What are the eligibility requirements for a Kentucky USDA loan?
The Kentucky Rural Housing USDA loan program has certain eligibility requirements .
Must be located in a eligible USDA Rural Housing Area.
The home would be your primary residence, not a rental property
Household income requirements beginning around $86,850 for a family of four and up to $115,400 for a family of five or more
Clear Cavirs Numbers.
No minimum credit score requirement but most lenders that offer USDA loans will want a 620 credit score or higher
What are USDA loan fees in Kentucky for 2020?
The upfront guarantee fee for fiscal year 2020 is 1 percent of the loan amount. This fee can often be rolled into the mortgage, instead of paying it out of pocket. The annual fee for is .35 percent of the loan amount.
It’s important to check the maximum income limits for your family size and where you live to get the most accurate data.
Advantages of USDA Loans
Zero Down Payment
Low Credit Score Requirements
Can finance closing costs up to appraised value
Streamline refinance an existing USDA with less documentation
No max loan amount
Disadvantages of USDA Loans
only eligible in rural areas
Must be 3 years removed from bankruptcy or foreclosure
Limited to Income Requirements
Debt to income ratios tighter qualifying guidelines than FHA, Fannie Mae
Mortgage Loan Officer
- Income sources that will not be received for the next full 12 months must still be used in calculating Annual Eligibility Income unless specifically excluded by RHS guidelines (section 3555.152(b)(5)).
- Section 9.3 Annual Income has been updated with detailed income verification requirements to cover previous grey areas in paystub, W-2, and self-employed documentation requirements
- A significant increase or decrease in earnings requiring caution has been defined as a 20 percent variance in income over the previous 12 months.
- Time spent in school can only be used towards income requirements when the schooling is part of college, technical school, or the acquisition of career-based certificates in high school. A standard high school diploma without an accompanying certificate would not meet these requirements.
- Documentation requirements for several types of income have been reduced from 2 years to 1 year, and additional guidance has been provided for previously missing income types
Senior Loan Officer
- The USDA backs about 120,000 mortgages a year, or about 3.5 percent of purchase mortgage originations nationally.
- Almost half of USDA mortgages were in southern states from 2012 to 2017.
Borrowers who rely on mortgages from the U.S. Department of Agriculture (USDA) have been in a holding pattern that runs alongside the federal government shutdown. These loans from the USDA’s Farm Service Agency and the Rural Housing Service are made mostly in rural areas and often to low- and middle-income borrowers.
The USDA backs about 120,000 mortgages a year, or about 3.5 percent of all mortgage purchase originations, according to data from the Home Mortgage Disclosure Act. The USDA offices that administer these loans have been closed since late December, rendering a major source of funding inaccessible.
Kentucky USDA loans are loans offered by the United States Department of Agriculture to those looking to buy homes in rural areas of Kentucky. There are a few requirements and restrictions associated with this type of loan however, if you are a first time home buyer in Kentucky with a limited income, no down payment and are looking to live in a rural part of Kentucky, this may be a good option for you to purchase a home going no money down and getting a 30 year fixed rate loan.
Below I will spell-out the qualifying requirements for a USDA loan in Kentucky for 2019
Income Requirements for USDA Loans in Kentucky
The Rural Housing USDA website provides an income eligibility calculator depending on where you are looking for housing in the state of Kentucky. Because it is a nationally funded loan by the United States Government, the income restrictions will vary county-by-county but the loan recipient cannot make more than 115% of the median income for the area in which they are applying. There is also a chart you can consult that provides Kentucky USDA county income limits depending on the number of people in your home. Most Kentucky Counties will allow up to $86,400 for a household family of four or less, and up to $116,350 for a household of five. The Northern Kentucky Counties of Kenton, Bracken, Boone, Gallatin, Campbell allow for more. See Chart below
Households with 1-4 members have different limits as households with 5-8. Similarly, applicants living in high-cost counties will have a higher income limit than those living in counties with a more average cost of living.
Credit Score Requirements for a USDA Loan in Kentucky in 2020
Borrowers in Kentucky are required to have a FICO minimum credit score of 581 or higher. However, most USDA lenders will create a credit overlay where they will want a minimum credit score of 640 in order to get a GUS approval.
If the potential borrower has declared bankruptcy or foreclosure within the last 36 months, they would be ineligible for this type of loan.
If the mortgage was included in the Bankruptcy, sometimes the 36 month hold is ignored and you just have to make sure the property is out of your name before applying for a USDA loan
Can you get a USDA loan in Kentucky with a Previous Bankruptcy?
Chapter 7 bankruptcy, the bankruptcy must have been discharged at least 3 years prior to becoming eligible for a Kentucky USDA home loan.
