Kentucky Rural Development Mortgage Guide


Property Eligibility – The home you want to finance with a KY USDA loan must be an eligible property. The property must be located in a rural area which is generally defined to have the following characteristics: Under certain conditions, towns and cities with populations between 10,000 and 25,000. The USDA makes the eligibility determination, which may be verified at the following link:

Job History – Similar to all other mortgage loans, a two year employment history is required. You must show that you have been consistently employed for the past two years in order to qualify for Kentucky USDA financing; however in certain circumstances a small gap in employment may be permitted with a reasonable explanation. Additionally, if you have just completed schooling or military service and are newly employed but do not yet have a 2 year history, your income may also be eligible.

Income Limits – The Kentucky Rural Housing USDA program is intended to assist low and moderate-income Kentucky households, therefore to be eligible for a USDA loan, your household income may not exceed the moderate-income limits established for the specific county in which you are financing a home. you may view the eligibility requirements on this page of the USDA website:

The base USDA income limits are for most Kentucky counties below: Kentucky Rural Housing ​USDA ​Loan Program for 2022 j​ust recently increased their income limits Families of 4 or less people can now have a maximum annual income of $103,500 (used to be $90,000) in most counties and 5 or more people in the household income can now be a maximum of $136,600 What does that mean? It means if before you were told you make too much to qualify for a ​Kentucky ​USDA loan, you might qualify now New Income limits for most counties (*) in Kentucky are $103,500 for a household family of four and household families of five or more can make up to $136,600 with the new changes for 2022 Kentucky USDA Income limits, the Jefferson County Louisville, KY Metro area (**) saw an increase of$103,500for a family of four and up to $136,600 for a family of five or more. The metro area surrounding counties of Jefferson County includes Oldham, Bullitt, Spencer are included in these higher income limits for USDA loans. Remember, the entire Jefferson County and Fayette County Kentucky counties are not eligible for USDA loans. Along with parts of the following counties Daviess (Owensboro), Mccracken (Paducah), Madison County, (Richmond), Clark County (Winchester), Warren (Bowling Green), Hardin (Fort Knox and Radcliff), Bullitt(Hillview, Maryville, Zoneton, Fairdale, Brooks), Franklin, (Frankfort), Henderson (Henderson City Limits)…

DTI Ratio or debt to income ratios. One of the main criteria in determining if you will be approved or not is your debt-to-income ratio. While you must not make too much money, you also must not have too much debt. Your debt-to-income ratio is how much monthly debt you have (only those debts which show on your credit report are counted) compared to your qualifying income.

Credit Score – The minimum credit score for a Kentucky USDA Mortgage Loan goes down to a 581 credit score, however most loans get approved at 640 or higher .varies from lender to lender, but most want to see at least a 640 credit score for you to be approved.

Mortgage Insurance – USDA loans have their own version of mortgage insurance. It is called the “Guaranteed Fee” and works similarly to FHA loans which have an upfront and monthly mortgage insurance premium (MIP). With USDA loans, there is a 1.00% upfront guarantee fee which may be financed on top of your loan, and a 0.35% annual guarantee fee that is divided into 12 payments each year. The amount of your annual fee (paid monthly) adjusts each year and goes down as your loan balance does. Use our USDA calculator to get an idea of what your monthly payment will be



This attachment illustrates the approach to reviewing credit history when a loan is

manually underwritten by an approved lender.

Credit score over 680:

Perform a basic level of underwriting to confirm the

applicant has an acceptable credit reputation. Perform additional analysis if the

applicant’s credit history has indicators of unacceptable credit as noted in Paragraph 10.7

of this Chapter.

Credit score 679 to 640:

Perform a comprehensive level of underwriting.

Underwrite all aspects of the applicant’s credit history to establish the applicant has an

acceptable credit reputation. Credit scores in this range indicate the applicant’s

reputation is uncertain and will require a thorough analysis by the underwriter of the

credit to draw a logical conclusion about the applicant’s commitment to making

payments on the new mortgage obligation. The applicant’s credit history should

demonstrate his or her past willingness and ability to meet credit obligations.

Credit score less than 640:

Perform a cautious level of underwriting. Perform a

detailed review of all aspects of the applicant’s credit history to establish the applicant’s

willingness to repay and ability to manage obligations as agreed. Unless there are

extenuating circumstances documented in accordance with this Chapter, a credit score in

this range is generally viewed as a strong indication that the applicant does not have an

acceptable credit reputation.

