Variable Income for A Mortgage Loan Approval in Kentucky

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.

Table of Contents

1. What Is Variable Income?
2. How Lenders Calculate Variable Income
3. Income History Requirements
4. Income Trending Analysis
5. Variable Income by Loan Program
6. Documentation Checklist
7. Common Denial Reasons
8. Your Approval Steps

What Is Variable Income? (And Do You Have It?)

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:

• Excellent credit score (720+): Demonstrates financial responsibility
• 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.

Call/Text 502-905-3708 for a free income review

How Variable Income Affects Each Loan Program

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

Learn FHA approval process →

VA Loans (Very Flexible)

Variable Income Tolerance: Excellent

• No down payment required
• No minimum credit score
• Accepts variable income with documentation
• Accepts declining income if explained
• Veteran/active military only

Best for: Veterans with commission, overtime, bonuses

Learn VA approval process →

USDA Loans (Moderate Flexibility)

Variable Income Tolerance: Good

• Requires 2 years variable income history
• No down payment required
• Rural property requirement
• Income limits by county
• Requires strong documentation

Best for: Rural buyers with stable variable income

Learn USDA approval process →

Fannie Mae Conventional (Strict)

Variable Income Tolerance: Moderate

• Requires 2 years consistent/increasing income
• Credit score: 680+ preferred
• Down payment: 5-20%
• Declining income often rejected
• Stricter documentation

Best for: Buyers with stable variable income + strong credit

Learn Fannie Mae approval process →

KHC Programs (Designed for KY Buyers)

Variable Income Tolerance: Excellent

• Specifically for first-time buyers
• Flexible variable income standards
• Down payment assistance available
• Lower credit score requirements
• Kentucky residents only

Best for: Kentucky first-time buyers needing down payment help

Learn KHC approval process →

Loan Program	Min. Income History	Min. Credit Score	Down Payment	Variable Income Flexibility
FHA	12-24 months	580 500	3.5%, 10% down	Excellent ✓✓✓
VA	12+ months	None but 620 preferred	0%	Excellent ✓✓✓
USDA	2 years	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:

1. Gather your documents — Collect 2 years of paystubs, W-2s, and tax returns
2. Analyze your income trend — Is it stable, increasing, or declining? (This determines your approval odds)
3. Identify the right program — Are you a first-time buyer? Veteran? Rural buyer? (This determines your best option)
4. Get a free pre-approval — Call or text me for a same-day income analysis
5. 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.

📞 Call/Text: 502-905-3708
📧 Email: kentuckyloan@gmail.com

Free mortgage application • Same-day pre-approval • No obligations

Why Kentucky Homebuyers Choose Me

With over 20 years of mortgage experience and 1,300+ Kentucky families helped, I specialize in situations others turn down:

• Variable income expertise: I know exactly how to present your income to maximize approval odds
• Local Kentucky knowledge: I understand state-specific programs like KHC and their unique flexibility
• Fast approvals: Same-day pre-approval because I focus on efficiency and organization
• Down payment assistance: I identify programs that reduce your out-of-pocket costs
• Personal attention: You work directly with me—not a processing team or script

Related Resources for Kentucky Homebuyers

• How to Calculate Your Debt-to-Income Ratio (DTI)
• Kentucky FHA Loan Advantages: Why 1,000+ Families Chose FHA
• KHC Down Payment Assistance Programs: How Much Can You Receive?
• VA Loans in Kentucky: The Zero Down Payment Solution
• USDA Loan Eligibility: Rural Kentucky Properties
• Credit Score Myths: What You Really Need to Get Approved

Contact Joel Lobb, Mortgage Broker FHA, VA, KHC, USDA

📞 Call or Text: 502-905-3708
📧 Email: kentuckyloan@gmail.com
🌐 Website:

Licensing Information:
Joel Lobb, Mortgage Broker FHA, VA, KHC, USDA
NMLS Personal ID: 57916
Company NMLS ID: 1738461
Verify on NMLS Consumer Access

Equal Housing Lender. This website is not endorsed by the FHA, VA, USDA, KHC, or any government agency.

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Kentucky FHA Job Gap Guidelines Explained

Kentucky FHA Job Gap Guidelines: What Borrowers Need to Know

Are you worried that a job change or period of unemployment will disqualify you from getting an FHA loan in Kentucky? You're not alone. Many first-time homebuyers assume that any employment gap means instant rejection. The good news: FHA's rules are far more flexible than most people realize.

