Category: Income Based Repayment (IBR) plans

Kentucky USDA Rural Development Loan Program:


The following is a list of the “nuts and bolts” of the Kentucky USDA Rural Development Loan Program:

  • The house has to be located in a Kentucky USDA Rural Development Loan Program: area designated as an USDA eligible area.
  • To determine the USDA approved designated areas, reference the following USDA map instructions:
    • Go the USDA Rural Development Website
    • On the top left hand side, click “Single Family Housing Guaranteed”
    • Click “Accept”
    • Enter the property address to determine if a specific house or general area is located in an USDA eligible area
  • The household income must be moderate as determined by USDA. The USDA Loan evaluates household income, which includes the combined income of all adults living in the household; even if they are not on the mortgage loan. Click here to determine your household income eligibility.
  • If it appears that the household income exceeds the moderate income thresholds established by USDA, do not throw in the towel just yet. USDA allows for deductions for child care and medical expenses as well as for children, students, and elderly members of the household that will be living in the USDA financed property.
  • This is not a farmer’s loan. As a matter of fact, the property cannot have any income producing capabilities, and when the land value of the property exceeds 30% of the appraised value additional requirements must be met.
  • The house has to be in fairly good condition. The appraisal type being utilized is an FHA appraisal, so make sure that there are not any safety related challenges(i.e. missing banisters, peeling paint, exposed electric).
  • This is a true no money down loan program. Or stated differently, you do not need a down payment.
  • While there is a monthly mortgage insurance premium (or prorated portion of an Annual Fee), the cost of the monthly mortgage insurance is 59% less than a comparable FHA Loan. This makes the USDA loan more affordable than an FHA Loan when analyzing down payment requirements and monthly mortgage payments.
  • The seller can pay all closing costs and pre-paids (i.e. escrows). Often the home buyer’s only out-of-pocket cost as part of the purchase transaction is approximately $550 for the appraisal report.
  • If the house appraises for more than the purchase price, the difference can be used to pay for closing costs and pre-paids (i.e. escrows). Only the USDA Loan program allows for closing costs to be rolled on top of the purchase price.
  • USDA has no restriction on whether you are a first time home buyer or move-up home buyer.
  • This loan program is only for primary residence (i.e. no second home or investment properties).
  • You should not own any other functional property; although there are some circumstances under which USDA may waive this requirement.
  • The preferred minimum credit score is 640. However, if you have a documented rent history, no late payments on your credit cards, and no new collections within the last 12 months, a credit score as low as 620 may be considered.
  • All property types including single family homes, town homes, modular, and even condominiums qualify for this loan program. Manufacture homes such as single and doublewides constructed prior to January 1, 2006 do not qualify.
  • There is no maximum mortgage amount, but the house does have to be considered moderate in a size

Income Requirements for a Kentucky USDA Rural Housing Loan.


Key reminders for income calculations:


• Look at the date of employment, date the recent pay stub pays through, and the VOE.
• Look for overtime, bonus, commission, or any additional income that should be counted and count it.
• Make sure you are calculating your days correctly when averaging the income.
• If there has been a recent increase in salary or hourly rate, use the higher salary or hourly rate when calculating the Annual Household Income.
• #1 Reminder: Document your process. USDA reviewers look for Underwriter notes and any sort of explanation. It helps them to review a file faster if they don’t have to recreate what has already been done. 

Q. The applicant has a history of overtime, with a substantial amount received year to date; however, the VOE states the overtime is unlikely to continue. Do I need to include overtime in the annual income calculation?

A. Annual income is calculated based on what is expected to be received in the ensuing 12 months. If there is a history of overtime, it would need to be considered by the underwriter when calculating annual
income. Ultimately it is the approved lender’s responsibility to review the complete income history to determine what is expected to be received in the ensuing 12 months and to document the permanent loan file
to support their lending decisions.

Q. Does the IRS child tax credit need to be included in the annual income calculation?

A. No, tax credits, including the Child Tax Credit are not included in the Annual income calculation.

Q. Is per diem considered in annual income calculations?

A. If the per diem is taxable income, then it must be included in annual income. If the per diem is non-taxable income, it is considered reimbursement and therefore not included in annual income.

Q. The VOE states the applicant is expected to receive a 3% pay raise within the next 3 months. Do we have to count this expected increase in annual income?

A. Annual income is calculated based on what is expected to be received in the ensuing 12 months, including bonus income, projected pay raises, etc. If a pay raise is expected within the next 12 months, it would need to be included in the annual income calculation.

Q. We have a borrower that is divorced and has joint custody of a child that is only claimed on the tax returns as a dependent every other tax year. Can we consider this child a household member for the calculation of family size and income eligibility?

A. Applicants with shared custody may include their children as household members and receive the $480 per
child deduction.
 Annual household income for Kentucky USDA Loans

All files must include an income calculation worksheet.
Lenders may document their income calculations on their own in-house income worksheet

Defines Annual Income as: Income from all household members who live or propose to live in the dwelling as their primary residence for all or part of the ensuing 12 months. Adjusted annual income is used to determine whether an applicant is income-eligible for a guaranteed loan, or interest assistance, if applicable.

Adjusted annual income provides for deductions to account for varying household circumstances and expenses.

Gaps in Employment for KY USDA Rural Housing Loans


The rule states the following:
A borrower who has no verifiable employment for 6 months or longer is deemed to have a gap in employment. 
  •  Any gaps in employment must be analyzed in order to make a final determination of stable and dependable income. An employment gap does not automatically render an applicant ineligible. Applicants with job gaps due to maternity leave, medical leave, relocation, etc. are considered to have employment continuity. Applicants returning to the workforce after leaving a previous job to care for a child/family member, complete education, etc. will require a 12 month employment history.