I specialize in Kentucky First Time Homebuyers FHA, VA, USDA & Rural Housing, KHC and Fannie Mae mortgage loans. I have helped over 1300 Kentucky families buy their first home or refinance their current mortgage for a lower payment; Kentucky First time buyers we still how available down payment assistance with KHC. Free Mortgage applications/ same day approvals. Web site is not endorsed by the FHA, VA, USDA govt agency. Text/call 502-905-3708 kentuckyloan@gmail.com NMLS 57916 NMLS 1738461
Where a borrower is a member of the clergy, all of the following will be required to document income: 1) Most recent year full tax return, 2) Most recent pay stubs, 3) W-2s, 4) Contract from the church to determine benefits. The IRS looks at the housing allowance portion of a pastor’s income as an exclusion from income. Therefore the housing allowance is not reported on the personal tax returns as taxable income. Even though it is not reported on the tax returns, a pastor’s housing allowance can be used in qualifying for a mortgage loan to purchase or refinance a home. As long as we can document the receipt of the housing income through a signed letter from the church/employer stating the actual breakdown of the pay and by providing copies of the checks received, we should be able to count the housing allowance as income. Some employers will even put the housing allowance on the w2 as a nontaxable amount which makes it even easier.
See guidelines below:
Housing or Parsonage Allowance A non-military housing or parsonage allowance may be considered qualifying income, if the income has been received for the most recent 12 months. The housing allowance may not be used to offset the monthly housing payment. All of the following income documentation is required:
Written Verification of Employment, letter from employer, or paystubs reflecting the amount of the housing or parsonage allowance.
Terms under which the housing or parsonage allowance is paid.
Proof of receipt of housing allowance for most recent 12 months.
Housing or Parsonage allowance may be considered as qualifying income if there is documentation that the income has been received for the most recent 12 months and the allowance is likely to continue for the next three years.
Member of the Clergy Income for A Mortgage Loan Approval
Where a borrower is a member of the clergy, all of the following will be required to document income: 1) Most recent year full tax return, 2) Most recent pay stubs, 3) W-2s, 4) Contract from the church to determine benefits. The IRS looks at the housing allowance portion of a pastor’s income as an exclusion from income. Therefore the housing allowance is not reported on the personal tax returns as taxable income. Even though it is not reported on the tax returns, a pastor’s housing allowance can be used in qualifying for a mortgage loan to purchase or refinance a home. As long as we can document the receipt of the housing income through a signed letter from the church/employer stating the actual breakdown of the pay and by providing copies of the checks received, we should be able to count the housing allowance as income. Some employers will even put the housing allowance on the w2 as a nontaxable amount which makes it even easier.
See guidelines below:
Housing or Parsonage Allowance A non-military housing or parsonage allowance may be considered qualifying income, if the income has been received for the most recent 12 months. The housing allowance may not be used to offset the monthly housing payment. All of the following income documentation is required:
Written Verification of Employment, letter from employer, or paystubs reflecting the amount of the housing or parsonage allowance.
Terms under which the housing or parsonage allowance is paid.
Proof of receipt of housing allowance for most recent 12 months.
Housing or Parsonage allowance may be considered as qualifying income if there is documentation that the income has been received for the most recent 12 months and the allowance is likely to continue for the next three years.
Kentucky Mortgage with Variable Income: FHA, VA, USDA & Fannie Mae Approval Guide
Expert Guide by Joel Lobb
How to Get Approved for a Kentucky Mortgage with Variable Income: Complete FHA, VA, USDA & Fannie Mae Guide
Helping Kentucky families with irregular income qualify for mortgages since 2004. Over 1,300 families approved.
Quick Answer: If your income includes hourly wages with fluctuating hours, commissions, bonuses, or overtime, you have variable income. The good news? You can still get approved for FHA, VA, USDA, and Fannie Mae loans—but lenders use a specific averaging method to calculate your qualifying income. This guide explains exactly how that works.
Variable income is any earnings that aren't consistent from month to month. Unlike a traditional salary where you know exactly what you'll earn each paycheck, variable income fluctuates based on hours worked, sales performance, or seasonal demand.
