How much income do I need qualify for Kentucky Home Loan?

Kentucky Lender's Criteria: Debt-to-Income Ratios

The Debt-to-Income (DTI) ratio is a critical factor in determining whether you qualify for a mortgage along with credit, work history and assets. It measures how much of your gross monthly income is used to cover your monthly debt obligations.

For Most Kentucky Mortgage loans ,the  debt to income ratio is centered around the front end ratio and back end ratio. The front end ratio will vary according to the different types of loans, and I will show them below.  The backend ratio, which measures the new house payment along with your current monthly payments on the credit report along with any court ordered payments like child support, DTI limit is typically 45 to 50%

From a Kentucky Mortgage lender's perspective, your ability to purchase a home depends largely on the following factors:

Front-End Ratio

The front-end ratio is the percentage of your yearly gross income dedicated toward paying your mortgage each month. Your mortgage payment consists of four components: principal, interest, taxes and insurance (often collectively referred to as PITI) A good rule of thumb is that PITI should not exceed 31% of your gross income. If you make $100,000 a year, then your max house payment to include escrows for home insurance, mortgage insurance, property taxes would be $2583.00

Back-End Ratio

The back-end ratio, also known as the debt-to-income ratio, calculates the percentage of your gross income required to cover your debts. Debts include your mortgage, credit-card payments, child support and other loan payments. Most lenders recommend that your debt-to-income ratio does not exceed 45% of your gross income. To calculate your maximum monthly debt based on this ratio, multiply your gross income by 0..45 and divide by 12. For example, if you earn $100,000 per year, your maximum monthly debt expenses should not exceed $3,750 with new mortgage payment. Utility bills, car insurance, cell phone bills, insurance payments does not factor into this ratio. Only bills listed on credit report and 401k loan and child support payment




If you are looking to purchase your first home, you have probably been doing your research about properties in your area, where you might be able to obtain a loan and how to qualify for it. A key term you may recognize from all that research is "debt-to-income ratio," which refers to the figure you get when you add up all your monthly debt payments and then divide that number by your monthly income. In laymen's terms, the debt-to-income ratio gives potential mortgage lenders an idea of how much your expenses are each month in comparison to how much you actually earn.


Depending on where you are in the home-buying process, you may have a good idea of where your credit score lands. As important as a strong credit score is, however, a favorable debt-to-income ratio is arguably of equal importance, and it may be just as closely scrutinized by any potential mortgage lender.

Front-end ratios vs. back-end ratios

When you try and obtain a loan, expect possible lenders to review two types of debt-to-income ratio. The front-end ratio, or "housing" ratio, gives them an idea of what percentage of your monthly income would have to go toward home-related expenses, such as the mortgage, associated taxes and any additional fees, such as homeowner's association expenditures, that may apply.


The back-end ratio, on the other hand, takes a more cumulative approach and compares your monthly income to all your expenses, from the housing-related ones to school tuition, child support, car payments and any other financial obligations you may have.

The ideal debt-to-income ratio

The exact percentage your lender will look for will likely vary based on factors such as your credit score, how much you have in your savings account and how much you have to put down for your down payment. Most standard lenders, however, prefer to see something in the ballpark of 28 percent for a front-end ratio. For a back-end ratio, they will likely look for a percentage that does not exceed 36 percent. Federal Housing Authority lenders typically look for a front-end ratio of about 31 percent and a back-end ratio that does not exceed 43 percent.

DTI Calculator for Kentucky Mortgage Loans

Wondering how much house you can afford in Kentucky? Use our simple DTI (Debt-to-Income) ratio calculator to estimate your maximum monthly mortgage payment based on FHA, USDA, VA, KHC, and Conventional loan program guidelines. This is especially helpful for first-time homebuyers in Kentucky applying for zero-down USDA loans, FHA loans, or KHC Down Payment Assistance.

DTI Max House Payment Calculator

Gross Monthly Income ($): Total Monthly Debt Payments ($): Front-End DTI (%) Back-End DTI (%)

At EVO Mortgage, we help clients across Kentucky understand how to qualify based on DTI ratios, credit scores, and loan program rules. Contact Joel Lobb or call/text 502-905-3708 to get pre-approved today!

