If you’re a Kentucky homebuyer, this blog post will guide will help you. It will help you navigate the mortgage approval process in 2025.
If you're looking to purchase your next home, this guide is for you too. Whether you're considering FHA, VA, USDA, or KHC loans with down payment assistance, we’ll cover everything you need to know.
This includes credit score requirements and debt-to-income ratios. We will also discuss appraisals, inspections, bankruptcy, and foreclosure guidelines.
Zero Down Payment Options for Kentucky Homebuyers in 2025
Kentucky offers several programs that allow eligible home-buyers to buy a home with little to no down payment:
Kentucky Housing Corporation (KHC) Loans
FHA Loans with down payment assistance
VA Loans for veterans and active-duty personnel
USDA Rural Housing Loans
Special grants, like the $25,000 Kentucky Welcome Home Grant
Each program has its own qualifying criteria. Let’s dive into the specifics.
Kentucky FHA loan with Down Payment Assistance
Kentucky FHA loan
KHC offers affordable loans paired with down payment assistance (DPA) to help Kentucky homebuyers.
Credit Score: Minimum 620 for government loans and 660 for conventional loans
Down Payment: 3.5% (may be offset by DPA programs)
Income Limits: Varies by county and household size click yellow link>---See income limits and purchase price limits here <
Debt-to-Income Ratio (DTI): 50% for housing costs; 50% for all debts
Work History: Minimum two years of stable employment
KHC Down Payment Assistance (DPA) Options:
Up to $10,000, repayable over 10 years at 3.75% interest. It can be used for down payment and closing costs and prepaids (property taxes, home insurance and odd days interest)
FHA Loans in Kentucky
Kentucky FHA loans are government-backed mortgages requiring low down payments, making them ideal for Kentucky first-time homebuyers with lower credit scores, scores under 620 and higher debt to income ratios over 45% on the backend.
Credit Score:
580+ with 3.5% down payment
500-579 with 10% down payment
Debt-to-Income Ratio: Generally up to 45.99% on front end ratio or housing ratio and up to 56.99% on the back-end ratio, meaning new house payment plus monthly payments on the credit report.
Work History: Two years of consistent income. Does not have to be the same job. If off work more than 6 months in the past 2 years, may require you to be on current job for 6 months,
Bankruptcy/Foreclosure Requirements:
Two years after bankruptcy Chapter 7 and 1 year removed from A Chapter 13 with a perfect pay history can do a FHA loan while in Chapter 13 with 12 months paid on time and trustee approval form courts
Three years after foreclosure
Kentucky FHA Loan Limits for 2025
One-Unit Properties: $472,030
Two-Unit Properties: $604,400
Three-Unit Properties: $730,525
Four-Unit Properties: $907,800
Kentucky VA Loans for Active Duty and Veterans
Kentucky VA loans are a top choice for veterans and active-duty military members. They require no down payment. They also require no mortgage insurance monthly but does have upfront mortgage insurance. see link here for guidelines >
Certified of Eligibility Certificate of Eligibility (COE) Is Required
To qualify for a Kentucky VA mortgage loan, borrowers must obtain a Certificate of Eligibility (COE) from the VA. This document proves you meet the eligibility criteria for a VA loan. Here’s what you’ll need to get your COE:
Veterans: DD Form 214 (showing character of service and reason for separation).
Active-duty service members: A statement of service signed by your commander or personnel officer.
Surviving spouses: VA Form 26-1817 and the veteran’s DD Form 214, if available.
You can apply for your COE online, via mail, or through your lender.
Credit Score: No official minimum, but most lenders require 580-620. The higher your score and lower your debt to income ratio and the higher your residual income your changes of approval is greater
Income: Must demonstrate stable and sufficient income.
Work History: Two years of consistent employment. If getting out of the military and using your VA COE to buy a house the job must line up with your MOS. Military Occupational Specialty
Bankruptcy/Foreclosure Requirements:
Two years after bankruptcy or foreclosure
Debt-to-Income Ratio: No set maximum, can go much higher on the debt to income ratio on VA loans due to they have a residual income requirements. I have see a backend ratio get an approval as high as 75% but they had a great credit score (740 or higher), high residual income and a lot of assets in the bank as far as checking, savings, 401k or retirement.
VA loans also include a residual income requirement to ensure borrowers can afford living expenses after the mortgage payment, monthly payments on the credit report, child care expenses, maintenance, and utilities for the house. See the residual income chart below. This is very important for VA loan approval. If you are over this amount, you will not qualify, even with a great credit score, low debt ratio, and a lot of reserves in the bank.
Example: Residual Income for a VA Loan Approval in Kentucky
Example: Residual Income for a VA Loan Approval in Kentucky
Family Size: 5
Loan Amount: Over $80,000
Required Residual Income: $1,158 (for 4 family members) + $80 (for the 5th member) = $1,238
Actual Residual Income: $1,500
Outcome: The borrower qualifies for the VA loan, as their residual income of $1,500 exceeds the required $1,238.