This comprehensive guide covers everything Kentucky homebuyers need to know about FHA job gap requirements, employment stability standards, and how to document your income history to qualify for an FHA mortgage.

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FHA's Two-Year Employment Requirement: What It Really Means

One of the biggest misconceptions about FHA loans is that you must work for the same employer for two full years. This simply isn't true.

FHA doesn't require employment continuity with a single employer. Instead, mortgage lenders verify your overall employment and income stability over the past 24 months. This means FHA evaluators look at the complete picture of your work history, not just tenure at one job.

When reviewing your employment history, FHA-approved lenders examine:

• Job changes and transitions between employers
• Periods of unemployment or gaps in employment
• Changes in industry, career field, or job title
• Income patterns, consistency, and growth over time
• Explanation letters for any breaks in employment

Even minor gaps—sometimes just one month—typically require written explanation from the borrower. This documentation helps lenders understand the context behind employment interruptions and assess your likelihood of continued income.

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FHA Job Gaps Longer Than Six Months: How They're Evaluated

A job gap lasting six months or longer does trigger additional FHA scrutiny, but it doesn't automatically disqualify you. FHA guidelines allow your income to be counted for qualifying purposes as long as two key conditions are met:

• Return to stable employment: You must have been back to work for at least six months in your current position or in a similar line of work
• Prior work history: You can demonstrate a stable two-year employment history before the gap occurred

The types of employment history that count toward this requirement include:

• Traditional W-2 employment with previous employers
• Industry-specific training or apprenticeships
• Educational programs and vocational certifications
• Military service (full or part-time)
• Self-employment in your field

The key principle is demonstrating that you have a consistent pattern of work and income—with a reasonable explanation for the interruption.

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Acceptable Reasons for Employment Gaps in FHA Underwriting

FHA underwriters understand that real life happens. The program was created to help working families, including those with imperfect employment histories. FHA permits and accepts employment gaps for the following reasons:

• Job loss: Layoffs, company closures, or reductions in force
• Medical hardship: Illness, injury, or recovery requiring time away from work
• Family leave: Parental leave, childcare responsibilities, or family caregiving
• Education and training: Pursuit of certifications, degrees, or vocational training
• Seasonal employment: Natural gaps in seasonal, cyclical, or project-based work
• Military service: Active duty, reserve service, or transition periods
• Relocation: Job search during a move to a new geographic area

What matters most is that you can document the reason for the gap and demonstrate that you've returned to stable, ongoing employment. Your current job should show signs of stability and reasonable likelihood of continuation.

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How FHA Treats Variable and Irregular Income

Not all income is earned the same way. Certain income sources fluctuate by nature, so FHA requires longer documentation periods to prove they're reliable.

FHA allows lenders to count the following variable income types toward your qualifying income:

• Overtime pay
• Bonus compensation
• Commission-based earnings
• Part-time employment
• Seasonal work
• Freelance or contract income

The requirement: You must show at least 24 months of consistent history with this income type. Alternatively, if you have strong evidence that this income is expected to continue—such as a new employment contract or documented growth trend—lenders may use shorter history periods.

For example, if you earn significant commission income, your lender will review your past two years of tax returns and pay stubs to calculate an average. If the average is stable or increasing, it typically qualifies for your mortgage application.

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Self-Employment and FHA Job Gap Rules

Self-employed borrowers face somewhat stricter requirements because business income can be variable and subject to change. Typically, FHA requires a minimum two-year history of self-employment to use business income for qualifying.

However, FHA does allow exceptions if:

• You previously worked in the same field before becoming self-employed, or
• You completed formal education, training, or apprenticeship directly related to your business before launching it

When evaluating self-employment income, FHA lenders review:

• Two years of complete federal tax returns (1040 with Schedule C)
• Year-to-date profit and loss statements
• Evidence of business stability and positive cash flow
• Professional assessment of whether the business will likely continue

Self-employed borrowers should maintain organized business records and be prepared to explain their business model and income projections during the FHA application process.

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Does FHA Require Two Years With the Same Employer? No.