Lower a high ratio

Simply put, the most effective way to lower a high debt-to-income ratio and therefore make yourself more appealing to lenders is to pay off some of your debt. If you have a cosigner who may be willing to help you out with a loan, that could serve as an additional method of getting around a high ratio.

To calculate the debt-to-income (DTI) ratio for the scenario you provided, you'll need to figure out both the front-end and back-end DTI ratios.

1. Front-end DTI ratio: This ratio only includes the mortgage payment (including principal, interest, taxes, and insurance) divided by your gross monthly income.




2. Back-end DTI ratio: This ratio includes all monthly debts (mortgage, credit cards, auto loans, student loans, etc.) divided by your gross monthly income.

   
   

(DTI) ratio requirements for different types of mortgage loans in Kentucky, including FHA, VA, USDA, Fannie Mae, and Kentucky Housing loans

Here’s a breakdown showing how much house payment a borrower making $5,000 gross per month with $1,000 in monthly debts can qualify for across various loan programs in Kentucky, based on standard DTI guidelines. The table displays both front-end and back-end limits and illustrates which payment amount would be the true qualifying cap under each program. Let me know if you want to add taxes, insurance, or MI estimates next.

1 -  Email - kentuckyloan@gmail.com 

2.   Call/Text - 502-905-3708

Joel Lobb
Mortgage Loan Officer - Expert on Kentucky Mortgage Loans

 Website: www.mylouisvillekentuckymortgage.com
 Address: 911 Barret Ave., Louisville, KY 40204

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Evo Mortgage
Company NMLS# 1738461
Personal NMLS# 57916

For assistance with Kentucky mortgage loans, reach out via email, call, or text Joel Lobb directly.

Kentucky Local Home Loan Lender Services

 First-Time Home Buyers Welcome
 FHA, Rural Housing (USDA), VA, and Kentucky Housing Corporation (KHC) Loans
 Conventional Loan Options Available
 Fast Local Decision-Making
 Experienced Guidance Through the Home Buying Process

FHA Loans in Kentucky for First-Time Homebuyers: 2025 Guide

If you’re buying your first home in Kentucky, an FHA loan might be the perfect option. These government-backed mortgages help first-time buyers secure financing with low down payments, flexible credit requirements, and assistance options like the Kentucky Housing Corporation’s Down Payment Assistance Program.

🔍 What Is an FHA Loan?

An FHA loan is insured by the Federal Housing Administration and designed to make homeownership more accessible to moderate and low-income borrowers. FHA loans allow for:

• Down payments as low as 3.5%
• Credit score requirements starting at 580
• Assistance with closing costs
• Use of gift funds or grants

📊 FHA vs. Conventional Loan Comparison

📝 Who Qualifies for an FHA Loan in Kentucky?

• Credit Score: 580+ for 3.5% down or 500–579 with 10% down
• DTI Ratio: Max 43% standard, up to 50% with strong compensating factors
• Employment: 2 years in the same field preferred
• Residency: Must be a U.S. citizen or legal resident
• Property: Primary residence that passes an FHA appraisal

📍 Local Advantage: Kentucky Housing Corporation DPA

First-time buyers in Kentucky may qualify for up to $10,000 in down payment assistance through the KHC. This forgivable second mortgage can be combined with an FHA loan for little-to-no money down.

🎯 Step-by-Step FHA Loan Process

1. Apply with an FHA-approved lender
2. Submit income, credit, and asset documentation
3. FHA assigns a case number
4. Appraisal is ordered
5. Loan goes through underwriting
6. Clear to close!

❓ Frequently Asked Questions

What is the minimum credit score required?

580+ for 3.5% down; 500–579 requires 10% down.

Does Kentucky offer assistance with FHA loans?

Yes, KHC offers up to $10,000 in down payment assistance.

Can FHA loans be assumed by a future buyer?

Yes. FHA loans are assumable — a big advantage in a rising-rate market.

📢 Ready to Get Pre-Approved?

Work with a trusted Kentucky FHA loan expert — Joel Lobb has helped over 1,300 families become homeowners.

