ENTUCKY USDA RURAL HOUSING LOAN PROGRAM GUIDELINES
KENTUCKY USDA RURAL HOUSING UNDERWRITING GUIDELINES
Kentucky Rural Development Mortgage Guide
No Down Payment Required, Zero NADA! – Kentucky Rural Housing USDA loans allow someone to buy a home without putting any money down.
Lower Mortgage Insurance costs – Mortgage Insurance, is much lower on KY USDA loans than on FHA This can save you a lot of money.
30 year fixed Interest Rates for Kentucky Rural Housing Loans with no prepay penalty The interest rates are lower on USDA loans, which results in lower payments, and plenty of money saved over time.How to Qualify for a Kentucky USDA Loan
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: http://eligibility.sc.egov.usda.gov/eligibility/welcomeAction.do.
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:
Income limits effective July 13, 2026: in most Kentucky counties your total household income can go up to $122,800 for a household of 1 to 4 people, and up to $162,100 for a household of 5 to 8 people.
The Northern Kentucky counties of Boone, Bracken, Campbell, Gallatin, Kenton and Pendleton are higher: $128,600 for a household of 1 to 4 people, and $169,800 for a household of 5 to 8 people.USDA Eligible Areas in Northern Kentucky
Burlington
Hebron
Independence
Walton
Alexandria
Highland Heights
Cold Springs
Grant County
Owen County
Pendleton County
USDA Income Limits (effective July 13, 2026)
Boone, Bracken, Campbell, Gallatin, Kenton & Pendleton Counties (N. KY)
$128,600 (family size 1-4)
$169,800 (family size 5-8)
Grant and Owen Counties, and most other Kentucky counties
$122,800 (family size 1-4)
$162,100 (family size 5-8)The eligible parts of the Louisville metro area, including Oldham, Bullitt and Spencer counties, use the same limits as most of the state: $122,800 for a household of 1 to 4 people and $162,100 for a household of 5 to 8 people, effective July 13, 2026.
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), Christian County (Hopkinsville, Fort Campbell), Boyd County (Ashland city limits) and the most Northern Parts of Boone, Kenton, Campbell Counties of Northern Kentucky (Covington, Florence, Richwood, Hebron, Ludlow, Fort Thomas, Bellevue, Ryle, Beechwood, ) see map below
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 – USDA publishes no minimum credit score in HB-1-3555. What drives your file is USDA’s automated underwriting recommendation out of GUS. A 640 middle score will typically get a GUS “Accept.” Below 640 the file has to be manually underwritten, which is still possible. Most lenders set a 640 floor as their own overlay. That is the lender’s rule, not a USDA rule.
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
CREDIT UNDERWRITING
USDA no longer sorts credit review into score tiers. The old “over 680,” “679 to 640” and “less than 640” levels of underwriting were removed from the handbook, and Attachment 10-A is now a topic-based Credit Matrix with no score tiers in it at all.
What sets the level of review is your GUS recommendation, not your score. A GUS “Accept” keeps the credit and capacity review to what GUS asks for. A “Refer” or “Refer with Caution” sends the file to a manual underwrite, where the underwriter looks at your full credit history and documents the decision.
The only credit score still written into policy is 680, and it is a condition for the debt ratio waiver. To move from 29%/41% up to 32%/44% on a manually underwritten loan, every applicant has to be at 680 or higher and the file needs a compensating factor.
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.
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: USDA sets no age limit on a site-built home. The house only has to appraise and meet the minimum property requirements in HUD Handbook 4000.1. The one age cap anywhere in the program is the 20 year rule on existing manufactured homes. An appraiser or a lender can still call for a home inspection on an older house, but age by itself does not make a home ineligible.
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.
Condos and townhomes: a condominium project can be approved by FHA, VA, Fannie Mae or Freddie Mac. It does not have to already be on one of those lists either. It can instead be shown to meet one of those agencies’ standards. An attached townhome that is not part of a condominium regime needs no project approval at all.Manufactured homes: as of May 5, 2025, existing (used) manufactured homes are eligible in all 50 states, Kentucky included. The unit has to have been manufactured within 20 years of your loan closing date, sit on a permanent foundation, have never been installed at another homesite, be at least 400 square feet, carry both the HUD certification label and the HUD data plate, and have no alterations made after it left the factory other than an engineered porch or deck. New units off a dealer lot are still eligible too.
The property must be in good condition. “As is” appraisal not acceptable when repairs
listed.
Pools: in-ground and above-ground pools are both eligible, and there is no requirement to subtract the value of the pool on an existing home. What you cannot do is use repair or rehab funds to put in a new pool.
Any appraiser licensed or certified in Kentucky can perform a USDA appraisal. USDA does not maintain an approved appraiser list and does not require an appraiser from the FHA roster.
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EVO Mortgage911 Barret AveLouisville, KY 40204NMLS #57916 | Company NMLS #1738461If 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. NMLS#57916http://www.nmlsconsumeraccess.org/
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