This myth persists among homebuyers, but it's simply not true. Let's clear up what FHA actually requires versus common misconceptions:

FHA Does NOT Require:

• Two consecutive years working for the same employer
• Two years in the same job title or position
• Two years of full-time employment only
• Zero employment gaps or job changes

FHA DOES Require:

• A verifiable two-year work history (with documented explanations for gaps)
• Current employment that's stable and likely to continue
• Demonstrated income stability and consistency
• Reasonable likelihood that you'll continue earning current income

The focus is on stability and income continuity, not rigid employment tenure. Job changes are normal, and FHA recognizes this. As long as you can explain your employment moves and show stable income, you'll likely qualify.

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Kentucky FHA Borrowers: What You Need to Qualify With a Job Gap

If you've experienced job changes, periods of unemployment, or employment transitions, you can still qualify for an FHA loan in Kentucky. Use this checklist to ensure you're prepared:

• Document every gap: Have a written explanation for any employment interruption, even brief ones
• Verify your stability: Show that you're currently employed in a stable position
• Follow the six-month rule: If your gap was longer than six months, ensure you've been back to work for at least six months
• Build your history: Demonstrate a solid two-year work history prior to any long gap
• Gather supporting documents: Prepare pay stubs, W-2 forms, offer letters, and employment verification letters

FHA loans exist to help real working people achieve homeownership—not just those with perfect employment records. With proper documentation and stable current employment, employment gaps won't derail your path to homeownership in Kentucky.

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Ready to Apply for a Kentucky FHA Mortgage?

If you have employment gaps, job changes, or variable income and want to explore FHA financing, I can provide a personalized review of your situation and qualifying options.

As a mortgage specialist focused on Kentucky first-time homebuyers for over 20 years, I've helped more than 1,300 families qualify for FHA loans—many with complex employment histories. I can guide you through the documentation process and connect you with loan programs designed to fit your specific circumstances.

Contact me today for a free, no-obligation FHA eligibility review:

Joel Lobb

Mortgage Loan Officer – FHA, VA, USDA & KHC Specialist

NMLS Personal ID: 57916 | Company NMLS ID: 1738461

📧 Email: kentuckyloan@gmail.com

📞 Phone/Text: (502) 905-3708

🌐 www.mylouisvillekentuckymortgage.com

Equal Housing Lender | Independent platform providing expert mortgage guidance to Kentucky homebuyers

FHA's 2-Year Employment Requirement

Understanding the Timeline: What FHA Actually Looks At

24m

Today

Current Employment

12m

12 Months Ago

Job History Review

24m

24 Months Ago

Full 2-Year Period

FHA Reviews: Overall employment stability over 24 months, NOT continuous employment with one employer

The 6-Month Rule for Job Gaps

When Employment Gaps Longer Than 6 Months Apply

6+ Months

Employment Gap

You Can Still Qualify If:

• Back to work for at least 6 months
• Current job is stable
• 2-year history before the gap
• Can explain the gap reason
• Reasonable income expectations

Acceptable Reasons for Employment Gaps

FHA Understands Life Happens

📉

Job Loss

Layoffs, company closures, or reduction in force

🏥

Medical Issues

Illness, injury, or recovery time

👶

Family Leave

Parental leave or childcare responsibilities

🎓

Education

Certifications, degrees, or training programs

🌾

Seasonal Work

Cyclical or seasonal employment gaps

🪖

Military Service

Active duty or transition periods

Variable Income Types FHA Accepts

Earn Different Ways? FHA Has You Covered

⏰ Overtime

24-month history

💰 Bonuses

24-month history

📊 Commission

24-month history

🕐 Part-Time

24-month history

🌾 Seasonal

24-month history

💼 Freelance

24-month history

All variable income types require consistent 24-month documentation or strong evidence of continuation

FHA Job Gap Myths vs Reality

Stop Believing These Common Misconceptions

❌ FHA Myths

• You need 2 years with same employer
• Any gap disqualifies you
• You can't have job changes
• Only full-time work counts
• Perfect employment history required

✓ FHA Reality

• 2-year work history (any employers)
• Gaps OK if documented & explained
• Job changes are normal & acceptable
• Part-time & variable income OK
• Real-world work history accepted

Example: How FHA Views Your Employment History

A Real-World Scenario

24 Months Lookback:

Job 1: 10mo

Gap: 2mo

Job 2: 10mo

✓ FHA Says: "This applicant has solid employment history with a minor gap. The gap is explained, and they're currently stable. APPROVED."

Qualification Checklist for Kentucky FHA Borrowers

Get Ready to Apply

✓ Are You Ready?