Start Your FHA Loan Application

Joel Lobb - Senior Loan Officer
NMLS #57916 | 📞 (502) 905-3708 | 📧 kentuckyloan@gmail.com
🌐 www.mylouisvillekentuckymortgage.com

🏡 Which Home Loan Is Right for You in Kentucky?

When it comes to buying a home in Kentucky—whether you're in Louisville, Lexington, Bowling Green, or a rural community—choosing the right mortgage loan can make or break your homeownership journey. With so many loan options available, it’s crucial to understand the differences between FHA, VA, USDA, and Conventional loan programs.

✅ Conventional Loans

Best for: Borrowers with excellent credit and stable income
Minimum Credit Score: 620 (680+ preferred)

• Competitive interest rates for strong-credit borrowers
• 3%–20% down payment options
• Available for primary, secondary, and investment properties
• No income or location restrictions

✅ FHA Loans

Best for: First-time homebuyers or those with less-than-perfect credit
Minimum Credit Score: 580 with 3.5% down (500 with 10% down)

• Flexible credit and income guidelines
• Low down payment (3.5%)
• Higher allowable debt-to-income ratios
• Seller concessions up to 6% allowed

✅ USDA Rural Housing Loans

Best for: Low-to-moderate income buyers in eligible rural or suburban Kentucky areas
Minimum Credit Score: 640 (for GUS approval)

• 100% financing (zero down)
• No monthly PMI
• Low interest rates and fees
• Income and location eligibility required

✅ VA Loans

Best for: Veterans, active-duty service members, and eligible spouses
Minimum Credit Score: 580–620 (varies by lender)

• 100% financing with no down payment
• No monthly mortgage insurance (PMI)
• Flexible credit and DTI requirements
• Must provide a Certificate of Eligibility (COE)

📊 Home Loan Comparison Chart

Loan Type	Credit Flexibility	Down Payment	Income Limits	Geographic Restrictions
FHA	✔ More forgiving	3.5%	❌ None	❌ None
VA	✔ Flexible	0%	❌ None	❌ None
USDA	⚠ Moderate	0%	✔ Yes	✔ Yes
Conventional	❌ Stricter	3%–20%	❌ None	❌ None

💬 Ready to Buy a Home in Kentucky?

Whether you're a first-time buyer, a veteran, or relocating to rural Kentucky, choosing the right loan starts with the right guidance. I’m Joel Lobb, a mortgage broker with over 20 years of experience helping Kentucky families navigate their path to homeownership.

➡️ Apply for your Kentucky mortgage now

📞 Call/Text: (502) 905-3708
📧 Email: kentuckyloan@gmail.com
🏢 Office: 911 Barret Ave., Louisville, KY 40204

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Disclosures:
Joel Lobb, Senior Loan Officer – Evo Mortgage Company NMLS# 1738461 Personal NMLS# 57916
Equal Housing Lender. Licensed to originate mortgage loans in Kentucky only.
Information subject to change without notice and based on credit approval.

Different Types of Kentucky Home Loans

Understanding the Four Main Mortgage Loan Programs in Kentucky

When securing a mortgage loan in Kentucky, your loan will likely be backed by one of four major agencies: FHA, VA, USDA, or Fannie Mae/Freddie Mac (conventional loans). Each program has unique benefits and qualifications, tailored to different types of borrowers. Here's a breakdown to help you determine which program might be the best fit for you.

Conventional Loan

• At least 3%-5% down

• Closing costs will vary on which rate you choose and the lender. Typically, the higher the rate, the lesser closing costs due to the lender giving you a lender credit back at closing for over par pricing. Also, called a no-closing costs option. You have to weigh the pros and cons to see if it makes sense to forgo the lower rate and lower monthly payment for the higher rate and less closing costs.

Fico scores needed start at 620, but most conventional lenders will want a higher score to qualify for the 3-5% minimum down payment requirements Most buyers using this loan have high credit scores (over 720) and at least 5% down.

The rates are a little higher compared to FHA, VA, or USDA loan but the mortgage insurance is not for life of loan and can be rolled off when you reach 80% equity position in home.

