Student Loan Guidelines for Qualifying for a Mortgage in Kentucky

Student Loan Guidelines for Qualifying for a Mortgage Loan in Kentucky (2025 Update)

If you have student loan debt and you’re planning to buy a home in Kentucky, you’re not alone. Many first-time homebuyers face this same challenge — understanding how their student loans impact mortgage qualification. The good news? Each loan program (FHA, VA, USDA, Fannie Mae, and Freddie Mac) has its own approach to handling student loan payments.

Here’s a breakdown of how lenders calculate student loan payments for each major loan type when determining your debt-to-income (DTI) ratio.

FHA Loans (Federal Housing Administration)

Student Loan Payment Requirement:

FHA requires all student loans to be included in the borrower’s liabilities, no matter the payment type or loan status (including deferment or forbearance).

Lenders must use the greater of:

• 0.5% of the outstanding balance, or

• The payment shown on the credit report

✅ However, if your loan servicer provides documentation showing a fully amortizing payment, that amount can be used instead.

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VA Loans (Veterans Affairs)

Deferred Loans:
If written evidence shows the student loan debt will be deferred for more than 12 months after closing, no payment is required in the DTI.

Loans in Repayment:
If repayment starts within 12 months:

• Use 5% of the balance ÷ 12 months as the calculated payment, or

• Use the higher credit report payment if applicable

• If documentation from the loan servicer shows a lower verified payment, that can be used even if it’s below 5%

 USDA Loans (Rural Housing)

Fixed Payments:
If your loan has a permanent, amortized, fixed payment, that’s what’s used in qualifying.

Non-Fixed or Deferred Payments:
For non-fixed loans (like IBR, graduated, or deferred payments), USDA requires lenders to use 0.5% of the current balance listed on your credit report.

Fannie Mae (Conventional Loans)

Loans in Repayment:

• Use the credit report payment if accurate

• If the credit report payment is incorrect, documentation from the servicer can verify the true monthly payment

Income-Driven Repayment (IDR) Plans:

• Use the actual documented monthly payment — even if it’s $0, provided documentation supports it.

Loans in Deferment or Forbearance:

• Use 1% of the outstanding balance, or

• A fully amortizing payment based on verified terms

 Freddie Mac (Conventional Loans)

Loans in Repayment:
Use the greater of:

• Payment on credit report, or

• 0.5% of the higher of the original or outstanding balance

Loans in Deferment or Forbearance:
Use the greater of:

• Payment on credit report, or

• 0.5% of the higher of the original or current balance

Loan Forgiveness, Cancellation, or Employment-Contingent Repayment:
Payments may be excluded entirely if:

• Documentation shows the loan will be forgiven, canceled, discharged, or paid off through an employment-contingent repayment program

• The borrower currently meets all qualifications for that program

Key Takeaway for Kentucky Homebuyers

Student loan debt doesn’t automatically disqualify you from buying a home in Kentucky. The key is how your payments are calculated for your debt-to-income ratio, and that depends entirely on your loan program.

✅ If your loans are in an income-driven repayment plan, Fannie Mae or VA loans might be more flexible.
✅ If your loans are deferred or non-fixed, USDA and FHA tend to use set percentage rules (0.5% or 1%) to estimate payment.

An experienced loan officer can help determine which program best fits your situation and help structure your file correctly so your student loan debt doesn’t block your path to homeownership.

 Need Expert Guidance? Let’s Talk.

I’ve helped hundreds of Kentucky homebuyers navigate student loan challenges and secure FHA, VA, USDA, and Conventional financing. I’ll help you understand your options and guide you to the best program for your needs.

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Joel Lobb – Mortgage Loan Officer

📍10602 Timberwood Circle, Louisville, KY 40223
📞 Call/Text: 502-905-3708
📧 kentuckyloan@gmail.com
🌐 www.mylouisvillekentuckymortgage.com

NMLS #57916 | 
Serving all of Kentucky: FHA, VA, USDA, and KHC First-Time Homebuyer Programs

Student Loan Guidelines For Qualifying for a Mortgage Loan in Kentucky

Student Loan Guidelines for Qualifying for a Mortgage in Kentucky (Update)

Learn how student loan payments impact your Kentucky mortgage approval. FHA, VA, USDA, Fannie Mae, and Freddie Mac all treat student loans differently — here’s what you need to know before applying.

