Kentucky Rural Housing and USDA Qualifying Guidelines
Applicant Eligibility
Have the ability to personally occupy the dwelling
Non-occupant co-borrowers are not permitted
Generally, borrowers must sell their existing home
Student loan payments must be included in ratios even if loans are currently in deferment
Self employed borrowers require two year history with 1040’s
Disability and Social Security benefits – 3 year continuance documented with award letter or 2 months bank statements, grossed up 125%
Salary increases within 60 days of the first payment due date are acceptable
Part time employment must have a history of no less than 12 months
Alimony and child support income must continue for 3 years and have no less than a 12 month history
Any income of a non-purchasing spouse must be verified to make sure income limits are not exceeded
Adjusted Income
| Allowable Deductions to Determine “Adjusted Income”:Member of Household | Amount of Deduction |
| Each minor child under 18 years of age | $480 |
| Each disabled or handicapped individual who is not the applicant or co-applicant | $480 |
| Each full time student 18 years or older | $480 |
| Each elderly (62 years of age or older) or disabled applicant | $400 |
| Medical expenses for any elderly family member | Total that exceeds 3% of gross annual income |
| Child care expenses for children 12 years old or under | Actual cost of care, supported by full documentation of cost |
Bankruptcy or foreclosure discharged less than 36 months
Outstanding judgments within the past 12 months
Two or more rent payments 30 days late within the past 3 years.
Outstanding collection accounts with no payment arrangements
Outstanding tax liens or delinquent federal debt with no payment arrangements
Accounts converted to collections in the past 12 months.
Tri-merge credit reports are required and must be no more than 90 days old at the time the Conditional Commitment is issued
Applicants must not be delinquent on any debts owed to the Federal Government
CAIVRs must be checked and documented in the loan submission package.
Lender shall not be required to obtain a rental history rating
No action will be necessary for any derogatory items, (i.e. no letters of explanation, unpaid collection accounts not required to be paid off, etc…)
The credit score of the primary wage earner should be given the most emphasis; however, credit scores of other applicants will also be included in the overall review of the loan request. Use the middle of three (3) scores or the lower of two (2) scores for all borrowers.
Cash reserves after closing
Potential for increased earnings and career advancement\
Similar housing expenditure
Conservative use of credit
Additional compensation not included in qualifying income, such as part time job income that lacks a stable job history, potential bonus or commission income from a job.
Low total obligation ratio. (A low total obligation ratio does not compensate for a high PITI ratio; however, when other strong compensating factors are present a low total obligation ratio should be viewed as a positive mitigating factor.
Debt ratio waiver requests are submitted by the lender in writing with the
QUICK GUIDE
USDA, RURAL DEVELOPMENT
GUARANTEED RURAL HOUSING LOAN
Advantages:
- No Down Payment Required
- 30 year fixed rate
- 100% LTV plus the guarantee fee, if financed
- Finance Closing Costs, if market value is sufficient
- Expanded Ratios of 29/41%
- No Mortgage Insurance
- No cash contribution required from borrower
- Unrestricted gifts
- No Maximum Loan Amount – loan amount based on repayment ability of applicant
- No Reserve Requirement
- High earnings potential
- Competitive rates (set by underwriting lenders)
- Available secondary markets: wholesale lenders as well as Fannie Mae and Freddie Mac.
- Utilize in Conjunction with State Housing Authorities, if available
Rural Development designated rural area:
- Homes must be located in rural areas. Rural areas include open country and places with a population of 10,000 or less and-under certain conditions-towns and cities with between 10,000 and 25,000 residents. See the rural area eligibility site at http://eligibility.sc.egov.usda.gov, click on “property eligibility”. If you need additional assistance, please contact your local Rural Development office.
Acceptable credit history:
- Have a credit history that indicates a reasonable willingness to meet obligations as they become due
- Lender underwrites the loan
- No minimum credit scores
- Lack of credit is not derogatory
- Caution for applicant(s) with multiple layers of risk such as:
- payment shock; low credit scores; ratio waiver; credit waivers; 2-1 buy downs
Check maximum income for eligibility:
Applicant(s) have an adjusted household income that does not exceed the moderate income limit established for the area. A family’s income includes the total gross income of the applicant, co-applicant and any other adults in the household. Applicants may be eligible to make certain adjustments to gross income-such as annual child care expenses and $480 for each minor child-in order to qualify. USDA Rural Development field offices can provide information on the moderate income limits for the areas that fall within their jurisdictions, and can provide further guidance on calculating household income. There is an automated eligibility calculator at: http://eligibility.sc.egov.usda.gov
Applicant(s) repayment ability:
The ratio limits are 29 front (housing, PITI), 41 back (total debt, MOTI). Rural Development allows expanded repayment ratios if the applicants have sufficient compensating factors. The underwriter must recommend the expanded ratio(s) and provide compensating factors to Rural Development. Rural Development must concur with the underwriter’s recommendation in order to expand the ratios.
Other eligibility criteria:
- Do not own a dwelling
- Insufficient resources to secure conventional financing without the guarantee
- U.S. citizen or permanent resident or qualified alien
- Legal capacity
- Primary residence
Loan-To-Value (LTV) and Loan Limit:
- 100% LTV plus the amount of the guarantee fee, if financed
- Loan amount can exceed appraised value by the amount of the guarantee fee
- There is no loan limit
-Limiting factors will be ratios and income limit
Property requirements:
- New or proposed home construction – stick built, modular, townhouses, condominiums, new manufactured homes.
- Existing homes: Meet requirements of HUD Handbooks 4905.1 and 4150.2
- New and existing: Private well water quality must meet local and state code.
FHA appraisers in the area can be found on the FHA web site: https://entp.hud.gov/idapp/html/apprlook.cfm
Existing (previously occupied) manufactured home financed under limited circumstances when home presently financed by USDA.
New manufactured homes: Rural Development will finance new manufactured homes through approved dealer-contractors. Contact your local Rural Development office for a list of approved dealer-contractors and the specifics of how new manufactured homes can be financed.
Modular homes: New or existing modular homes can be financed the same as stick built homes.
Condo: Rural Development can finance if it meets the standards for Fannie Mae, Freddie Mac, VA, or FHA.
Town home: Same as condo. A town home must have provisions for maintenance such as HOA.
Flood Zone:
Any existing improvements located in a special flood hazard area must have federal flood insurance coverage. New construction is not permitted until a Letter of Map Revision/Amendment is issued by FEMA.
One time guarantee fee based on the final loan amount
This fee can be financed along with other closing costs. The first mortgage guaranteed loan cannot exceed appraised value by more than the amount of the fee financed. No mortgage insurance requirement.
Term: 30 year fixed
Interest Rate:
- Fannie Mae 90 day delivery plus 60 basis points rounded to the nearest quarter percent or
- The lenders published VA rate with no discount points
Prohibited Loan Purposes:
- In-ground swimming pools – unless value is deducted from the loan request
- Existing manufactured homes
- Construction draws
- Furniture and personal property
- Income producing property
- Non-essential buildings and land
Additional resources:
- www.rurdev.usda.gov is the Agency web site
- Individual state web site is www.rurdev.usda.gov/ga (for example Georgia, add the state initial)
- http://eligibility.sc.egov.usda.gov/ to determine eligible areas and if applicants are within eligibility guidelines
- National directives and regulations are found at: www.rurdev.usda.gov/regs. Administrative Notices ending with (1980-D) and the regulation 1980-
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