Conventional loans require 4-7 years removed from Bankruptcy and foreclosure.

Kentucky USDA Rural Housing Program

If you meet income eligibility requirements and are looking to settle in a rural area, you might qualify for the KY USDA Rural Housing program. The program guarantees qualifying loans, reducing lenders’ risk and encouraging them to offer buyers 100% loans. That means Kentucky home buyers don’t have to put any money down, and even the “upfront fee” (a closing cost for this type of loan) can be rolled into the financing.

Fico scores usually wanted for this program center around 620 range, with most lenders wanting a 640 score so they can obtain an automated approval through GUS. GUS stands for the Guaranteed Underwriting system, and it will dictate your max loan pre-approval based on your income, credit scores, debt to income ratio and assets.

They also allow for a manual underwrite, which states that the max house payment ratios are set at 29% and 41% respectively of your income.

They loan requires no down payment, and the current mortgage insurance is 1% upfront, called a funding fee, and .35% annually for the monthly mi payment. Since they recently reduced their mi requirements, USDA is one of the best options out there for home buyers looking to buy in an rural area.

A rural area typically will be any area outside the major cities of Louisville, Lexington, Paducah, Bowling Green, Richmond, Frankfort, and parts of Northern Kentucky.

There is a map link below to see the qualifying areas.

USDA requires 3 years removed from bankruptcy and foreclosure.

There is no max USDA loan limit.

Kentucky FHA Loan

FHA loans are good for home buyers with lower credit scores and no much down, or with down payment assistance grants. FHA will allow for grants, gifts, for their 3.5% minimum investment with a 580-credit score or higher. And will go down to a 500-credit score with 10% down payment.

The current mortgage insurance requirements are kind of steep when compared to USDA, VA, but the rates are usually good so it can counteract the high mi premiums. As I tell borrowers, you will not have the loan for 30 years, so don’t worry too much about the mi premiums.

The mi premiums are for life of loan like USDA.

FHA requires 2 years removed from bankruptcy Chapter 7 and 1 year from a Chapter 13 plan and 3 years removed from foreclosure.

Kentucky VA Loan

VA loans are for veterans and active-duty military personnel. The loan requires no down payment and no monthly mi premiums, saving you on the monthly payment. 

It does have a funding fee like USDA, but it is higher starting at 2.3% for first time use, and 3.6% for second time use. The funding fee is financed into the loan, so it is not something you have to pay upfront out of pocket.

VA loans can be made anywhere, unlike the USDA restrictions, and there is no income household limit and NO max loan limits in Kentucky 

Most VA lenders I work with will want a 580-credit score even though VA does not require a minimum credit score per se on their written guidelines.

VA requires 2 years removed from bankruptcy or foreclosure.

Kentucky Down Payment Assistance

This type of loan is administered by KHC in the state of Kentucky. They typically have $10,000 down payment assistance year around, that is in the form of a second mortgage that you pay back over 10 years.

Sometimes they will come to market with other down payment assistance and lower market rates to benefit lower income households with not a lot of money for down payment.

KHC offers FHA, VA, USDA, and Conventional loans with their minimum credit scores being set at 620 for all programs. The conventional loan requirements at KHC requires 660 credit score.

The max debt to income ratios is set at  50% respectively.

USDA, VA, FHA, and Conventional Loans in Kentucky: Key Differences First-Time Homebuyers Must Know

When you're buying a home in Kentucky, selecting the right mortgage program is critical. Whether you're a first-time homebuyer or looking to upgrade, understanding the core differences between USDA, VA, FHA, and Conventional loans will help you make a confident, informed decision.

Below is a quick visual comparison followed by a detailed breakdown tailored to Kentucky borrowers.