Examples of Variable Income
How Lenders Calculate Variable Income: The Averaging Method
This is where most borrowers make mistakes. Lenders don't use your highest earnings—they use an averaging method that aligns with loan program guidelines. The specific method depends on your income type and loan program.
The Critical Bonus Income Calculation
Bonus income is one of the most commonly miscalculated forms of variable income. Here's the exact formula:
Annual Bonus Calculation Example
Scenario: You receive a $12,000 bonus on March 31st every year
✓ CORRECT: $12,000 ÷ 12 months = $1,000/month qualifying income
This is the right approach because your bonus is paid once per year. To get the monthly average, divide by 12.
✗ INCORRECT: $12,000 ÷ 3 months = $4,000/month
Many borrowers or even inexperienced loan officers divide by 3 (the bonus quarter), but lenders reject this. It inflates your income and creates an inaccurate qualification.
Impact on Your Loan: Using the incorrect calculation could cause your application to be denied later, even after you've invested time and money in the process. That $3,000/month difference could push you over a debt-to-income limit.
Overtime Income: The Year-to-Date Analysis
Overtime is trickier because it's often cyclical. Lenders compare your current overtime earnings to your year-to-date earnings to spot patterns.
Overtime Income Analysis
Real-world example: If you're a delivery driver and earned $800 overtime in November but $2,500 in December (holiday season), lenders need documentation explaining the seasonal pattern. Transportation workers with snow plow income, for instance, have documented seasonal increases in winter—that's acceptable with proper paperwork.
Income History Requirements for Kentucky Mortgages
How long do you need to have been earning variable income? The answer is more flexible than most borrowers think, but it depends on your specific situation.
Income History Timeline Requirements
The Standard: 2+ Years of Variable Income
Most loan programs prefer to see at least two full years of receiving the same type of variable income. This shows lenders that your income is stable and likely to continue.
The Exception: 12-24 Months with Compensating Factors
If you've only received variable income for 12-24 months, you may still qualify if your application includes strong offsetting factors:
Low debt-to-income ratio (under 43%): Shows you can handle payments
Significant savings/assets: Proves you have a financial cushion
Job stability: Same employer for 2+ years
Professional credentials: Licenses, certifications proving career longevity
Example: A real estate agent with only 18 months of commission income but a 750 credit score, $50,000 in savings, and a 35% debt-to-income ratio could get approved for an FHA loan.
Income Trending Analysis: The Make-or-Break Factor
Even with two years of income history, if your earnings are declining, you'll likely face denial. Here's how lenders analyze your income trend.
The Trending Process
After calculating your current monthly variable income, lenders compare it to previous years using:
W-2 forms from the past 2 years
Signed federal income tax returns (Form 1040)
Verification of Employment (VOE) from your employer
Third-party employment verification reports
Lenders look for three specific patterns:
The Three Income Trending Scenarios
✓ Scenario 1: Stable or Increasing Income (BEST CASE)
What it means: Your variable income stays the same year-over-year or grows.
Example income progression:
Year 1 overtime: $800/month
Year 2 overtime: $950/month
Year 3 overtime: $1,050/month
Lender's decision: We average your income across the entire period and use the highest recent amount.
Your qualifying income: $1,050/month (current year amount)
Approval odds:Excellent
⚠️ Scenario 2: Declining But Stabilized Income (POSSIBLE BUT TRICKY)
What it means: Your income dropped but has since leveled off—it's not still declining.
Example income progression:
Year 1 commissions: $3,000/month
Year 2 commissions: $2,000/month (decline)
Year 3 commissions: $2,000/month (stabilized)
Lender's decision: We do NOT average across the declining period. We use the current, stabilized amount.
Your qualifying income: $2,000/month (current stabilized amount, NOT $2,333 average)
Important caveat: You must provide documentation explaining why income declined (job change, market downturn, etc.) and evidence it won't decline further.
Approval odds:Possible with strong compensating factors
✗ Scenario 3: Continuously Declining Income (LIKELY DENIAL)
What it means: Your income is still trending downward across multiple years.
Example income progression:
Year 1 bonuses: $3,000/month
Year 2 bonuses: $2,500/month
Year 3 bonuses: $2,000/month
Lender's decision: Income is unstable. We cannot use any variable income from this source for qualification.
