Credit Scores and the Kentucky USDA Rural Development Loan Program
The Kentucky USDA Rural Development Loan Program is by far the most credit score friendly loan program currently available. While USDA is willing to work with scores lower than 640 most lenders won’t. Thus, pragmatically the minimum credit score required by USDA is 640.
For Kentucky homebuyers with a minimum credit score of 640 lenders may streamline the credit approval process normally required as part of the underwriting process. This means that a borrower:
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With a lack of credit “depth” will not have to document non-traditional credit items such as utility or insurance payments |
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A negative past credit history may allow the Underwriter to not request letters of explanation for the cause of the past challenges |
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Collection accounts can remain open provided the Underwriter believes it unlikely that the account will eventually turn into a judgment |
However, USDA is not willing to overlook certain overtly negative credit items even when the credit scores are over 640. For instance borrowers with any of the following adverse past credit should not expect to obtain credit approval using the Kentucky USDA loan program:
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Foreclosure or short sale within the last 3 years |
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Chapter 7 bankruptcy discharged within the past 3 years |
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Chapter 13 bankruptcy debt restricting plan completed within the last 12 months |
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Late mortgage payments within the last 12 months |
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Applicant or co-applicant delinquent on a federal debt; such as taxes, student loans, or previous agency loan (i.e. VA loan in which the eligibility was forfeited due to a foreclosure) |
Kentucky USDA may be willing to give a borrower an exception to a past bankruptcy or foreclosure prior to the three year period provided the borrower can document the cause of the past negative credit experience as being related to an illness or job loss and unlikely to reoccur.
Once the credit score exceeds 680, Kentucky USDA allows this score to be considered as justification for allowing the borrowers debt-to-income-ratio to exceed the target ratios of 29% for the housing costs and 41% for the total debt ratio. Frequently USDA will approve loans where the housing ratios are in the high 30% range and total debt ratios are in the high 40% range.
Bottom line the Kentucky USDA Rural Development Loan Program is more flexible in approving a perspective borrower than any other loan program. But like any loan program today, the Loan Officer shouldn’t assume that this level of credit flexibility will result in an automatic positive underwriting decision if the Underwriter doesn’t feel strongly that the borrowers chance of success at homeownership is strong.
| Eligible Properties | |
|---|---|
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Must be in an eligible USDA Rural Development Location |
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Owner-occupied properties |
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Existing attached & detached single family residences |
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New construction with permanent financing only |
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2-4 unit properties |
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PUD’s (i.e. Townhomes) |
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Condo-units. HUD, VA, FNMA or FHLMC approved project |
| Maximum Income Amount | |
|---|---|
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County specific. Reference the USDA website for adjusted household income limits |
| Maximum Loan-To-Value | |
|---|---|