Loan Program Comparison Chart

Feature	USDA	VA	FHA	Conventional
Max Financing	100%	100%	96.5%	97% (3%–5% down)
Financing Closing Costs	✅ Yes	❌ No	❌ No	❌ No
Upfront Fee	1.0% Guarantee Fee	0.3–3.6% VA Funding Fee	1.75% MIP	Varies
Monthly Mortgage Insurance	0.35%	❌ None	0.85%	Varies (can drop at 80% LTV)
Bankruptcy Wait	3 Years	2 Years	2 Years (Ch. 7)	4–7 Years
Foreclosure Wait	3 Years	2 Years	3 Years	7 Years
Short Sale Wait	3 Years	2 Years	3 Years	4 Years
Seller Concessions	6%	No cap (4% to debts)	6%	3–9% depending on LTV

Kentucky USDA Rural Housing Loan

• Ideal for: Rural Kentucky homebuyers with low to moderate income

• Down Payment: 0% required

• Credit Score: Most lenders want 640+ for automated approval via GUS

• Mortgage Insurance: Low (.35% monthly; 1% upfront)

• Location: Must be in USDA-eligible rural zones

• Bankruptcy/Foreclosure Wait: 3 years

• Best for: Borrowers who want 100% financing in eligible rural areas

Kentucky VA Loan (For Veterans and Military)

• Ideal for: Veterans, active duty, and eligible military members

• Down Payment: 0% required

• Credit Score: Typically 580+ (no official VA minimum)

• Mortgage Insurance: None

• Funding Fee: 2.3% (first-time use), 3.6% (subsequent use)

• Location: Anywhere in Kentucky

• Bankruptcy/Foreclosure Wait: 2 years

• Best for: Military buyers wanting no down payment and no MI

Kentucky FHA Loan

• Ideal for: First-time homebuyers or those with credit challenges

• Down Payment: 3.5% with 580+ credit score; 10% with 500–579

• Credit Score: 580 minimum for most

• Mortgage Insurance: 0.85% monthly for life of loan; 1.75% upfront

• Bankruptcy Wait: 2 years (Ch. 7), 1 year (Ch. 13 plan)

• Foreclosure Wait: 3 years

• Grants Allowed: Yes (e.g., KHC DAP)

• Best for: Buyers with less-than-perfect credit or lower down payments

Conventional Loan (Fannie Mae/Freddie Mac)

• Ideal for: Buyers with strong credit and stable income

• Down Payment: 3%–5%

• Credit Score: 620 minimum (680+ preferred for best pricing)

• Mortgage Insurance: Varies, can be removed at 80% LTV

• Closing Costs: Often higher unless lender-paid via higher rate

• Bankruptcy Wait: 4 years (Ch. 7), 2 years (Ch. 13)

• Foreclosure Wait: 7 years

• Best for: Borrowers with higher scores and at least 3%–5% down

Kentucky Down Payment Assistance (KHC)

• DPA Offered: $10,000 second mortgage paid over 10 years

• Available for: FHA, VA, USDA, Conventional

• Min Credit Score: 620 (660 for Conventional)

• Debt Ratio Cap: 50%

• Perfect for: Buyers with solid income but no down payment

1 -  Email - kentuckyloan@gmail.com 

2.   Call/Text - 502-905-3708

Joel Lobb
Mortgage Loan Officer - Expert on Kentucky Mortgage Loans

 Website: www.mylouisvillekentuckymortgage.com
 Address: 911 Barret Ave., Louisville, KY 40204

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Evo Mortgage
Company NMLS# 1738461
Personal NMLS# 57916

For assistance with Kentucky mortgage loans, reach out via email, call, or text Joel Lobb directly.

What is the difference between Conventional, FHA and VA Mortgage loans in Kentucky

 

Conventional vs. FHA vs. VA loans in Kentucky

 I will outline below the credit score, loan limits, down payment and mortgage insurance requirements for FHA, VA and Conventional Mortgage Loans in Kentucky!

			Upfront funding fee of 1.4% to 3.6%

Can you use Foster Income for a Kentucky Mortgage Loan Approval?

 Foster Income for a Kentucky Mortgage 

Yes, if it can be documented that foster care income has been received for the last 2 years that income is likely to continue for at least 3 years from the date of the Note, then it can be used to qualify. 

Yes, we need to show 24 months receipt of this income, possible exception if only received for 12 months, and we would need something from the agency showing this will continue for 3 years.

Foster-Care Income for a Mortgage Loan Approval

What are the guidelines?

