Kentucky Mortgage Underwriting Guidelines For Deposits, Job Gaps, Credit Inquiries

Kentucky Mortgage Education • 2026 Update

Kentucky Mortgage Underwriting Guidelines for Deposits, Job Gaps, and Credit Inquiries

Last Updated: January 2026

FHA VA USDA Conventional

Most Kentucky mortgage approvals do not fall apart because of interest rates or credit scores. They stall because underwriting needs clarification on employment gaps, recent credit inquiries, or bank deposits that do not match the borrower’s normal income pattern.

This 2026 guide explains exactly how Kentucky mortgage underwriters evaluate job history, deposits, earnest money, gift funds, and credit inquiries for FHA, VA, USDA, and Conventional loans — and how to prepare your file so it clears underwriting without last-minute conditions.

Employment history and job gaps for Kentucky mortgages

Underwriters require a documented two-year employment history. Job changes are common and usually acceptable, but gaps and frequent changes must be explained so the lender can determine income stability and likelihood of continued employment.

What triggers underwriting review

• Employment gaps of six months or more
• Multiple job changes within a short timeframe
• Changes in pay structure (hourly to commission, W-2 to self-employed)

What underwriting typically requires

• Signed letter of explanation outlining dates, reason for the gap, and why income is stable now
• Supporting documentation when applicable (school transcripts, medical leave, military service)
• Evidence that current employment is likely to continue

If school was your primary activity and you transitioned directly into employment in the same field, transcripts may satisfy part of the employment history requirement.

Credit inquiries and new debt review

Recent credit inquiries are not automatic deal-breakers. Underwriting simply must confirm that no new undisclosed debt was opened after the credit report was pulled.

Common underwriting conditions

• Signed explanation for each recent inquiry
• Confirmation whether new credit was opened
• Disclosure of payment terms if new debt exists

If a new account appears late in the process, the loan may pause while the file is re-underwritten. This is standard compliance, not lender discretion.

Large deposits in checking and savings accounts

Large or irregular bank deposits are one of the most common underwriting conditions on Kentucky mortgage loans. Lenders must confirm funds are from an acceptable source and not undisclosed borrowed money or incentives from an interested party.

How large deposits are commonly defined

• Conventional loans: deposits greater than 25% of gross monthly qualifying income
• FHA and VA loans: any large or unusual deposit, with heightened review at 2% or more of the purchase price

How underwriting evaluates deposits

• Are deposits consistent with normal income patterns?
• Is income direct-deposited?
• Is the account newly opened?
• Do multiple deposits aggregate into a large amount?

Required documentation

• Signed letter of explanation
• Proof of source such as paystubs, transfer records, sale receipts, or settlement statements

If a large deposit cannot be documented but you have sufficient verified assets without it, underwriting may exclude the deposit from usable funds and still approve the loan.

Cash on hand

Cash on hand is heavily scrutinized. Funds must be deposited and verified well before underwriting, and borrowers must demonstrate the ability to have saved the money.

• Deposit funds prior to underwriting
• Provide a signed explanation of how and over what period the funds were saved
• Support with bank statements or verification of deposit

Cash on hand is generally not acceptable as the source for gift funds.

Earnest money deposit (EMD) requirements in Kentucky

Earnest money deposits must be fully verifiable regardless of when they were made.

• Cancelled check or bank statement showing funds cleared
• Updated account balance after clearing
• Clear traceability of the source of funds

Kentucky mortgage underwriting checklist

More Kentucky mortgage program details

• FHA Loans: https://www.mylouisvillekentuckymortgage.com/p/kenttucky-fhamortgage-loansupdated.html
• VA Loans: https://www.mylouisvillekentuckymortgage.com/p/va-loans.html
• USDA Loans: https://www.mylouisvillekentuckymortgage.com/p/a-kentucky-usda-home-loan-is-zero.html
• KHC $12,500 Assistance: https://www.mylouisvillekentuckymortgage.com/p/khc-loan-programs.html

Want fewer underwriting conditions?

I review bank statements, job history, and credit activity before submission so underwriting doesn’t surprise you at the finish line.

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Call or text: 502-905-3708
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The Dos & Don’ts of Applying for a Mortgage in Kentucky

DO maintain up-to-date records The mortgage application process is paperwork-heavy, and lenders could ask you to pull up records at a moment’s notice. To make things easier for yourself, make sure you have the following records readily available:

• Income: Underwriters typically verify income and tax documents through your employer, so hold onto new paystubs as you receive them.
• Assets: It’s best practice to save all incoming account statements in the order in which you receive them; keep all numbered pages of each statement.
• Gifts: If you’re receiving any gift money from relatives, they’ll need to sign a gift letter (which your loan officer will provide) and an account statement evidencing the source, which must be “seasoned” funds.
• Current Residence: If you’re currently renting, continue to pay your rent on time and save proof of payment. If you intend to sell your current residence, be prepared to show your HUD-1 Settlement Statement. If you plan on renting out your home, you may need to show sufficient equity, a lease, and receipts for the security deposit and first month’s rent.

DO keep your credit score in mint condition. Continue to make payments on time. The lender might pull your credit report again, and any negative change to your score could jeopardize your approval.

DO understand that things change. The requirements to receive approval for a home loan are always changing, and underwriters require more documentation now than they have in the past. Even if requests seem silly, intrusive or unnecessary, keep in mind that if they didn’t need it, they wouldn’t ask for it.

DON’T apply for new credit. Changes in credit can cause delays, change the terms of your financing or even prevent you from closing on a home. If you must open a new account (or even borrow against retirement funds), be sure to consult your loan officer first.

DON’T change jobs midway through the process. Probationary periods and career or status changes — such as from a salaried to a commission-based position, leave of absence or new bonus structure — can be subject to strict rules.

DON’T make undocumented deposits. Large (and sometimes even small) deposits must be sourced unless they’re identified. Make copies of all checks and deposit slips, keep your deposits separate and small, and avoid depositing cash.

DON’T wait to liquidate funds from stock or retirement accounts. If you need to sell investments, do it now and document the transaction. Don’t take the risk of the market working against you, leaving you short on funds for closing.

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Dos & Don’ts of Applying for a Mortgage in Kentucky