• Documentation: Written explanations for all employment gaps (even brief ones)
• Stability Proof: Evidence of current stable employment
• 6-Month Rule: If gap was 6+ months, you've been back to work 6+ months
• History: Solid 2-year work history before any long gaps
• Documents: Pay stubs, W-2s, offer letters, verification letters ready
• Income Calculation: 24-month average for variable income documented

Job History and Income Requirements for a Kentucky Mortgage Loan Approval

Job History & Income Requirements

Kentucky Mortgage Loan Approval Guide

Conventional Mortgage Loans

What Lenders Look For

Conventional loans require a minimum of two years of work history in a related field. If you've had recent employment gaps, lenders typically want to see at least six months in your current position to establish some stability.

If You Don't Have Two Years

Don't worry—you may still qualify through compensating factors. This means providing documentation that supports your qualifications for the job, such as a relevant degree, professional certification, or a detailed letter explaining your job transition. The key is showing that your background—whether through education, training, or previous roles—prepares you for success in your current position.

FHA Mortgage Loans

What Lenders Look For

The FHA prefers two years of related work history and requires at least six months in your current job if you've experienced gaps. The focus is on demonstrating employment stability and establishing that you're likely to remain employed or advance within your field.

How to Strengthen Your Application

Document your qualifications for your current role through education, training, or previous experience. FHA lenders want confidence that you'll be able to maintain your income throughout the life of your loan.

VA Mortgage Loans

What Lenders Look For

VA loans accept a two-year combination of work history, military service, and relevant education or training. If you're on active duty, you should be more than 12 months away from your release or separation date.

Documentation That Counts

Military service, trade certifications, apprenticeships, and degrees all contribute to showing you have the skills needed for your position. This flexibility makes VA loans an excellent option for veterans transitioning to civilian employment.

USDA Mortgage Loans

What Lenders Look For

USDA loans are the most flexible with employment history. There's no minimum time required in your current position. Instead, lenders focus on your overall two-year work or related history.

How to Show Your Timeline

Job changes and moves between positions are acceptable as long as you can explain any significant gaps. Periods spent earning a degree, completing military service, or gaining specialized training all count toward meeting the two-year requirement. Simply provide transcripts, discharge papers, or letters from employers documenting these periods.

Income Requirements Across All Programs

General Income Guidelines

• Your income must be sufficient to cover your monthly mortgage payment (principal, interest, taxes, insurance, and HOA fees if applicable) plus other debts
• Front-end ratio: Your housing payment should not exceed 28% of your gross monthly income
• Back-end ratio: Your total monthly debt payments (including the new mortgage) should not exceed 36-43% of your gross monthly income (varies by program)

Types of Income Accepted

• W-2 wages from your employer
• Self-employment income (usually requires two years of tax returns)
• Rental income from investment properties
• Retirement income and Social Security
• Child support or alimony (if you choose to include it)
• Investment income and dividends

Income Documentation Required

• Recent pay stubs (typically last 30 days)
• Last two years of tax returns
• W-2s from the past two years
• Bank statements showing account balances
• Letter of employment verification from your current employer

Key Takeaway: Every loan program has slightly different requirements, but they all share the same objective: lenders want assurance that you have stable employment and sufficient income to repay your mortgage. Even if your work history isn't perfect, there are multiple ways to qualify through compensating factors, relevant education, military service, or clear explanations of employment transitions.

Work With a Kentucky Mortgage Expert

If you're ready to explore your home loan options or have questions about your employment history and income, I'm here to help. With over 20 years of experience and more than 1,300 Kentucky families guided toward homeownership, I understand exactly what lenders are looking for—and how to present your strongest case.

📧 Email

kentuckyloan@gmail.com

📞 Call/Text

502-905-3708

🌐 Website

mylouisvillekentuckymortgage.com

📍 Office

911 Barret Ave., Louisville, KY 40204

Joel Lobb

Mortgage Loan Officer | Expert on Kentucky Mortgage Loans

NMLS Personal ID

57916

Company NMLS ID (Evo Mortgage)

1738461

License

Kentucky Mortgage Loan Officer

Equal Housing Lender

Specializing in FHA, VA, USDA, KHC, and conventional loans for first-time homebuyers and refinancing. Same-day approvals, personalized service, and down payment assistance programs available to eligible Kentucky homebuyers.