Income received from a state- or county-sponsored organization for providing temporary care for one or more children may be considered acceptable stable income if the following requirements are met.

✓	Verification of Foster-Care Income
	Verify the foster-care income with letters of verification from the organizations providing the income.
	Document that the borrower has a two-year history of providing foster-care services. If the borrower has not been receiving this type of income for two full years, the income may still be counted as stable income if the borrower has at least a 12-month history of providing foster-care services, and the income does not represent more than 30% of the total gross income that is used to qualify for the mortgage loan.

Comparison of Guidelines for Foster Care Income by Loan Type

Different loan programs have different rules for foster care income. Below is a comparison table summarizing how each major loan type treats this income, plus their documentation and gross-up allowances:

Loan Program	Use of Foster Care Income	Required History	Continuance Required	Documentation Needed	Gross-Up (Non-Taxable)
FHA (HUD)	Allowed if stable and ongoing. Counts in DTI.	2 years providing care. Less if strong case rarely.	Must be “reasonably likely to continue” (no fixed 3-year proof, just no evidence of stopping).	Letter from agency verifying 2-year history & payments.	Up to 15% increase (if tax-free).
Conventional (Fannie Mae)	Allowed if stable. Counts in DTI.	2 years history OR 12+ months if ≤30% of total income.	No need to document 3-year continuance explicitly.	Letters from paying organization verifying income.	Up to 25% increase (standard for non-taxable income).
Conventional (Freddie Mac)	Allowed if stable. Counts in DTI.	2 years consistent receipts (no short history exception mentioned).	Should likely continue 3+ years (no lender proof required unless doubts).	Agency letters; potentially proof of continued foster placement if available.	Up to 25% increase (standard for non-taxable income).
USDA (Rural)	Not allowed as qualifying income for loan repayment.	N/A – income not counted.	N/A – income not counted.	N/A – they exclude foster payments entirely.	N/A (income can’t be used, so gross-up doesn’t apply).
VA (Veterans)	Not counted toward DTI; used only to offset foster care expenses.	No specific requirement (generally needs consistent history if considered for offset).	N/A for DTI (but must show current foster placement to offset dependents).	Possibly agency letter if using to offset residual requirement.	Generally 25% if used for ratios (but main income listed as net).

Legend: DTI = Debt-to-Income ratio (used for loan qualifying ratios).

Understanding Foster Care Income in Mortgage Approval

What counts as foster care income? 

It’s generally the stipend paid by a state or county agency to you for providing care to a foster child or adult. This income is typically non-taxable (it won’t show up on your tax returns). Lenders can count it only if it’s stable and likely to continue, and they may even “gross it up” (increase it) since it’s tax-free.

Key considerations for using foster income:

• History of Income: Most programs want a track record (often 12–24 months) of you providing foster care and receiving payments.

• Documentation: You’ll need official verification, usually letters from the agency that pays you.

• Continuance: Lenders want to know the income is likely to keep coming. Some require proof it will continue for 3 more years, while others are satisfied if no evidence suggests it will stop.

• Portion of Total Income: If foster payments are a small part of your total income, some rules are more flexible. For example, Fannie Mae will allow just 12 months of history if foster income is ≤30% of your total income.

Foster care income, typically provided by state or county-sponsored organizations to caregivers, and AFC income for adult care, are forms of government assistance. Their eligibility for mortgage qualification depends on the loan type and underwriting guidelines of agencies like FHA, Fannie Mae, Freddie Mac, VA, and USDA. 

Given the variability in lender practices and agency policies, this analysis aims to clarify conditions for using such income, drawing from multiple sources including mortgage blogs, official guides, and expert articles, with a focus on Kentucky’s unique programs.

The guidelines for using foster care and AFC income vary across loan types. Below is a detailed breakdown, organized by agency and loan program, based on recent findings as of April 2025.

• FHA Loans

  • FHA loans allow foster care income with a 12-month history if received regularly and likely to continue, aligning with their flexibility for non-traditional income sources.
  • Non-taxable income can be grossed up by 25%, enhancing qualifying potential.
  • Documentation includes a letter from the organization, bank statements showing regular deposits, and verification of continuance for at least three years, as per FHA Loan Income Requirements.
  • Perfect for first-time buyers, especially in Kentucky, given FHA’s lenient DTI ratios up to 50% with strong credit.