Outcome: The borrower qualifies for the VA loan, as their residual income of $1,500 exceeds the required $1,238.
Residual income is a critical requirement for VA loan approvals, ensuring borrowers have enough to cover living expenses, including housing utilities, child care, and maintenance costs. If residual income falls below the threshold, loan approval may not be possible, regardless of credit score or debt-to-income ratio.
The higher your score and lower your debt to income ratio and the higher your residual income your changes of approval is greater
USDA Rural Housing Loans in Kentucky
The USDA Rural Housing Loan Program is perfect for Kentucky homebuyers looking to purchase in eligible rural areas. It offers 100% financing with low mortgage insurance premiums.
Credit Score:
640 for automated approval
Manual underwriting is available for borrowers with credit scores below 640. If they decide to manually underwrite a loan, they will ask for more information about the borrower's credit history from the past year.
All loans are ran through GUS Automated Underwriting Engine, and your pre-approval is based off this
Property Restrictions:
Eligible Properties:
Must be located in a designated rural area.
Includes single-family primary residences, modular homes, and detached or attached planned unit developments (PUDs).
Thermal standards must meet or exceed the International Energy Conservation Code (IECC).
Ineligible Properties:
Cooperatives.
Income-producing properties.
Manufactured or mobile homes.
Non-rural designated properties.
Non-owner-occupied homes.
How to Determine Eligibility
You need to confirm if a property is located in a designated rural area. Visit the USDA Property Eligibility Map by clicking this link
Income Limits: Varies by county and household size
$112,450 for 1-4 person households
$148,450 for 5+ person households
To check income limits for your county, use the
➡️ USDA Income Eligibility Tool.
Work History: Two years of stable income required.
Debt-to-Income Ratio:
Front-end: 31%
Back-end: 45%
Key Advantage: USDA loans don’t need a down payment, and the upfront mortgage insurance can be rolled into the loan.
Kentucky Down Payment Assistance and Grants
$25,000 Kentucky Welcome Home Grant for 2025
This grant provides significant assistance for down payments and closing costs.
Eligibility:
Must complete a homebuyer counseling program.
Contribute at least $500 toward closing costs.
Grant Repayment: Prorated repayment required if the home is sold within five years.
Eligible Loans: Can be used with FHA, USDA, VA, and conventional loans.
5% Kentucky Homebuyer Grant
Offers up to 5% of the buying price for down payment or closing costs.
Fully forgivable or repayable options available.
$25,000 Kentucky Welcome Home Grant for 2025
How the 2025 Kentucky Welcome Grant Works
Offered through local banks and credit unions partnered with the Federal Home Loan Bank of Cincinnati.
The program becomes available annually on March 1st.
Funds are distributed on a first-come, first-serve basis and are typically depleted within 15 days due to high demand.
Application and Closing Timeline
The program requires an application for approval tied to a specific property.
Due to the nature of the grant, the closing process may take longer, so planning ahead is crucial.
Why Choose the Kentucky Welcome Home Grant?
This grant offers an unparalleled opportunity to reduce the financial burden of homebuying. With the Kentucky Welcome Home Grant of $25,000 available for qualified applicants, it can significantly lower the amount you need upfront for your new home.
Other Mortgage Loan Requirements in Kentucky
Credit Score Requirements
Conventional Loans: Minimum 620 (higher scores preferred for better terms).
FHA Loans: 580+ (or 500-579 with 10% down).
VA Loans: 580-620 (varies by lender).
USDA Loans: 620-640 for most lenders.
KHC Down Payment Assistance. 620 for FHA, VA, USDA and 660 for Conventional Scores
Debt-to-Income Ratio
Conventional Loans: 45% max with mortgage insurance 50% max without mortgage insurance
FHA Loans: 40%-56% max
VA Loans: Flexible, no max debt to income but must meet residual income requirements
USDA Loans: 31% front-end; 45% back-end, much tighter dti restriction's when compared to FHA, VA, USDA and KHC ...
Work History and Income Verification
Lenders require at least two years of stable employment. Self-employed borrowers must provide two years of tax returns.
Appraisals ensure the home’s value matches the purchase price.
Home appraisals are required by a lender. Home inspections aren’t.
You must set up an inspection yourself while the lender will order an appraisal for you.
An appraisal may impact your ability to get the loan amount you need. An inspection won’t.
Appraisers typically only spot things visible to the naked eye, whereas inspectors use special devices and training to spot deeper issues.
Home buyers are allowed and encouraged to walk through the home with the inspector during the inspection.
An inspector will explain and educate during the interactive process. An appraiser won’t tell you their findings until they complete their report.
A home inspection only examines the condition of the home when making the assessment. A home appraisal considers the condition of the home, comparable home prices, lot size, home features, area crime rates and school zones.