Your qualifying income: $0 from this source (no variable income used)
Approval odds:Very Low
Worried About Your Income Trend?
Let me review your specific situation. I can tell you exactly how lenders will view your income and what steps might help.
Not all loan programs treat variable income the same way. Different programs have different flexibility. Here's how each major program handles variable income:
FHA Loans (Most Flexible)
Variable Income Tolerance: Excellent
Accepts 12-24 months variable income history
Accepts declining income if stabilized
Credit score requirement: 580+
Down payment: 3.5% minimum
Great for first-time buyers
Best for: Hourly workers, commission-based, bonuses
None but most lenders preferred 620 for manual underwriter and 640 for GUS automated Approval
0%
Good ✓✓
Fannie Mae
2 years (stable)
620 but most get approved with 720 higher credit scores/td>
3-5%+
Moderate ✓
KHC
12-24 months
620 for Govt and 660 for Conventional
0% Down $12,500 Down payment Assistance
Excellent ✓✓✓
Documentation Checklist: What You Need to Get Approved
The difference between approval and denial often comes down to having the right documentation organized and ready. Here's exactly what you need:
Core Variable Income Documents (Required)
Two years of paystubs — Recent stubs showing current earnings AND year-to-date totals
Two years of W-2 forms or signed federal tax returns (Form 1040)
Current year paystubs — Most recent 2-3 paystubs showing year-to-date earnings
Verification of Employment (VOE) — Signed by your employer confirming income and employment stability
Written explanation — For any income changes, gaps, or fluctuations (if applicable)
Supporting Financial Documents
Bank statements — 2 months of statements showing savings and ability to manage finances
Proof of employment — Current employment letter, job offer, or contract
Tax return transcripts — IRS Form 4506-C transcript for verification
Asset documentation — Retirement accounts, investments, real estate equity (if used for qualification)
Debt documentation — List of all debts with current balances and monthly payments
Conditional/Optional Documents
Commission structure letter — Explains how your commission is calculated and paid
Bonus agreement — Signed document showing bonus amount and frequency
Seasonal work documentation — Explains why your income is cyclical (e.g., snow plow contracts)
Career licensing/credentials — Real estate license, insurance license, professional certifications
Additional employment letters — From all employers if you have multiple income sources
Pro Tip: Have all documents organized in a folder (physical or digital) BEFORE you apply. This cuts your approval time in half and shows lenders you're serious and organized. Borrowers who provide complete documentation upfront get approved faster.
Why Variable Income Applications Get Denied (And How to Avoid It)
I've reviewed thousands of mortgage applications. Here are the most common reasons variable income applications fail—and how to prevent it:
Top 6 Variable Income Denial Reasons
Your Step-by-Step Approval Path
Here's exactly what happens from your first call to loan approval with variable income:
The Variable Income Approval Process
What to Do RIGHT NOW (If You Have Variable Income)
Don't wait. Take these actions today:
Gather your documents — Collect 2 years of paystubs, W-2s, and tax returns
Analyze your income trend — Is it stable, increasing, or declining? (This determines your approval odds)
Identify the right program — Are you a first-time buyer? Veteran? Rural buyer? (This determines your best option)
Get a free pre-approval — Call or text me for a same-day income analysis
Understand your numbers — Know exactly how much home you can afford
Ready to Get Started? Let's Discuss Your Variable Income Mortgage
I'll review your specific situation, calculate your exact qualifying income, and show you which loan program gives you the best approval odds.
Why Work With Me?
Local Expertise: I know the ins and outs of Kentucky’s housing market and loan programs.
Fast Approvals: I offer free mortgage applications with same-day approvals to keep the process moving quickly.
Customized Loan Solutions: Whether you’re buying a home or refinancing, I’ll find the right loan program to fit your needs.
Personalized Service: I treat every client like family, ensuring you’re supported and informed throughout the process.
About My Website
Visit my website for a wealth of resources tailored to Kentucky homebuyers. You’ll find:
Step-by-step guides for first-time homebuyers.
Information on loan programs like FHA, VA, USDA, and KHC.
Tools to help you calculate potential payments and affordability.
Blog posts with tips and updates on the Kentucky housing market.
A secure portal to start your loan application and upload documents.