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Maximum loan-to-value is 103.50% |
| Maximum Mortgage Amount | |
|---|---|
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None |
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With in-ground swimming pool |
| Minimum Credit Score | |
|---|---|
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Middle Credit Score – 640 for each applicant |
| Monthly Mortgage Insurance Premium (MIP) Requirements | |
|---|---|
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0%. USDA Loan doesn’t require a monthly mortgage insurance premium |
| Multiple Property Ownership | |||||
|---|---|---|---|---|---|
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USDA Rural Development primarily doesn’t allow applicants to own other properties | ||||
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Exceptions include when the other property owned is: | ||||
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| Occupancy Type | |
|---|---|
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Owner occupied only |
| Qualifying Ratios | |||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
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29/41% debt-to-income (DTI) – Target | ||||||||||||||||||
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39/49% debt-to-income (DTI) – With compensating factors such as: | ||||||||||||||||||
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| Seller Contribution | |
|---|---|
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Unlimited Contribution towards closing costs, prepaids, discount points, buydown fees, and upfront Commitment Fee |
| Transaction Types | |
|---|---|
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Purchase |
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Rate/Term Refinance on existing USDA loan |
Kentucky USDA Rural Development County Specific Income and Location Guidelines
| County | Max Household Income | Location Restrictions | |
|---|---|---|---|
| 1 – 4 | 5 + People | ||
| Adair | $74,050 | $97,750 | 100% Eligible |
| Allen | $74,050 | $97,750 | Partially Eligible |
| Anderson | $74,050 | $97,750 | 100% Eligible |
| Ballard | $74,050 | $97,750 | 100% Eligible |
| Barren | $74,050 | $97,750 | Partially Eligible |
| Bath | $74,050 | $97,750 | Partially Eligible |
| Bell | $74,050 | $97,750 | 100% Eligible |
| Boone | $79,950 | $105,550 | Partially Eligible |
| Bourbon | $75,350 | $99,450 | Partially Eligible |
| Boyd | $74,050 | $97,750 | Partially Eligible |
| Boyle | $74,050 | $97,750 | 100% Eligible |
| Bracken | $79,950 | $105,550 | Partially Eligible |
| Breathitt | $74,050 | $97,750 | 100% Eligible |
| Breckinridge | $74,050 | $97,750 | 100% Eligible |
| Bullitt | $74,050 | $97,750 | Partially Eligible |
| Butler | $74,050 | $97,750 | Partially Eligible |
| Caldwell | $74,050 | $97,750 | 100% Eligible |
| Calloway | $74,050 | $97,750 | Partially Eligible |
| Campbell | $79,950 | $105,550 | Partially Eligible |
| Carlisle | $74,050 | $97,750 | 100% Eligible |
| Carroll | $74,050 | $97,750 | Partially Eligible |
| Carter | $74,050 | $97,750 | Partially Eligible |
| Casey | $74,050 | $97,750 | 100% Eligible |
| Christian | $74,050 | $97,750 | Partially Eligible |
| Clark | $75,350 | $99,450 | Partially Eligible |
| Clay | $74,050 | $97,750 | Partially Eligible |
| Clinton | $74,050 | $97,750 | 100% Eligible |
| Crittenden | $74,050 | $97,750 | 100% Eligible |
| Cumberland | $74,050 | $97,750 | Partially Eligible |
| Daviess | $74,050 | $97,750 | Partially Eligible |
| Edmonson | $74,050 | $97,750 | 100% Eligible |
| Elliott | $74,050 | $97,750 | Partially Eligible |
| Estill | $74,050 | $97,750 | 100% Eligible |
| Fayette | N/A | N/A | Completely Ineligible |
| Fleming | $74,050 | $97,750 | Partially Eligible |
| Floyd | $74,050 | $97,750 | 100% Eligible |
| Franklin | $75,550 | $99,750 | Partially Eligible |
| Fulton | $74,050 | $97,750 | Partially Eligible |
| Gallatin | $79,950 | $105,550 | Partially Eligible |
| Garrard | $74,050 | $97,750 | 100% Eligible |