Loan type	Student Loan Payment Requirement
FHA	Must be included in the borrower’s liabilities regardless of the payment type or status. The payment amount must be either: ▪ The greater of: ·        ..5% of the outstanding balance on the loan or ·        Monthly payment reported on the borrower’s credit report, or ▪ The servicer’s documented payment provided the payment will fully amortize the loan over the repayment term period
VA	Deferred A payment does not need to be included if written evidence supports that the student loan debt will be deferred beyond 12 months of closing. In Repayment Include loans with payments starting within 12 months. Calculate threshold payment as a rate of 5% of outstanding balance divided by 12 months. If credit report payment is higher, use credit report payment. If current documentation from student loan servicer reflects actual terms and payment for each loan, the verified payments may be used even if less than the threshold payment calculation.
USDA	Fixed Payment A permanent amortized, fixed payment is used when documentation supports fixed payment, interest and term. Non-Fixed payment Use .5% of the loan balance reflected on the credit report. Payment arrangements that are deferred or non-fixed (Income Based Repayment (IBR), graduated, adjustable, interest only, etc.) may not be used.
Fannie	Loans in Repayment Period ▪ If provided, use the credit report payment ▪ If credit report is incorrect, obtain student loan documentation from the servicer to verify the payment used for qualification Income Driven Repayment Plan Use the student loan documentation to verify the actual monthly payment. Borrower may be qualified with a $0 payment if the documentation supports it. Loans in Deferment or Forbearance ▪ A payment equal to 1% of the outstanding student loan balance (even if this amount is lower than the actual fully amortizing payment) or ▪ A fully amortizing payment using the documented loan repayment terms
Freddie	Loans in Repayment Period Use the greater of payment reported on credit report or .5% of the higher of original or outstanding loan balance as shown on credit report. Loans in Deferment or Forbearance Use greater of payment reported on credit report or .5% of the higher of original or current outstanding loan balance as shown on the credit report. Loan Forgiveness Cancelation Discharge Employment Contingent Repayment Programs Payment may be excluded if file contains documentation that indicates: ▪ Monthly payment is deferred and/or in forbearance and full balance of the loan will be forgiven, canceled, discharged or will be paid if qualified for an employment-contingent repayment program and ▪ Borrower currently meets requirements for the student loan forgiveness/cancelation program Obtain documentation from the student loan servicer to show the loan will be forgiven, canceled, discharged or that the borrower qualifies and is approved under an employment contingent repayment program that will extinguish the debt.

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Joel Lobb 

 Email - kentuckyloan@gmail.com 

 Call/Text - 502-905-3708

 www.mylouisvillekentuckymortgage.com
 911 Barret Ave., Louisville, KY 40204

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Evo Mortgage
Company NMLS# 1738461
Personal NMLS# 57916

Kentucky Mortgage Loan Expert For Kentucky FHA, VA, USDA, Fannie Mae and KHC Down payment Assistance Loans

🏡 Kentucky Mortgage Qualification

How Student Loan Payments Affect Your DTI & Loan Options

FHA Loans

Most Popular for First-Time Buyers

📊 Payment Calculation

Use GREATER of:

• 0.5% of balance
• Credit report payment
• Documented payment

⏸️ Deferred Status

Payment ALWAYS included in DTI calculation

💡 Key Note

Even $0 payments count—uses 0.5% calculation

VA Loans

For Veterans & Service Members

📊 In Repayment

Use GREATER of credit report payment or 5% of balance ÷ 12

✅ Deferred Advantage

NO payment included if deferred 12+ months past closing

💡 Key Note

Documentation is key—get written proof of deferment

USDA Loans

Rural Kentucky Homebuyers

📊 Fixed Payments

Use documented payment that amortizes loan

📊 Variable/Deferred

Use 0.5% of loan balance or full amortizing payment

💡 Key Note

Standard 10-year repayment gets most favorable calculation

Fannie Mae

Conventional Program

📊 In Repayment

Use credit report payment (verified if needed)

✅ IDR Plans

Can use $0 payment if documented on IDR plan

💡 Key Note

Most flexible with income-driven repayment options

Freddie Mac

Conventional Program

📊 In Repayment

Use GREATER of credit report payment or 0.5% of balance

⚠️ More Restrictive

0.5% calculation often results in higher imputed payment

💡 Key Note

May have higher DTI impact than Fannie Mae

🎯 Quick Comparison: Same $50,000 Student Loan

FHA (Deferred)

$250/month
0.5% × $50,000 = Always counted

VA (Deferred)

$0/month
Excluded if 12+ months deferred

USDA (Deferred)

$250/month
0.5% × $50,000 = Counted

Fannie Mae (IDR)

$0/month
IDR plan can show $0

Kentucky First-Time Homebuyer Resources

Understanding how student loans affect qualification helps you choose the best loan program for your situation.