Please Note: My website is not endorsed by the FHA, VA, USDA, or any government agency. It is an independent platform created to educate and assist homebuyers with expert advice and accessible tools.
Using Non-Taxable Income To Qualify For A Kentucky Mortgage Loan
Many Kentucky homebuyers rely on non-taxable income such as child support, Social Security, or workers compensation.
The good news: in many cases, these income sources can absolutely be used to help you qualify for a mortgage in Kentucky,
as long as they meet the agency rules and documentation requirements.
Non-Taxable Income Types That Can Be Used
The following non-taxable income sources are commonly allowed for mortgage qualifying in Kentucky, subject to program rules:
Child support
Social Security income (retirement or disability)
Workers compensation (long-term or permanent)
Other verified non-taxable income documented on tax returns or award letters
The 3-Year Continuance Rule
To use non-taxable income for qualifying, lenders must be able to document that the income is likely to continue
for at least the next three years from the date of closing. This is a core requirement across the major loan programs.
Child support: must continue for three years beyond closing based on the court order or agreement.
Social Security: award letters must indicate ongoing benefits with no known end date.
Workers compensation: must be permanent or long-term; temporary benefits usually cannot be used.
Special Rule For Child Support In Kentucky Mortgage Qualifying
To use child support as qualifying income on a Kentucky mortgage:
You must document consistent receipt for the most recent 12 months.
Bank statements, payment histories, or deposit records must support the pattern.
The court order or written agreement must show the amount and the end date.
If the payments have been irregular, significantly late, or frequently short, the underwriter may reduce or disallow that income.
Grossing Up Non-Taxable Income To Boost Qualifying Power
Because this income is not taxed, most loan programs allow lenders to “gross up” the amount to show a pre-tax equivalent.
This increases your qualifying income on paper and can help you qualify for a higher mortgage amount or keep your
debt-to-income ratios within program limits.
Gross-Up Percentages By Loan Program
Here is a simple breakdown of how much non-taxable income can typically be grossed up for Kentucky mortgage programs:
Loan Program
Gross-Up Percentage Allowed
Example On 1,000 Monthly Non-Taxable Income
Fannie Mae Conventional
Up to 125 percent
Qualifying income: 1,250 per month
USDA Rural Housing
Up to 125 percent
Qualifying income: 1,250 per month
VA Loans
Up to 125 percent
Qualifying income: 1,250 per month
FHA Loans
Up to 115 percent
Qualifying income: 1,150 per month
Simple Gross-Up Example
If you receive 1,000 per month in non-taxable Social Security income:
On a VA, USDA, or Fannie Mae conventional loan, lenders can often use 1,250 per month to qualify.
On an FHA loan, lenders can usually use 1,150 per month to qualify.
That extra qualifying income can make the difference between an approval and a denial, or can allow you to purchase
a more suitable home while staying within safe debt-to-income ratios.
Lender Overlays And Why Your Results May Vary
Agency guidelines (FHA, VA, USDA, Fannie Mae) are one thing, but individual lenders can add their own internal rules,
called overlays. A few common overlays around non-taxable income include:
Limiting the gross-up percentage to less than the agency maximum.
Requiring a longer history of receipt than the minimum guidelines.
Being more conservative with temporary or borderline workers compensation income.
This is why it is important to work with a loan officer who understands Kentucky guidelines and individual lender policies.
Conservative Approach: Why Less Is Often More
While grossing up non-taxable income is a powerful tool, it is often wise to qualify using the lowest stable income
figure that still gets you approved. This can:
Provide a safety margin if guidelines or lender interpretations tighten.
Help keep your payment comfortable if taxes, insurance, or other debts increase in the future.
Reduce the risk of surprises during the final underwriting review.
In many cases, using a more conservative income number gives you more long-term financial breathing room,
even if it slightly lowers your maximum purchase price.
Infographic: Non-Taxable Income Gross-Up Guide For Kentucky Homebuyers
Non-Taxable Income Gross-Up Guide
For Kentucky FHA, VA, USDA, And Conventional Loans
Loan Type
Conventional, VA, USDA
→ Up to 125 percent
Loan Type
FHA
→ Up to 115 percent
Example
1,000 non-taxable income
VA / USDA / Conventional → 1,250 qualifying
FHA → 1,150 qualifying
Key Rule
Income must be expected to continue at least three years from closing.
