Best for buyers in rural areas with moderate incomes.
Down Payment: 0%
Credit Score: 620 to 640+ preferred
Income Limits: Varies by household size and county
Location: Must be USDA-eligible rural area
Mortgage Insurance: Annual guarantee fee required
Pros:
No money down
Low monthly mortgage insurance
Cons:
Location and income limits apply
Slower processing due to USDA approval layer
If you have questions about qualifying as a first-time home buyer in Kentucky, please call, text, or email. You can also fill out a free prequalification below for your next mortgage loan pre-approval.
The view and opinions stated on this website belong solely to the authors, and are intended for informational purposes only. The posted information does not guarantee approval, nor does it comprise full underwriting guidelines. This does not represent being part of a government agency. The views expressed on this post are mine and do not necessarily reflect the view of my employer. Not all products or services mentioned on this site may fit all people. NMLS ID# 57916, (www.nmlsconsumeraccess.org).
As with all loan programs, the USDA Loan requires that an independent appraiser inspect the subject property in order to determine the property value. Specific to a USDA Loan, the appraisal report will be conducted by an FHA approved appraiser. The appraisal report must include verbiage or similar verbiage:
“The subject meets minimum standards as set under guidelines established by the U.S. Department of Housing and Urban Development and indicated in Handbooks 4000.1”
No different from a FHA or VA appraisal inspection, the appraiser is required to document all property deficiencies that preclude the appraiser from signing off on their report. A property deficiency is any defect to the house that the appraiser deems necessary to have repaired to ensure compliance to the loan program guidelines. Typical examples of property deficiencies include:
Chipped and peeling paint
Missing handrails on stairs and railing on decks
Lights not working properly and wires hanging out of the electrical box
Non-working heating and cooling systems and plumbing
Houses that do not have utilities turned on
If a property has deficiencies, the appraiser will determine the value of the property, but state that their report is subject to the property defects listed being corrected. After the property defects are repaired, the appraiser will re-inspect the property, and signoff if the required repairs have been completed.
Bottom line, the USDA Loan program is designed to finance homes that are in move-in condition, not fixer-uppers. However, on a subsequent email I will review an option to establish a repair escrow account to address certain property deficiencies. The repair escrow account is only available through one of my many USDA lenders, so it is imperative to inform me when making an offer a house if this option will be required.
Kentucky USDA appraisals
Kentucky USDA appraisals can take home buyers by surprise. That’s why we’ve put together some good-to-know info about the process. Feel free to use this to help educate your clients.
The property must pass an FHA appraisal, so USDA and FHA have the same appraisal requirements, which determines the current market value and makes sure the house meets certain safety standards. Here is a list of items an FHA appraiser may look for:
General Health and Safety
Foundation or structural defects
Whether the utilities (water, sewage, heat, and electricity) all work
Chipped or peeling paint in homes built before 1978
Incomplete renovations
Water damage
If the property is accessible to vehicles, especially emergency vehicles
Exposed wiring and uncovered junction boxes
Whether the house is too close to outside hazards, such as a leaking oil tank or a waste dump
Excessive noise, such as being close to an airport
Missing handrails
Exterior
Leaky or defective roof and holes in the siding
Leaning or broken fencing
Doors that don’t properly open or close
Condition of gutters, chimney, stairs, railings, and porches
If swimming pools are up to code
Every Room
Whether each room has electricity
Whether each room has a window or door to the exterior to be used as a fire escape
Kitchen
Missing or broken appliances usually sold with a home, including stove and refrigerator
Broken or leaking sink
Bathrooms
Broken or leaking toilet, sink, or tub/shower
No ventilation (either an exhaust fan or window)
Crawl space or basement
Basement moisture
Evidence of past or present standing water
Heating and Plumbing
Inoperable HVAC
Major plumbing issues and leaks
These are some common items an FHA appraiser looks for, but other issues that might make a house unsafe could keep it from passing. An FHA appraisal is not the same as an independent home inspection. It’s still a good idea to get a separate home inspection to make sure you’re making a wise investment!
Qualifications for a USDA Loan to Buy a Home in Kentucky
Purchasing a home in Kentucky can be made more accessible through the United States Department of Agriculture (USDA) Loan Program. This program is designed to help low-to-moderate-income individuals and families achieve the dream of homeownership in eligible rural areas. Here are the key qualifications for obtaining a USDA loan in Kentucky:
Income Limits
To qualify for a USDA loan, applicants must not have an annual adjusted income greater than **115%** of the median household income for the area¹.
Employment
Applicants are expected to provide proof of stable income and employment for at least two years¹.
Credit Requirements
While there is no minimum credit score required, applicants must meet USDA’s guaranteed underwriting credit requirements. A fair consideration of the credit background is essential⁴.
Property Location
The property must be situated in an eligible rural area as defined by the USDA¹.
Property Standards
The home must be safe, sanitary, and structurally sound to qualify for a USDA loan¹.
Occupancy
Borrowers must agree to occupy the property as their primary residence³.
Legal Capacity
Applicants must have the legal capacity to incur a loan obligation³.
Citizenship
Applicants must meet citizenship or eligible noncitizen requirements³.
Debt-to-Income Ratio
Your monthly housing costs (mortgage principal and interest, property taxes, and insurance) must not exceed **29%** of your gross monthly income⁴.
Loan Limits
The USDA does not set specific maximum loan amounts for guaranteed mortgages. Instead, local limits are determined by a combination of the area USDA maximum income limit and the borrower’s debt-to-income ratios⁴.
The USDA loan program is a fantastic opportunity for those looking to buy a home in Kentucky’s rural areas. With no down payment required and flexible qualification criteria, it opens the door to homeownership for many who may not qualify for conventional loans.
For more detailed information or to apply for a USDA loan, it’s recommended to contact a local mortgage lender or visit the USDA Rural Development website.
This article provides a concise overview of the qualifications needed for a USDA loan in Kentucky. Prospective homebuyers should consult with a mortgage professional to understand the full application process and to determine their eligibility.
Effective January 1, 2024, the current interest rate for Single Family Housing Direct home loans is 5.125% for low-income and very low-income borrowers.
Fixed interest rate based on current market rates at loan approval or loan closing, whichever is lower
Interest rate when modified by payment assistance, can be as low as 1%
Up to 33 year payback period – 38 year payback period for very low income applicants who can’t afford the 33 year loan term
Fixed interest rate based on current market rates at loan approval or loan closing, whichever is lower
Interest rate when modified by payment assistance, can be as low as 1%
Up to 33 year payback period – 38 year payback period for very low income applicants who can’t afford the 33 year loan term
Not the same as the USDA Rural Housing Guaranteed Program. These rates follow the secondary market and change daily like FHA, VA, Conventional Mortgage Loans and set by individual lenders based on lock period, credit score, loan amount, state, and other incentives
the current interest rate for Single Family Housing Direct Home Loans
The USDA 502 Direct Loan Program helps low- and very-low-income applicants in federally-determined rural areas of the state obtain decent, safe and sanitary housing in eligible rural areas by providing payment assistance to increase an applicant’s repayment ability. This payment assistance is a type of subsidy that reduces the mortgage payment. The amount of assistance is determined by the adjusted family income.
A number of factors are considered when determining an applicant’s eligibility for this loan. At a minimum, applicants interested in obtaining a direct loan must have an adjusted income that is at or below the applicable low-income limit for the area where they wish to buy a house and they must demonstrate a willingness and ability to repay debt.
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Kentucky USDA Mortgage Lender for Rural Housing Loans 