratio waiver request. Compensating factors include, but are not limited to, the following:
Credit score of 660 or higher for any applicant

Cash reserves after closing

Potential for increased earnings and career advancement\

Similar housing expenditure

Conservative use of credit

Additional compensation not included in qualifying income, such as part time job income that lacks a stable job history, potential bonus or commission income from a job.

Low total obligation ratio. (A low total obligation ratio does not compensate for a high PITI ratio; however, when other strong compensating factors are present a low total obligation ratio should be viewed as a positive mitigating factor.

Debt ratio waiver requests are submitted by the lender in writing with the

 

QUICK GUIDE

USDA, RURAL DEVELOPMENT

GUARANTEED RURAL HOUSING LOAN  

Advantages:

  • No Down Payment Required
  • 30 year fixed rate
  • 100% LTV plus the guarantee fee, if financed
  • Finance Closing Costs, if market value is sufficient
  • Expanded Ratios of 29/41%
  • No Mortgage Insurance
  • No cash contribution required from borrower
  • Unrestricted gifts
  • No Maximum Loan Amount – loan amount based on repayment ability of applicant
  • No Reserve Requirement
  • High earnings potential
  • Competitive rates (set by underwriting lenders)
  • Available secondary markets: wholesale lenders as well as Fannie Mae and Freddie Mac.
  • Utilize in Conjunction with State Housing Authorities, if available

Rural Development designated rural area:

  • Homes must be located in rural areas.  Rural areas include open country and places with a population of 10,000 or less and-under certain conditions-towns and cities with between 10,000 and 25,000 residents.  See the rural area eligibility site at http://eligibility.sc.egov.usda.gov, click on “property eligibility”.  If you need additional assistance, please contact your local Rural Development office.

 

Acceptable credit history:

  • Have a credit history that indicates a reasonable willingness to meet obligations as they become due
  • Lender underwrites the loan
  • No minimum credit scores
  • Lack of credit is not derogatory
  • Caution for applicant(s) with multiple layers of risk such as:
    • payment shock; low credit scores; ratio waiver; credit waivers; 2-1 buy downs

 

Check maximum income for eligibility:

Applicant(s) have an adjusted household income that does not exceed the moderate income limit established for the area.  A family’s income includes the total gross income of the applicant, co-applicant and any other adults in the household.  Applicants may be eligible to make certain adjustments to gross income-such as annual child care expenses and $480 for each minor child-in order to qualify.  USDA Rural Development field offices can provide information on the moderate income limits for the areas that fall within their jurisdictions, and can provide further guidance on calculating household income.  There is an automated eligibility calculator at: http://eligibility.sc.egov.usda.gov

Applicant(s) repayment ability:

The ratio limits are 29 front (housing, PITI), 41 back (total debt, MOTI).  Rural Development allows expanded repayment ratios if the applicants have sufficient compensating factors. The underwriter must recommend the expanded ratio(s) and provide compensating factors to Rural Development.  Rural Development must concur with the underwriter’s recommendation in order to expand the ratios.

Other eligibility criteria:

  • Do not own a dwelling
  • Insufficient resources to secure conventional financing without the guarantee
  • U.S. citizen or permanent resident or qualified alien
  • Legal capacity
  • Primary residence

Loan-To-Value (LTV) and Loan Limit:

  • 100% LTV plus the amount of the guarantee fee, if financed
  • Loan amount can exceed appraised value by the amount of the guarantee fee
  • There is no loan limit

 -Limiting factors will be ratios and income limit

Property requirements:

  • New or proposed home construction – stick built, modular, townhouses, condominiums, new manufactured homes.
  • Existing homes: Meet requirements of HUD Handbooks 4905.1 and 4150.2 
  • New and existing: Private well water quality must meet local and state code. 

FHA appraisers in the area can be found on the FHA web site: https://entp.hud.gov/idapp/html/apprlook.cfm

Existing (previously occupied) manufactured home financed under limited circumstances when home presently financed by USDA.

New manufactured homes:  Rural Development will finance new manufactured homes through approved dealer-contractors.  Contact your local Rural Development office for a list of approved dealer-contractors and the specifics of how new manufactured homes can be financed.

Modular homes:  New or existing modular homes can be financed the same as stick built homes.

Condo:  Rural Development can finance if it meets the standards for Fannie Mae, Freddie Mac, VA, or FHA.

Town home:  Same as condo.  A town home must have provisions for maintenance such as HOA.

Flood Zone:

Any existing improvements located in a special flood hazard area must have federal flood insurance coverage.  New construction is not permitted until a Letter of Map Revision/Amendment is issued by FEMA.

One time guarantee fee based on the final loan amount

This fee can be financed along with other closing costs.  The first mortgage guaranteed loan cannot exceed appraised value by more than the amount of the fee financed.  No mortgage insurance requirement.

Term: 30 year fixed

Interest Rate:

  • Fannie Mae 90 day delivery plus 60 basis points rounded to the nearest quarter percent or
  • The lenders published VA rate with no discount points

Prohibited Loan Purposes:

  • In-ground swimming pools – unless value is deducted from the loan request
  • Existing manufactured homes
  • Construction draws
  • Furniture and personal property
  • Income producing property
  • Non-essential buildings and land

Additional resources:

We lend in all of Kentucky’s top cities:

Louisville Kentucky USDA Loans Lexington Kentucky USDA Loans Fayette Kentucky USDA Loans
Owensboro Kentucky USDA Loans Bowling Green Kentucky USDA Loans Florence Kentucky USDA Loans
Paduca Kentucky USDA Loans Richmond Kentucky USDA Loans Elizabethtown Kentucky USDA Loans

 

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