If you’re exploring home-ownership options in Kentucky, you will be surprised to learn about the unique benefits of USDA loans. Many refer to USDA loans as a hidden gem in the mortgage world. They offer an incredible pathway to home-ownership, especially for those interested in rural areas. Let’s uncover the top 11 things you need to know about USDA loans and how they work in Kentucky.
1. Most Areas in Kentucky Qualify
While USDA loans are specifically for rural areas, the definition of "rural" can surprise you. In Kentucky, many areas with populations under 35,000 are eligible, which accounts for a significant part of the state. From small towns to suburban outskirts, you may find your dream home qualifies for a USDA loan.
Check USDA property eligibility here.
Looking for a vacation home or rental property? USDA loans are designed strictly for primary residences. You must intend to live in the property full-time to qualify.
2. USDA Loans Are Only for Primary Residences
Looking for a vacation home or rental property? USDA loans are designed strictly for primary residences. You must intend to live in the property full-time to qualify. No rental homes or second homes or AIR BNB
3. Eligible Property Types Are Diverse
Think USDA loans are just for large farms or ranches? Think again. These loans cover a variety of property types, including:
- New construction homes
- Existing single-family homes
- Manufactured or modular homes
- Condos and townhouses
This flexibility makes USDA loans a great option for many Kentucky homebuyers.
4. Income Limits Apply
USDA loans aim to help moderate- to low-income households, meaning you can earn too much to qualify. In Kentucky, your household income must not exceed 115% of the area median income. However, allowable deductions, such as childcare expenses, can help adjust your income for eligibility.
Contact a USDA loan specialist to discuss your income eligibility.
5. There Are Two Types of USDA Loans
USDA loans come in two varieties:
- USDA Direct Loan: These loans are meant for very low-income households. They come directly from the USDA and feature longer terms, up to 38 years. They also have lower interest rates.
- USDA Guaranteed Loan: Offered through approved lenders, these loans are backed by the USDA and are available to moderate-income borrowers. A least credit score of 620-640 is typically required.
6. You Can Qualify Even After Bankruptcy or Foreclosure
Financial setbacks like bankruptcy or foreclosure don’t disqualify you from USDA loans forever. Borrowers can qualify:
- After Chapter 7 bankruptcy: Three years from the discharge date.
- After Chapter 13 bankruptcy: After 12 months of on-time payments.
- After foreclosure: Typically, a three-year waiting period applies.
7. USDA Loans Offer Affordable Mortgage Insurance
Unlike conventional loans, USDA mortgage insurance is much more affordable:
- Upfront fee: 1% of the loan amount (can be financed into the loan).
- Annual fee: 0.35% of the loan balance.
For example, on a $300,000 loan, your monthly mortgage insurance (MI) cost with a USDA loan is just $87.50. This is significantly lower than traditional private mortgage insurance (PMI) for conventional loans, where monthly premiums can range from 0.45% to 1% of the loan amount, particularly for borrowers with lower credit scores.
Similarly, FHA loans also come with higher MI premiums, which are determined by loan-to-value (LTV) ratios. Unlike conventional loans, USDA loans provide the same MI premiums for all borrowers, regardless of credit score or LTV ratio, offering more consistency and affordability.
8. Flexible Credit Guidelines
The USDA does not set a strict minimum credit score. However, lenders often require at least a 640 score. This score is needed to qualify for automated approval through the USDA's Guaranteed Underwriting System (GUS). Borrowers with lower scores may still qualify through manual underwriting.
9. You Can Use a Co-Borrower
If you need help meeting income or credit requirements, you can add a co-borrower. However, the co-borrower must live in the home with you and meet the same eligibility criteria. No co-signers or nonoccupant co-borrowers are allowed.
10. No Prepayment Penalties
USDA loans offer freedom when it comes to paying off your mortgage early. Whether you sell, refinance, or make extra payments, there are no penalties or fees for early repayment.
11. USDA Loan Refinancing Rules
You can only refinance a USDA loan if you currently have an existing USDA loan. It’s not possible to refinance a conventional or FHA loan into a USDA loan.
Why Choose a USDA Loan in Kentucky?
With zero down payment requirements, affordable mortgage insurance, and flexible credit standards, USDA loans make homeownership achievable for many Kentuckians. Plus, the expansive eligibility map includes much of the state, giving you more opportunities to find your perfect home.
Start exploring your USDA loan options today with a trusted Kentucky USDA lender.
Check your eligibility and get prequalified now.
The USDA Rural Housing Loan Program, also known as an RHS loan, offers an affordable path to homeownership. It requires zero down payment. This government-backed mortgage program is ideal for low-to-moderate-income families in Kentucky. These families want to purchase a primary residence in eligible rural areas.
In this guide, we’ll walk you through everything you need to know about qualifying for a USDA loan in Kentucky. We will cover the types of loans available, income limits, credit score requirements, and how to apply.
Email - kentuckyloan@gmail.com 
Call/Text - 502-905-3708Joel Lobb
Mortgage Loan Officer - Expert on Kentucky Mortgage Loans
Website: www.mylouisvillekentuckymortgage.com
Address: 911 Barret Ave., Louisville, KY 40204
Evo Mortgage
Company NMLS# 1738461
Personal NMLS# 57916
For assistance with Kentucky mortgage loans, reach out via email, call, or text Joel Lobb directly.
Posted by Joel Lobb, Mortgage Broker FHA, VA, KHC, USDA
Labels: first time buyer kentucky usda, Kentucky 502 Direct Rural Housing USDA Loan Program, Kentucky Rural Housing and USDA Loans, rhs loans ky, USDA's Rural Development Mortgage Program
Location: 10602 Timberwood Cir #3, Louisville, KY