Borrowers must be in a Chapter 13 bankruptcy for a minimum of 12 months, with documentation of 12 months of on time payments and a letter of authorization from the bankruptcy trustee authorizing you to enter into new debt.
In order to qualify for a USDA home loan after filing a Chapter 13 bankruptcy, additional documentation may be requested/required stating that the reason for the Chapter 13 filing was due to extenuating circumstances beyond the borrower’s control, temporary in nature and not likely to re-occur.
Home must be primary Residence.
Recipients must be U.S. Citizens, U.S. non-citizen nationals or Qualified Aliens to apply for this program. They must also agree to use the home as their primary residence and not as a rental property.
The property must be for a family including townhouses, single family homes, condominiums (FHA Approved), new construction or new mobile homes.
What areas of Kentucky Qualify for the USDA Loan Program?
The USDA provides a map of the where you can apply a USDA loans are eligible in Kentucky. The major metro areas of Jefferson County and Fayette County Kentucky are not eligible for Rural Housing Loans in Kentucky, along with some parts of Northern Kentucky next to Cincinnati; parts of Owensboro, Paducah, Bowling Green, Richmond, Frankfort, Winchester, Radcliff, Hopkinsville and Henderson Kentucky are not eligible.
If you have a property in mind, you can head over to the eligibility map to see if the home you are considering qualifies.
What are the advantages of USDA loans in Kentucky?
For many people in a low to middle-income bracket, saving for a down payment can be difficult. A USDA loan does not require the purchaser to put any money down toward the purchase price of a home. The government insures the loan in this case, should the borrower default, therefore the borrower is required to carry mortgage insurance during the life of the loan. The mortgage insurance for the USDA loan is provided at a more discounted rate than that required by traditional loans.On USDA loans the mortgage insurance is 1% upfront, called a guarantee fee, and .35% monthly called an annual mortgage insurance fee to USDA. The beauty of USDA, is that it does not matter if you have a credit score of 640, or a credit score of 740, everyone pays the same premiums, unlike conventional loans.
They only offer 30 year fixed rates with no prepayment penalty, and usually the rates are very low and compare to FHA rates and much lower than conventional loans.
USDA loans take on average about 30 days to close, and the appraisal must meet FHA requirements. Home inspections are not required, and only new mobile homes are allowed on this home loan program.
Joel Lobb (NMLS#57916)
Senior Loan Officer
American Mortgage Solutions, Inc.
10602 Timberwood Circle Suite 3
Louisville, KY 40223
Company ID #1364 | MB73346
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. NMLS#57916 http://www.nmlsconsumeraccess.org/
— Some products and services may not be available in all states. Credit and collateral are subject to approval. Terms and conditions apply. This is not a commitment to lend. Programs, rates, terms and conditions are subject to change without notice. The content in this marketing advertisement has not been approved, reviewed, sponsored or endorsed by any department or government agency. Rates are subject to change and are subject to borrower(s) qualification.
2020 Kentucky Rural Development Mortgage Guide
- 30 year fixed rate only for Purchases and Existing USDA loans Refinances.
- Zero down Mortgage loan with no loan limits!
- Upfront funding fee is 1.0% and annual mi fee is .35% (very low compared to FHA)
- Typically cannot own other real estate. There are exceptions to this.
- You do not have to be a first-time home buyer in Kentucky
- Can refinance existing USDA loan as long as lowering rate by 1% and can do without an appraisal. There are overlays to this by lenders.
- Closing costs and prepaids can be paid by seller but must be put into contract
- Closing costs may be financed into the loan up to the appraised value.
- You will need two credit trade lines reporting at least for 12 months on your credit file. They don’t have to be open and active. Just reporting on your credit report.
- All Guaranteed Mortgage Loans are ran through GUS. GUS stands for the Guaranteed Underwriting System. USDA and their underwriters use this system to pre-approve you. They review credit score/history, income, debt to income ratio and assets to determine your loan eligibility. If your credit score is below 640 or your debt to income ratio is over 45%, it will get a refer and you will find most lenders will not approve the loan.
- Some lenders will do a credit score down to 600, but they will want a lot of documentation to overturn the refer and compensating factors for the lower credit score. They typically will need to verify rent for last 12 months, with no lates, cash payments are not acceptable, and debt to income ratios are set at 29% and 41% respectively. Reserves are typically helpful too on lower credit scores, so keep in that in mind, if you have money in a savings account, for a rainy day fund, this will help sometimes get the loan approved.
