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.
• 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.
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.
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.
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.
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
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Ideal for: Rural Kentucky homebuyers with low to moderate income
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Down Payment: 0% required
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Credit Score: Most lenders want 640+ for automated approval via GUS
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Mortgage Insurance: Low (.35% monthly; 1% upfront)
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Location: Must be in USDA-eligible rural zones
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Bankruptcy/Foreclosure Wait: 3 years
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Best for: Borrowers who want 100% financing in eligible rural areas
Kentucky VA Loan (For Veterans and Military)
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Ideal for: Veterans, active duty, and eligible military members
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Down Payment: 0% required
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Credit Score: Typically 580+ (no official VA minimum)
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Mortgage Insurance: None
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Funding Fee: 2.3% (first-time use), 3.6% (subsequent use)
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Location: Anywhere in Kentucky
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Bankruptcy/Foreclosure Wait: 2 years
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Best for: Military buyers wanting no down payment and no MI
Kentucky FHA Loan
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Ideal for: First-time homebuyers or those with credit challenges
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Down Payment: 3.5% with 580+ credit score; 10% with 500–579
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Credit Score: 580 minimum for most
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Mortgage Insurance: 0.85% monthly for life of loan; 1.75% upfront
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Bankruptcy Wait: 2 years (Ch. 7), 1 year (Ch. 13 plan)
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Foreclosure Wait: 3 years
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Grants Allowed: Yes (e.g., KHC DAP)
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Best for: Buyers with less-than-perfect credit or lower down payments
Conventional Loan (Fannie Mae/Freddie Mac)
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Ideal for: Buyers with strong credit and stable income
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Down Payment: 3%–5%
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Credit Score: 620 minimum (680+ preferred for best pricing)
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Mortgage Insurance: Varies, can be removed at 80% LTV
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Closing Costs: Often higher unless lender-paid via higher rate
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Bankruptcy Wait: 4 years (Ch. 7), 2 years (Ch. 13)
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Foreclosure Wait: 7 years
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Best for: Borrowers with higher scores and at least 3%–5% down
Kentucky Down Payment Assistance (KHC)
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DPA Offered: $10,000 second mortgage paid over 10 years
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Available for: FHA, VA, USDA, Conventional
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Min Credit Score: 620 (660 for Conventional)
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Debt Ratio Cap: 50%
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Perfect for: Buyers with solid income but no down payment
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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