Typically, an appraiser will go through the appraisal process alone.
The inspector and appraiser have a different set of skills, are trained and certified in different processes and have different areas of expertise.
Bankruptcy and Foreclosure Requirements
FHA: Two years after bankruptcy; three years after foreclosure.
VA: Two years after bankruptcy or foreclosure.
USDA: Three years after bankruptcy or foreclosure.
Conventional: Four years after bankruptcy; seven years after foreclosure.
Time to Close
Most loans in Kentucky take 30-45 days to close, depending on the lender and loan program.
Here’s a blog post based on the text and flow chart steps provided in the image, tailored for Kentucky homebuyers:
Step-by-Step Guide to Getting Approved for a Mortgage Loan in Kentucky
Buying a home in Kentucky can feel overwhelming, especially for first-time homebuyers. Understanding the mortgage process, the timeline involved, and what is needed to close your loan will make the journey smoother and less stressful. Here’s a step-by-step guide to walk you through the process.
Step 1: Pre-Purchase Consultation
The first step is scheduling a pre-purchase consultation with a mortgage professional. During this meeting:
Discuss your financial goals and homeownership plans.
Review your credit score, income, and overall qualifications for a mortgage loan.
Understand the loan options available, including FHA, VA, USDA, and conventional loans.
Tip: Be prepared to ask questions and clarify your expectations during this phase.
Step 2: Pre-Qualification
Once your consultation is complete, gather the necessary documents (such as pay stubs, tax returns, and bank statements) to verify your financial situation. After reviewing these, your lender will issue a pre-qualification letter, which shows sellers that you are a serious buyer with financing in place.
Step 3: Find a Home and Negotiate the Contract
With your pre-qualification letter in hand, you can now:
Start searching for your dream home.
Work with a realtor to make an offer and negotiate the purchase contract.
Note: Ensure that the home you choose aligns with your loan requirements, such as USDA property eligibility for rural housing loans.
Step 4: Review Loan Terms and Sign Initial Disclosures
After your contract is accepted:
Your lender will provide initial disclosures outlining the loan terms, estimated costs, and required steps.
Carefully review the loan documents and sign them to proceed with the loan application.
Step 5: Order Inspection, Appraisal, and Title
At this stage, the following steps are initiated:
Home Inspection: Ensures the property is in good condition and identifies potential issues.
Appraisal: Confirms the home’s value matches the purchase price.
Title Work: Verifies there are no legal issues with property ownership.
Tip: Coordinate closely with your realtor and lender to ensure these steps are completed in a timely manner.
Step 6: Submit Loan Package to Underwriting
Once all initial documents are gathered, your lender will submit the complete loan package to underwriting. The underwriter reviews:
Credit score
Debt-to-income ratio
Employment history
Property appraisal
Title work
Expect the underwriter to request updated documents or clarification on certain details.
Step 7: Clear Underwriting Conditions
After the underwriter reviews your loan file, they may issue conditional approval. This means you need to provide additional documentation, such as:
Updated bank statements
Proof of funds for closing
Explanations for any credit inquiries
Once all conditions are met, the underwriter will issue final approval.
Step 8: Closing Disclosure and Waiting Period
Before closing, you’ll receive a Closing Disclosure (CD), which outlines the final terms and costs of your mortgage. By law, you must review this document during a 3-day waiting period before the closing.
Step 9: Closing Day
Congratulations, it’s time to finalize your loan! On closing day:
Sign the final loan documents.
Pay any remaining closing costs (if applicable).
Receive the keys to your new home.
What to Expect Throughout the Process
Timeline: The mortgage process typically takes 30-45 days from pre-qualification to closing, though this can vary depending on the loan type and how quickly documents are provided.
Communication: Stay in close contact with your lender, realtor, and title company to avoid delays.
Updated Documents: Be prepared to provide updated pay stubs, bank statements, or other documentation throughout the process.
Tips for a Smooth Closing
Stay Organized: Keep all required documents in one place for easy access.
Respond Quickly: Promptly address any requests from your lender or underwriter.
Ask Questions: Don’t hesitate to clarify terms or processes you don’t understand.
Be Financially Stable: Avoid making major purchases or changes to your financial situation during the process.
Ready to Get Started?
If you’re ready to purchase a home in Kentucky, partnering with an experienced loan officer will make the process seamless. Whether you're a first-time homebuyer or upgrading, programs like FHA, VA, USDA, and KHC down payment assistance are designed to help you achieve your dream of homeownership.
For personalized guidance and support, contact:
Joel Lobb
Mortgage Loan Officer - Expert on Kentucky Mortgage Loans
Website: www.mylouisvillekentuckymortgage.com
Address: 911 Barret Ave., Louisville, KY 40204
Evo Mortgage
Company NMLS# 1738461
Personal NMLS# 57916
For assistance with Kentucky mortgage loans, reach out via email, call, or text Joel Lobb directly.
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