Little or no credit history:

The lack of credit history on the credit report may be

mitigated if the applicant can document a willingness to pay recurring debts through

other acceptable means such as third party verification or cancelled checks. Due to

impartiality issues, third party verifications from relatives of household members are not

permissible. Lenders can develop a Non-Traditional Credit Report for applicants who

do not have a credit score in accordance with Paragraph 10.6 of this Chapter.

An applicant with an outstanding judgment obtained by the United States in a

Federal court, other than the United States Tax Court, is not eligible for a guarantee

unless otherwise stated in this Chapter.

Foreclosure and Bankruptcy Guidelines

 Foreclosure within 3 years:

 Including pre-foreclosure activity, such as a pre-foreclosure sale or short sale

in the previous 3 years (refer to Attachment 10-B for additional guidance);

 Bankruptcy within 3 years:

 Chapter 7 bankruptcy discharged in the previous 3 years;

 An elapsed period of less than 3 years, but not less than 12 months, may

be acceptable if the applicant meets the criteria of Section 10.8 of this


 Chapter 13 bankruptcy that has yet to complete repayment (repayment plan in

progress) or has completed payment in the most recent 12 months.

 Plans that are completed for 12 months or greater do not require a credit

exception in accordance with Section 10.8;

 Late mortgage payments if any mortgage trade line during the most recent 12

months shows 1 or more late payments of greater than 30 days

Collections Accounts

In an effort to minimize future risk of open collections left unpaid, the lender will

consider the following during the capacity analysis of the loan request, regardless of the

method utilized to underwrite:

1) Determine if the total outstanding balance of all collections accounts of all

applicants is equal to or greater than $2,000. Unless excluded by state law,

collection accounts of a non-purchasing spouse in a community property state are

included in the cumulative balance of all collections.

2) Remove all medical collections and all types of charge off accounts from the total

balance. Medical collections and charge off accounts must be clearly identifiable

on the credit report.

3) If the remaining outstanding balance of collection accounts are equal to or greater

than $2,000, any of the following actions will apply:

a. Payment in full of all collection accounts at or prior to closing.

b. Payment arrangements are made with each creditor for each collection

account remaining outstanding. A letter from the creditor or evidence on

the credit report is required to validate the payment arrangements. The

agreed upon monthly payment for each outstanding collection account

will be included in the borrower’s debt-to-income ratio.

c. In the absence of a payment arrangement, the lender will utilize in the

debt-to-income ratio a calculated monthly payment. For each collection
utilize 5% of the outstanding balance to represent the monthly payment.

If you have access to 20% down payment you cannot use the USDA Program. Money in a retirement account does not account toward the 20% rule.

Properties must be located in an eligible area of Kentucky. Typically the large metro areas of Kentucky including the following: all of Jefferson County, all of Fayette County, Owensboro, Paducah, Hopkinsville, Bowling Green, Richmond, Frankfort and Northern KY cities of Covington, Florence, Erlanger, Beechwood, Richwood are not eligible

Some More Facts about a Kentucky USDA loan:

It’s a two-step approval process. The chosen USDA lender must first underwrite the file and get it approved based on the income, assets, and credit report submitted. Then, the lenders must submit to USDA for a “conditional commitment”. This conditional commitment is the final loan approval paperwork you are looking for.

Even though the lender may have approved the file, it still must go to the USDA office in Lexington for an assignment to SFH underwriter for the final approval process. They typically are checking the appraisal and income at this stage. There have been instances where the lender would approve the file but USDA would not due to appraisal issues or income and job history.

This is very rare instances, so keep that in mind when it comes to final loan approval.

This two-step approval process usually adds 4-6 days to the final loan approval process, so keep that in mind when you are writing up your contract because it takes a little longer to close these loans vs FHA, VA, and Fannie Mae loans.

Well Test Treatments: Properties with a well as the primary drinking source will require a well water test. There are local labs to perform this test and the water must pass.

Septic Test: Sometimes they will require the septic tank to be inspected if called for in the appraisal report or home inspection.

Older Homes: As a general rule, USDA does not like homes older than 100 years old. They will sometimes require a home inspection in addition to the mandatory appraisal on older homes.