📞 502-905-3708 | 📧 kentuckyloan@gmail.com
Your Kentucky Mortgage Expert

Kentucky FHA Loan Lender Requirements for Approval

How to Qualify for a Kentucky FHA Loan Approval:

If you're looking to buy a home in Kentucky and are considering a Kentucky FHA loan, it's essential to understand the qualifying criteria and the necessary steps. This article covers all the crucial aspects you need to know, from credit scores, bankruptcy, work history, collections, closing, home insurance, title, debt ratio , down payment and other required documents for pre-approval for a Kentucky FHA loan pre-approval letter.

Credit Score for Kentucky FHA loan

For an FHA loan in Kentucky, the minimum credit score requirement is typically 580 for maximum financing with a 3.5% down payment. If your score is between 500 and 579, you may still qualify, but you will need a higher down payment of at least 10%.

• Any judgments or collections on the credit report must be resolved or satisfactorily explained. Collections do not have to be paid but they will count them in your debt to income ratio. If they are judgements, they will have to be paid off because they could effect the clear title of the home
• Cosigners are allowed. Family members or close associates okay. They don't have to live in the home with you. Cosigner are used to for income purposes only or work history that does not meet FHA  lender requirements .Not used to compensate for the primary borrowers bad credit. They always take the lowest credit score of both borrowers. 

Bankruptcy and Foreclosures for Kentucky FHA loans

• Bankruptcy: You can qualify for an FHA loan two years after a Chapter 7 bankruptcy discharge, provided you have re-established good credit or have not incurred new debt. For a Chapter 13 bankruptcy, you need one year of the payout period completed and permission from the court to enter into a new mortgage.
• Foreclosures: You must wait three years after a foreclosure before you can qualify for an FHA loan. This period can be reduced if the foreclosure was due to extenuating circumstances beyond your control.

Debt-to-Income Ratio (DTI)

The FHA guidelines typically require a front-end DTI (monthly mortgage payment divided by gross monthly income) of no more than 31% and a back-end DTI (total monthly debt payments divided by gross monthly income) of no more than 43%. However, higher ratios may be accepted with compensating factors, such as significant cash reserves or high credit scores. Can be much higher with AUS approval with 45% and 57% respectively on the front end and back end.

Down Payment for Kentucky FHA loans

The standard down payment for a Kentucky FHA loan is 3.5% of the purchase price, which is feasible for many first-time homebuyers. This down payment can come from savings, a gift from a family member, or an approved down payment assistance program. 10% down payment needed with scores below 580.

Checklist of Documents Needed for Kentucky FHA loan Pre-Approval

To get pre-approved for a Kentucky FHA loan, you'll need to provide several documents, including:

• Proof of identity (driver’s license or passport)
• Social Security number
• Recent pay stubs
• W-2 forms for the past two years
• Federal tax returns for the past two years
• Bank statements for the last two to three months
• Employment verification letter
• Debt information (credit cards, student loans, auto loans)
• Proof of additional income (alimony, child support, bonuses)

Work History for Kentucky FHA loans

You need to show a stable work history for at least the past two years. If you have changed jobs, the new position should be in the same field or demonstrate career advancement.

Loan Limits Kentucky FHA loan

The FHA loan limits in Kentucky vary by county and are set based on the median home prices in the area. In most counties, the limit for a single-family home is $524,225 for a single-family home. in 2024, but this amount can be higher in more expensive areas.

Income Limits Kentucky FHA loan

There are no specific income limits for FHA loans; however, your income must be sufficient to cover the mortgage payments and other debts. Lenders will assess your ability to repay the loan based on your income, debts, and employment history.

Down Payment Assistance Grants Kentucky FHA loan

Kentucky offers several down payment assistance programs to help first-time homebuyers. These programs can provide funds to cover the down payment and closing costs. Some popular programs include:

• Kentucky Housing Corporation (KHC) Programs: KHC offers several down payment assistance options, including repayable and forgivable loans. $10,000 available at 3.75% rate currently over 10 year pay back period. Changes periodically. Check your lenders requirements with income limits, loan limits, debt to income ratio requirements
• Local Government Programs: Many local governments offer grants and loans for down payment assistance.
• Federal Loan Programs for First-Time Homebuyers in Kentucky

• • Kentucky Federal Housing Administration (FHA) Loans: FHA loans are insured by the U.S. Department of Housing and Urban Development (HUD) and cater to borrowers with lower credit scores (minimum 580 with a 3.5% down payment).
  • Kentucky Department of Veterans Affairs (VA) Loans: Active-duty military personnel, veterans, and eligible family members can qualify for VA loans with no down payment required. These loans typically offer lower interest rates than conventional mortgages.
  • Kentucky USDA Loans: Guaranteed by the U.S. Department of Agriculture (USDA), these loans are available to moderate-income borrowers in designated rural areas, with no down payment required.

  • You may qualify for one of these programs.