• Conventional Loans (Fannie Mae)

  • Fannie Mae requires a 12-month history if foster care income is no more than 30% of total gross income, or 2 years otherwise, with confirmation it will continue for at least 3 years.
  • Non-taxable income may be grossed up by 25%, similar to FHA.
  • Documentation involves letters from the foster care agency, 1099s for 2 years if applicable, and bank statements, as outlined in Fannie Mae Other Sources of Income.
  • Stricter than FHA, but suitable for borrowers with stable income histories.

• Conventional Loans (Freddie Mac)

  • Freddie Mac requires a 2-year history of receiving foster care income, with evidence it will continue for at least 3 years, reflecting a more conservative approach.
  • Non-taxable income gross-up is typically 25%, consistent with industry standards.
  • Documentation includes 1099s for 2 years and a 24-month average for calculation, ensuring consistency, as per Freddie Mac Seller/Servicer Guide.

• VA Loans

  • VA loans accept foster care income if stable and verifiable, with a 12-month documentation period often sufficient via bank statements or agency contracts.
  • Non-taxable income can be grossed up, but there’s some debate on its universal acceptance, so lender consultation is advised.
  • Documentation includes standard income verification like letters and bank statements, as noted in VA Loan Employment Requirements.
  • Great for veterans or spouses, but clarity on foster care income usage varies, requiring lender verification.

• USDA Loans

  • USDA loans do not count foster care income for eligibility purposes (income limits), as it’s excluded from household income calculations, per USDA Income Eligibility Guidelines.
  • However, it may be considered for qualification (repayment ability) if stable and reliable, with 12-month proof and verification of continuance for 3 years.
  • Gross-up allowed for non-taxable income (typically 25%), but this is less common due to eligibility exclusions.
  • Documentation includes standard verification, but usage for qualification needs lender confirmation, given rural focus and income limits.

Documentation Requirements

Across loan types allowing foster care income, documentation is critical to verify stability and continuity. Common requirements include:

• A letter from the state or county organization providing the foster care income, confirming amount, payment schedule, and expected continuation.
• Copies of the borrower’s signed federal income tax returns, particularly 1099s for non-employment income, to establish history.
• Bank statements or deposit slips showing regular deposits of foster care payments, ensuring consistency.
• For FHA loans, additional verification may involve checking state agency guidelines and the age of individuals in care, reflecting the unique nature of foster care.

The table below summarizes the key guidelines for each loan type, highlighting the minimum history, continuance requirements, and documentation needed:

Loan Type	Agency	Minimum History	Continuance	Documentation	Additional Notes
VA, USDA	N/A	Not Allowed	N/A	N/A	Foster income cannot be considered for qualification.
Conventional	Freddie Mac	2 years	3 years likely	1099s for 2 years, 24-month average for calculation	Must be from state/county-sponsored organization.
Conventional, FHA	Fannie Mae	12 months (if ≤30% of total gross income) or 2 years	Likely to continue	Letter from organization, verification of 2 years receipt	If 12 months, income must not exceed 30% of total gross income for qualification.
FHA	N/A	24 months (averaged like commission) or 2 years	Likely to continue	Letter from organization, verification of receipt, state agency guidelines, age of children	Same as Fannie Mae for 12 months/2 years, must verify stability and continuance.

This table illustrates the variability in requirements, with Fannie Mae and FHA offering more flexibility for shorter histories under certain conditions, while Freddie Mac and VA/USDA impose stricter or exclusionary rules.

Learn more below about using Foster Care Income below at the following links:

• FHA Loan Income Requirements for 2023
• Fannie Mae Other Sources of Income
• Freddie Mac Seller/Servicer Guide
• VA Loan Employment Requirements and Income Verification
• USDA Income Eligibility Guidelines and Maximum
• KHC Down Payment Assistance Program
• Lexington First-Time Homebuyer Program
• LouisvilleKY.gov Down Payment Assistance Program

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