USDA Loan After a Short Sale: A short sale is not the end of the world. So it is very possible to obtain a USDA loan if 3 years have passed after the short sale. But a buyer would need re-established good rent and other credit histories.

Bankruptcy and Foreclosure: If the mortgage debt that was foreclosed, was included in a Bankruptcy – then the USDA Home Loan waiting periods after foreclosure “waiting period” of 3 years, starts from the date of the discharge of the Bankruptcy. Because it can take 6 months or more for Banks to process the Foreclosure, and transfer title, this is a tremendous plus.

** If the mortgage debt that was foreclosed, was included in a Bankruptcy – then the USDA Home Loan waiting periods after foreclosure “waiting period” of 3 years, starts from the date of the discharge of the Bankruptcy. Because it can take 6 months or more for Banks to process the Foreclosure, and transfer title, this is a tremendous plus.

Condo or town homes must be FHA approved

Manufactured homes must be from dealer lot and brand new. No existing manufactured homes are allowed

The 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.

All appraisers must be currently approved by FHA. See most current list dated

Kentucky USDA Rural Housing Eligibility Map for 2020

Kentucky Rural Housing Loans for 2019 USDA home loans in Kentucky are also known as the Rural Development Loan or RHS Loans. It is …

USDA Advance Notice Revisions to HB-1-3555
USDA has provided highlights of upcoming handbook revisions for Chapters 9 (Income) and 15 (Submitting Application Package) of the USDA Handbook 1-3555 which will be implemented in January 2023. 

Please note: USDA has not provided an advanced copy of the full changes, nor is there a definitive effective date in January. When this information is released, FWL will announce with a deeper dive of the coming requirements.

The following are pertinent highlights of the proposed changes:

  • Chapter 9: Income Analysis
    • Income from all adults in the household must be verified for the previous 2 years. 
    • Full Income Documentation: in addition to paystubs, W-2s or IRS Wage and Income transcripts are required.
    • VVOE must be obtained within 10 business days of closing. Confirmation that a self-employment business is operational must be obtained within 30 days of the loan closing. “Current guidelines are Note Date”
    • Multiple Revisions to Attachment 9-A of the handbook to include the following:
      • “Automobile Allowance” and “Expense Allowance” will be updated to a required history to two years. 
      • Boarder Income will be clarified to refer to rental income received from a person renting space inside the dwelling which makes the property income-producing and thus ineligible.
      • “Bonus” and “Overtime” income to clarify the one-year history must be in the same or similar line of work
      • For Secondary Employment, the borrower must have a 1-year history working both the primary and secondary job to consider this income.
      • Section 8 vouchers can be treated as a reduction of PITI when the benefit is paid directly to servicer instead of an addition to repayment income. In this instance, a manual file submission is required.
      • Sourcing Deposits: Recurring and Non-recurring deposits greater than $1,000, need to be reviewed to confirm the deposits are not from undisclosed income sources
      • For retirement income, funds borrowed against retirement accounts are eligible for funds to close but may not be considered as reserves.
  • Note: The following is mentioned as future added categories, however, the requirements are not addressed at this time:
    • Guidance on Guardianship/Conservatorship Income, Individual Retirement Account (IRA) Distributions, and Variable Income and lump sum additions of assets.
  • Chapter 15 (Attachment 15-A ) Submitting the Application Package
    • VOR is required for manually underwritten loans with credit scores less than 680.
call/text 502-905-3708 email me
Joel Lobb (NMLS#57916)
Senior  Loan Officer
American Mortgage Solutions, Inc.
10602 Timberwood Circle Suite 3
Louisville, KY 40223
Company ID #1364 | MB73346

Text/call 502-905-3708

If you are an individual with disabilities who needs accommodation, or you are having difficulty using our website to apply for a loan, please contact us at 502-905-3708.

Disclaimer: No statement on this site is a commitment to make a loan. Loans are subject to borrower qualifications, including income, property evaluation, sufficient equity in the home to meet Loan-to-Value requirements, and final credit approval. Approvals are subject to underwriting guidelines, interest rates, and program guidelines and are subject to change without notice based on applicant’s eligibility and market conditions. Refinancing an existing loan may result in total finance charges being higher over the life of a loan. Reduction in payments may reflect a longer loan term. Terms of any loan may be subject to payment of points and fees by the applicant  Equal Opportunity Lender.


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