Child Support
Twelve-month history of consistent payments plus three-year continuance required.
Strategy
Whenever possible, qualify using the most conservative stable income to protect your budget.
Ready To See How Your Non-Taxable Income Can Help You Qualify?
If you receive child support, Social Security, or workers compensation and want to see how it can be used to qualify for a Kentucky mortgage,
reach out and I can run the numbers based on your exact situation and loan program options.
Joel Lobb, Mortgage Broker FHA, VA, KHC, USDA
NMLS 57916
EVO Mortgage, NMLS 1738461
Call or text: 502-905-3708
Email: kentuckyloan@gmail.com
Website: www.mylouisvillekentuckymortgage.com
Non-Taxable Income Gross-Up Guide
Non-Taxable Income Gross-Up Guide
For Kentucky FHA, VA, USDA, And Conventional Loans
Conventional, VA & USDA
Qualify at
Up to 125%
FHA Loans
Qualify at
Up to 115%
Eligibility Window
Income must continue for
At Least 3 Years
Child Support
12-month history + 3-year
Continuance Required
Qualifying Income Sources
Social Security, Disability, Pension, Annuity
And More
Pro Strategy
Qualify with most conservative stable income to
Protect Your Budget
DTI Ratio Guide: How Much Income Do You Need for a Mortgage in Kentucky?
Mortgage DTI Ratio Guide: How Much Income Do You Need To Qualify In Kentucky?
A practical Kentucky-focused guide to debt-to-income ratios, front-end and back-end limits, and how FHA, VA, USDA, KHC, and Conventional lenders calculate what you qualify for.
Understanding How Lenders Look At Your Income In Kentucky
When you apply for a mortgage in Kentucky, lenders look past the sales price and interest rate. They want to know how much of your monthly income is already spoken for. That is where your debt-to-income ratio, or DTI, comes in.
Your DTI ratio compares your total monthly debt payments to your gross monthly income. It is one of the biggest drivers of approval, loan amount, and pricing for FHA, VA, USDA, KHC, and Conventional loans.
Key idea: a strong DTI can offset a mid-range credit score, but a weak DTI can kill a file even with great credit.
What Is Debt-To-Income (DTI) And Why It Matters
Debt-to-income ratio is the percentage of your gross monthly income that goes toward required monthly debt payments. Lenders use it to measure whether you can safely take on a new mortgage payment on top of your existing obligations.
Formula:
Total monthly debt payments ÷ gross monthly income × 100 = DTI percentage
Example: if you earn 5,000 per month and have 2,000 in total monthly debt (including the new house payment), your DTI is 40 percent.
Front-End Versus Back-End DTI Ratios
Lenders run two separate DTI tests on every file: the front-end ratio and the back-end ratio.
Front-end ratio (housing ratio)
Measures how much of your gross monthly income goes only to the house payment:
Principal
Interest
Property taxes
Homeowners insurance
Mortgage insurance, if applicable
For FHA, a typical guideline is around 31 percent of gross income.
Back-end ratio (total DTI)
Measures all required monthly debts including the new house payment:
New mortgage payment (PITI)
Credit card minimums
Auto loans
Student loans
Child support or alimony
Personal loans and 401(k) loans
Utilities, cell phone, car insurance, groceries, and streaming services do not count in DTI.
Most Kentucky lenders want to see a total DTI in the low-to-mid forties. Some programs will stretch higher with strong credit, savings, or residual income.
Typical DTI Guidelines By Loan Program In Kentucky
Exact approval limits come from automated underwriting findings, but these ranges are a realistic working grid for Kentucky files.
Loan program
Front-end
Back-end
Notes
FHA
Around 31 percent
43–50 percent with AUS and compensating factors
Popular for first-time buyers and mid-range credit scores.
VA
No strict front-end; 41 percent used as a guide
41–55 percent depending on residual income
Zero down, no monthly mortgage insurance; residual income is critical.
USDA
About 29–32 percent
Around 41–43 percent
Zero down for eligible rural areas; tighter on DTI than FHA.
KHC
Around 31–32 percent
43–45 percent depending on program
Used with FHA, VA, USDA, or Conventional plus down payment assistance.