- 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
USDA Eligible Areas In Northern Kentucky for Boone, Kenton, Campbell, Grant Counties
- Highland Heights
- Cold Springs
- All Of Grant County, Pendleton County And Owen County
A property must be located in an eligible area in order to use a USDA loan to purchase a home. Contrary to belief, Rural Development loans are not only for farms or very rural homes.
Actually, a property with an operating and income producing farm is not eligible for these loans!
2020 Kentucky USDA Rural Max Income Limits:
- New Income limits for most counties (*) in Kentucky are $86,850 for a 4 unit household and household families of five or more + can make up to $114,650.The Northern Kentucky Counties (***) of Boon, Kenton, Campbell, Brackenn, Gallatin, and Pendleton are $93,500 for a household of four or less and up to $123,400 for a family of five or more.With the new changes for 2019 USDA Income limits, the Jefferson County Louisville, KY Metro area (**) saw an increase of $87,600 for a family of four and up to $115,650 for a family of five or more. The metro area includes Oldham, Bullitt, Spencer, Hardin, Larue and Meade are including in these higher income limits for USDA loans.
Remember, Jefferson County Kentucky, Fayette County Kentucky are not eligible for USDA loans.
,Below is the website where you can check and make sure
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 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 history.
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.
- Fixed Payment Loans: A permanent amortized, fixed payment may be used when it can be documented that the payment is fixed, the interest rate is fixed, and the repayment term is fixed.
- Non-Fixed Payment Loans (i.e. deferred, income based, graduated, adjustable, etc.): The payment should be calculated as the greater of 0.5% of the loan balance or the actual payment reflected on the credit report. No additional documentation is required.
Minimum Credit Score Requirements for a Kentucky Mortgage Loan Approval Loan
Here are the most common loan programs and their general guidelines on credit scores:
FHA Loans in Kentucky
FHA mortgage loans are issued by federally qualified lenders and insured by the U.S. Federal Housing Authority, a division of the U.S. Department of Housing and Urban Development. These loans are an attractive option for many borrowers, not just first-time homeowners.
FHA loans are available to borrowers with credit scores as low as 500. Borrowers with scores under 580 will need to have a 10% down payment.
VA Loans In Kentucky
VA Loans are designed to offer long-term financing to American Veterans. These loans are issued by federally qualified lenders and are guaranteed by the United States Veterans Administration. The Veterans Administration determines eligibility and issues a certificate to qualifying applicants to submit to their mortgage lender of choice.
The Veterans Administration does not set a minimum credit score; however, lenders do impose their own limits. Some lenders will go down to a 500 credit score and will also do loans for borrowers without a credit score.
Conventional Loans In Kentucky
Conventional loans are mortgage loans offered by private lenders that are not guaranteed or insured by a government agency. These loans may also be referred to as conforming loans.
Conventional loans are available to borrowers with credit scores as low as 620.
USDA Loans in Kentucky
The United States Department of Agriculture offers a home loan program designed to help individuals living in small towns or rural areas. This loan program is designed to help qualifying applicants, who may not be able to qualify for other types of mortgage loans, purchase homes as their primary residences.
USDA Guaranteed loans are available to borrowers with credit scores as low as 581 and borrowers with no credit scores.
A note for Borrowers with No and Low Credit Scores
While it’s not impossible to qualify for a home loan with a low credit score or no credit score, it does make it harder to qualify. If you have a low credit score or you do not have a credit score, lenders will look more critically at other risk factors that you may have. This includes recent late payments, collection accounts, the amount of funds you have saved up, employment history and the time at your current job, etc.
If you do not have a credit score, it means that the credit bureaus do not have enough information about you to give you a score. While there are some options available to borrowers without a credit score, most lenders will require that you provide proof of payment history on “alternative trade lines”. These are lines of credit or utilities that do not report to the credit bureaus, such as rent, cell phone, electric, cable/internet, car insurance, etc. Acceptable “alternative trade line” accounts must meet certain criteria. The account must be in your name, it must be 12 months old, every payment must have been made on time every single month, and proof of payment must be provided on the creditor’s letterhead.
GETTING APPROVED WITH LOW OR NO CREDIT SCORES
You are more likely to be approved with low or no credit scores if you:
Make a larger down payment than is required.
Have sufficient reserves in checking and/or savings accounts.
Have low debt-to-income ratios, which is the percentage of your income that needs to be used towards paying your proposed mortgage and other lines of credit such as auto loans, student loans, credit cards, etc. Paying down existing debt will improve your debt-to-income ratio.
The best part about credit scores is that they aren’t set in stone! It’s never too late start working on improving your credit. If our team can’t pre-approve you today, we’ll come up with a custom plan to help you get to where you need to be. There’s nothing to lose, so apply today!