    • HUD Community Development Block Grants (CDBG) - Kentucky contacts - HUD provides grant money to communities and those funds may be used to assist homebuyers
      • Ashland
      • Bowling Green
      • Elizabethtown
      • Hopkinsville
      • Lexington
      • Louisville
      • Owensboro
    • HUD HOME Program - Kentucky contacts - HUD provides grant money to communities designated as participating jurisdictions for assisting homebuyers, rental assistance, and other housing initiatives
    • Community Ventures Corporation Kentucky Home Financing
    • The Kentucky Housing Corporation offers:
      • Homeownership Programs
      • Counseling Resources
    • Habitat for Humanity - Through volunteer labor and donations of money and materials, Habitat builds and rehabilitates simple, decent houses with the help of the homeowner (partner) families
    • Federal Home Loan Bank of Cincinnati - serves Kentucky residents by offering various homebuying programs including Welcome Home grants. For more information, you may call 1 (888) 345-2246
    • Kentucky Association for Community Action - helps to fund housing programs for low-income residents
    • Federal Appalachian Housing Enterprise (FAHE) - provides housing assistance in rural, low-income, Appalachian communities
    • Housing Partnership, Inc. - provides affordable housing services for residents of Jefferson County
    • Secondary financing/down payment assistance programs are listed by state
    • USDA Rural Development - programs that reduce the cost of homeownership for low and moderate-income families.

     

  Additional Resources

  • City and County Programs: Some Kentucky cities and counties offer their own down payment assistance programs or resources for first-time homebuyers. It's recommended to research programs available in your target location.
  • HUD Homeownership Programs: The U.S. Department of Housing and Urban Development provides resources for homeownership assistance programs across the country. You can explore their website for additional options.

Seller Concessions for Kentucky FHA loans

Sellers can contribute up to 6% of the home's purchase price toward closing costs, prepaid expenses, discount points, and other financing concessions. This can significantly reduce your out-of-pocket expenses.

Appraisals and Inspections Kentucky FHA loan

• Appraisals: An FHA-approved appraiser must conduct an appraisal to ensure the property's value and condition meet FHA standards. Always required for FHA approval and ordered by lender.
• Inspections: While not required by FHA, a home inspection is highly recommended to uncover any potential issues with the property. Not required, and ordered by borrower. Lender never sees the inspection report on home.

Home Insurance for Kentucky FHA loans

Homeowners insurance is mandatory for all FHA loans. You need to secure a policy that covers the property against loss or damage.

Title Report for Kentucky FHA loans

A title report ensures that the property has a clear title with no outstanding liens or claims. This is a crucial step in the home buying process to protect your investment.

Earnest Money Deposit for Kentucky FHA loans

An earnest money deposit is typically required to show the seller that you are serious about purchasing the home. This amount varies but is usually between 1% and 3% of the purchase price. $500 is typical in Kentucky for a deposit on a home you are buying.

Credit Reports for Kentucky FHA loans

Lenders will pull your credit report to assess your creditworthiness. It's important to check your credit report for errors and ensure that all information is accurate before applying for a loan. Some lenders will charge you upfront for the credit report fee and others will pull all three credit reports from Experian, Transunion and Equifax for free. Usually lender will not share the report with you but give you the scores. Scores go from 350 to 850 on each credit bureau.

Time to Close on a Kentucky FHA loan

The time to close an FHA loan can vary but typically ranges from 30 to 45 days. This period can be shorter or longer depending on various factors, including the lender's efficiency and the completeness of your documentation.

Locking in Rate on a Kentucky FHA loan

Once you are approved for a loan, you can lock in your interest rate to protect against rate fluctuations. Rate locks can last from 15 to 180 days or longer, depending on the lender.

CAIVRS Check for FHA loan in Kentucky

The Credit Alert Verification Reporting System (CAIVRS) is used to determine if a borrower has a federal debt or delinquency. If your name appears on this list, you may be ineligible for an FHA loan until the issue is resolved. So if you are delinquent on any student loan debt, back taxes to the IRS or social security overpayments, this can stop your Kentucky FHA loan pre-approval

Student Loan Rules for FHA Kentucky FHA loan

For FHA loans, the monthly payment for student loans is calculated as either .5% of the outstanding balance or the actual documented payment amount, whichever is greater. If your loans are in deferment or forbearance, .5% of the outstanding balance will be used for DTI calculations.

Delinquent Government Debt Kentucky FHA loan

If you have delinquent government debt, such as unpaid federal taxes or a defaulted student loan, you may not qualify for an FHA loan until the debt is resolved.

By understanding these requirements and preparing accordingly, you can increase your chances of qualifying for an FHA loan in Kentucky and successfully purchasing your new home.

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.

L

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