Conventional (Fannie/Freddie)
Around 28 percent
Up to 49.9 percent with strong AUS approval
Best pricing for well-qualified borrowers with solid credit.
Automated Findings Versus Manual Underwriting
Most Kentucky loans run through automated underwriting systems such as Desktop Underwriter, Loan Product Advisor, or USDA and VA equivalents. These engines have hard-coded DTI caps that cannot flex.
When a file is strong overall but just outside the automated DTI box, a manual underwriter can sometimes step in and approve the loan by looking at the full picture.
Automated underwriting (AUS)
Fast decisions based on credit, DTI, assets, and property data
DTI limits are strict; the engine cannot use judgment
Ideal for clean, well-qualified files
Manual underwriting
Human underwriter reviews the full story
Can allow higher DTIs with strong compensating factors
Common on FHA, VA, USDA, and some KHC loans
Manual underwriting is often the difference between a denial and an approval for borrowers who are a few points over standard DTI limits but have stable income, cash reserves, or strong payment history.
Residual Income And Disposable Cash Flow
DTI is not the only way to look at risk. Some programs, especially VA, put heavy weight on residual income, which is the money left over after all debts, taxes, and basic living expenses are paid.
Strong residual income can tip a borderline DTI file into an approval because it shows the borrower has room to absorb surprises, repairs, and lifestyle costs beyond the minimum debt obligations.
Kentucky DTI Mortgage Calculator
Use this quick calculator to estimate the maximum monthly mortgage payment you can carry under common Kentucky guidelines. This is a rough planning tool, not a final approval decision.
Include car loans, credit cards, student loans, child support, and other required payments.
Results
Front-end maximum payment
$0.00
Back-end maximum capacity
$0.00
Including current debts
Estimated maximum mortgage payment (PITI)
$0.00
Includes principal, interest, taxes, homeowners insurance, and any mortgage insurance.
Enter your income and debts to estimate how much house payment fits typical DTI rules.
This tool is for educational estimates only and is not a credit decision. Actual approvals follow AUS findings and full underwriting review.
Practical Ways To Improve Your DTI Before You Apply
If your current DTI is on the high side, a few focused moves can open up more approval options and price ranges.
Pay down or eliminate small monthly debts
Target revolving credit cards and small installment loans first. Every 50 to 100 dollars in monthly payment reduction directly lowers your DTI and raises what you qualify for.
Avoid taking on new debt before closing
New car loans, furniture financing, or large credit card purchases right before or during the mortgage process can push your DTI over the limit and cost you the approval.
Consider a co-borrower with income and low debt
A spouse or co-borrower with strong income and minimal monthly obligations can materially improve the combined DTI on the file. Their debts count too, so the profile has to make sense overall.
Look at program fit instead of forcing one product
A file that is tight for Conventional may be completely workable under FHA, VA, USDA, or KHC guidelines. Matching income, credit, and DTI to the right program is where an experienced local loan officer earns their keep.
Real Kentucky Example: 5,000 Monthly Income And 1,000 In Debts
Here is a simple FHA-style scenario for a borrower in Kentucky earning 5,000 per month with 1,000 in monthly debts on the credit report.
Item
Calculation
Amount
Gross monthly income
Stated
5,000
Front-end limit (31 percent)
5,000 × 0.31
1,550
Back-end limit (43 percent)
5,000 × 0.43
2,150
Existing debts
Car, cards, student loans
1,000
Back-end room for house payment
2,150 − 1,000
1,150
Estimated maximum PITI payment
Lower of 1,550 and 1,150
1,150 per month
Depending on rate, taxes, and insurance, a payment in this range might support a price point somewhere around the high 100s to low 200s in many Kentucky markets. Exact numbers require a full quote.
Want To Know Exactly How Much House You Qualify For In Kentucky?
A quick pre-approval conversation can take the guesswork out of DTI. We can run your income, debts, and credit through multiple Kentucky lenders and programs and show you real numbers instead of rough estimates.
Email - kentuckyloan@gmail.com 
Call/Text - 502-905-3708
Website: www.mylouisvillekentuckymortgage.com
Address: 911 Barret Ave., Louisville, KY 40204