| Grant | $74,050 | $97,750 | Partially Eligible |
| Graves | $74,050 | $97,750 | 100% Eligible |
| Grayson | $74,050 | $97,750 | Partially Eligible |
| Green | $74,050 | $97,750 | 100% Eligible |
| Greenup | $74,050 | $97,750 | Partially Eligible |
| Hancock | $74,050 | $97,750 | Partially Eligible |
| Hardin | $74,050 | $97,750 | Partially Eligible |
| Harlan | $74,050 | $97,750 | 100% Eligible |
| Harrison | $74,050 | $97,750 | Partially Eligible |
| Hart | $74,050 | $97,750 | 100% Eligible |
| Henderson | $74,050 | $97,750 | Partially Eligible |
| Henry | $74,050 | $97,750 | Partially Eligible |
| Hickman | $74,050 | $97,750 | 100% Eligible |
| Hopkins | $74,050 | $97,750 | Partially Eligible |
| Jackson | $74,050 | $97,750 | 100% Eligible |
| Jefferson | N/A | N/A | Completely Ineligible |
| Jessamine | $75,350 | $99,450 | Partially Eligible |
| Johnson | $74,050 | $97,750 | 100% Eligible |
| Kenton | $79,950 | $105,550 | Partially Eligible |
| Knott | $74,050 | $97,750 | Partially Eligible |
| Knox | $74,050 | $97,750 | 100% Eligible |
| Larue | $74,050 | $97,750 | 100% Eligible |
| Laurel | $74,050 | $97,750 | Partially Eligible |
| Lawrence | $74,050 | $97,750 | 100% Eligible |
| Lee | $74,050 | $97,750 | Partially Eligible |
| Leslie | $74,050 | $97,750 | 100% Eligible |
| Letcher | $74,050 | $97,750 | Partially Eligible |
| Lewis | $74,050 | $97,750 | 100% Eligible |
| Lincoln | $74,050 | $97,750 | Partially Eligible |
| Livingston | $74,050 | $97,750 | Partially Eligible |
| Logan | $74,050 | $97,750 | 100% Eligible |
| Lyon | $74,050 | $97,750 | Partially Eligible |
| Madison | $74,050 | $97,750 | Partially Eligible |
| Magoffin | $74,050 | $97,750 | 100% Eligible |
| Marion | $74,050 | $97,750 | 100% Eligible |
| Marshall | $74,050 | $97,750 | Partially Eligible |
| Martin | $74,050 | $97,750 | Partially Eligible |
| Mason | $74,050 | $97,750 | 100% Eligible |
| Mccracken | $74,050 | $97,750 | Partially Eligible |
| Mccreary | $74,050 | $97,750 | Partially Eligible |
| Mclean | $74,050 | $97,750 | 100% Eligible |
| Meade | $74,050 | $97,750 | Partially Eligible |
| Menifee | $74,050 | $97,750 | 100% Eligible |
| Mercer | $74,050 | $97,750 | Partially Eligible |
| Metcalfe | $74,050 | $97,750 | Partially Eligible |
| Monroe | $74,050 | $97,750 | 100% Eligible |
| Montgomery | $74,050 | $97,750 | 100% Eligible |
| Morgan | $74,050 | $97,750 | Partially Eligible |
| Muhlenberg | $74,050 | $97,750 | Partially Eligible |
| Nelson | $74,050 | $97,750 | 100% Eligible |
| Nicholas | $74,050 | $97,750 | 100% Eligible |
| Ohio | $74,050 | $97,750 | Partially Eligible |
| Oldham | $74,050 | $97,750 | 100% Eligible |
| Owen | $74,050 | $97,750 | Partially Eligible |
| Owsley | $74,050 | $97,750 | 100% Eligible |
| Pendleton | $79,950 | $105,550 | Partially Eligible |
| Perry | $74,050 | $97,750 | 100% Eligible |
| Pike | $74,050 | $97,750 | Partially Eligible |
| Powell | $74,050 | $97,750 | 100% Eligible |
| Pulaski | $74,050 | $97,750 | Partially Eligible |
| Robertson | $74,050 | $97,750 | 100% Eligible |
| Rockcastle | $74,050 | $97,750 | Partially Eligible |
| Rowan | $74,050 | $97,750 | 100% Eligible |
| Russell | $74,050 | $97,750 | Partially Eligible |
| Scott | $75,350 | $99,450 | 100% Eligible |
| Shelby | $79,800 | $105,350 | Partially Eligible |
| Simpson | $74,050 | $97,750 | 100% Eligible |
| Spencer | $74,050 | $97,750 | Partially Eligible |
| Taylor | $74,050 | $97,750 | 100% Eligible |
| Todd | $74,050 | $97,750 | Partially Eligible |
| Trigg | $74,050 | $97,750 | 100% Eligible |
| Trimble | $74,050 | $97,750 | Partially Eligible |
| Union | $74,050 | $97,750 | 100% Eligible |
| Warren | $74,050 | $97,750 | Partially Eligible |
| Washington | $74,050 | $97,750 | Partially Eligible |
| Wayne | $74,050 | $97,750 | 100% Eligible |
| Webster | $74,050 | $97,750 | Partially Eligible |
| Whitley | $74,050 | $97,750 | Partially Eligible |
| Wolfe | $74,050 | $97,750 | 100% Eligible |
| Woodford | $75,350 | $99,450 | Partially Eligible |
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