What is the difference between Conventional, FHA and VA Mortgage loans in Kentucky

 

Conventional vs. FHA vs. VA loans in Kentucky

 I will outline below the credit score, loan limits, down payment and mortgage insurance requirements for FHA, VA and Conventional Mortgage Loans in Kentucky!

			Upfront funding fee of 1.4% to 3.6%

Kentucky Mortgage Guidelines for Income, Employment, and credit scores

Kentucky Mortgage Loan Preapproval: What To Know

What affects your home loan preapproval

Your income, work history, credit score, money down and  saving are key factors that lenders will consider during the mortgage process.

Employment Status for Kentucky Mortgage Pre-Approval

Self-employed individual requires two-year tax returns'.

Only borrowers who have an ownership interest of 25% or more in a business and are not W-2 employees are considered “self-employed.” However, there is an exception if the borrower can show a two-year history in a similar line of work, which includes having documentation that proves an equal or higher income in the new role compared to the W2 position.

Debt-to-Income Ratio

The debt-to-income ratio is the percentage of your monthly gross income that goes toward paying debts. There are two types of DTI that lenders will consider during the mortgage process: front-end and back-end. The first consists only of your housing-related expenses, whereas the latter also includes all your minimum required monthly debts.

The lower your DTI, the better your chances of securing a home loan. 

For example, FHA loans secured by the government have more lenient requirements — you can have a DTI of up to 57% and still get approved for an FHA home loan. USDA loans used to buy homes in rural areas have a lower maximum DTI of 45%.

Loan-to-Value Ratio

The loan-to-value ratio (LTV) is a number lenders use to determine how risky a loan to a potential borrower might be. It measures the relationship between the loan amount and the market value of the property you want to buy, and it can also determine whether mortgage insurance will be required.

All mortgages have a maximum LTV to qualify. However, just like with DTI, the LTV varies depending on the loan. FHA loans, for example, have an LTV of 96.5% since they allow down payments of as little as 3.4%.

Going for an LTV of 80% or less is “ideal” because you get unique benefits as a buyer, but that requires a down payment of 20%. Ultimately, each buyer will need to figure out their own LTV based on how large a down payment they can afford.

Credit History and FICO Score for Kentucky Mortgages 

Your credit history is one of the most important factors when it comes to getting a mortgage.

Best Kentucky Mortgage Lender for First Time Home Buyers in Kentucky

You don’t need a perfect credit score to buy a house, but those with outstanding scores are usually rewarded with lower interest rates and a greater variety of payment options. Buyers with very poor credit have the option of finding a co-signer who has better credit than them to help secure the loan.

Why Getting Preapproved Is Such a Big Deal

Getting preapproved for a mortgage helps you shop for homes that you can afford and shows you are a serious buyer.

But a letter of preapproval is more than just a way to look good to sellers. It also helps you find the right mortgage lender and provides some flexibility in bargaining or negotiating for a better price range or specific costs, repairs, and improvements to a home.

Getting preapproved makes the entire closing process faster, too. It takes an average of 30 to 45 days to close on a house in Kentucky, and part of that period is due to the process of mortgage approval, title search, appraisal report, home inspections, verifying employment and bank account info along with taxes and w-2s and paystubs to validate the pre-approval.

What are standard continuity of employment requirements?

A borrower will need to verify a two-year cumulative employment history. Less than two year may be 

offset via school transcripts; if guaranteed hourly (40) or salaried in nature, the base income 

will be allowable. Variable earnings will require at minimum 12 months receipt on current position; 

OT, Bonus and commission are considered variable however, must reflect a cumulative two- year 

history of receipt.

What income can I use for a traveling nurse?

A minimum 12-month history of contract nursing work is required. Income documentation must

 include  copies of applicable contracts and WVOE’s for each position. The income will be averaged. 

Standard two- year employment history required.

Do we allow one score on a conventional transaction? No score?

Yes! If the borrower has three scores, the middle score is to be used; two scores, the lower score 

is to be used; one score, that score is to be used.  If no score, only allowable with AUS A/E and 

less than 50% of transactional income contributions. We do not average scores.

Can I use part time or secondary income for qualifying purposes?

Yes! Conventional~ secondary employment will require a two- year history of receipt to use in 

conjunction with the primary employment earnings. Multiple second jobs over this time frame are 

allowable however the borrower may not have a job gap > one month in length. Part time employment 

alone will be considered variable in nature and will require a minimum 12- month history; earnings 

will be averaged. FHA~ will require an uninterrupted two- year history for utilization.

When must a borrower start a new job in conjunction with future employment?

Conventional requires a start date within 90 days of the Note date. FHA requires a start date 

within 60 days of note date. VA max 60 days of note date. Non contingent contract required for each 

entity.

What type of income(s) are considered illegal?

Foreign shell banks; medical marijuana dispensaries; any business or activity related to 

recreational marijuana-use , growing, selling or supplying- even if permitted by state or local law.

 Policy is not limited to  owner of business.

Joel Lobb
Mortgage Loan Officer

Individual NMLS ID #57916

https://www.mylouisvillekentuckymortgage.com/

Mortgage Calculator

 

Free Mortgage Calculator

How to Buy a Home in Kentucky: 5 Popular Mortgage Options

Did you know that two-thirds of Americans are homeowners? If you’re among Kentucky’s renters looking to make the leap into homeownership, understanding your mortgage options is essential. Even if you have limited savings or a lower credit score, you may qualify for low or no down payment home loans backed by government programs.

🔹 1. FHA Mortgage

• Backed by the Federal Housing Administration (FHA)
• Only 3.5% down payment required with a 580+ credit score
• Allows gifts, grants, and down payment assistance
• Great option for first-time buyers and those with less-than-perfect credit

🔹 2. USDA Rural Housing Loan

• 100% financing with zero down payment required
• Eligible for homes in USDA-approved rural areas in Kentucky
• Lower mortgage insurance compared to FHA
• Income and location restrictions apply

🔹 3. Conventional (Fannie Mae/Freddie Mac) Loan

• As low as 3% down for first-time homebuyers
• Higher credit score requirement (typically 620+)
• Mortgage insurance can be removed at 20% equity
• Ideal for buyers with strong credit and stable income

🔹 4. VA Mortgage

• 0% down payment for eligible veterans, service members, and surviving spouses
• No monthly mortgage insurance
• Flexible guidelines on credit and income
• Low fixed rates and no loan limits in Kentucky

🔹 5. Portfolio Mortgage

• Non-government loan offered by select banks or lenders
• Custom underwriting guidelines
• Great for unique financial situations or self-employed borrowers
• Not subject to standard FHA/VA/USDA/Fannie Mae rules

Pro Tip from Joel Lobb: “Don’t assume one lender has the best deal. I shop across 10+ mortgage lenders to match you with the best loan based on your credit, income, and goals—even if you’ve been told no before.”

✅ Ready to Get Pre-Approved?

Let’s make homeownership in Kentucky a reality. Contact me today for a free mortgage pre-approval—no obligations, just straight answers.

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

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👤 About Joel Lobb

Senior Loan Officer – Evo Mortgage | NMLS #57916
🏢 911 Barret Ave., Louisville, KY 40204
With 20+ years of experience helping over 1,300 Kentucky families buy or refinance their homes, I offer personal guidance with multiple loan options other lenders may not provide. You’re not just a number here—you’re a person, and we treat you like one throughout the entire process.

🏡 Unlock Your Dream Home in Kentucky Today!

Work with Joel Lobb — a trusted mortgage expert helping Kentucky families with FHA, VA, USDA, and first-time buyer loans.

• ✅ Zero Down Payment Programs
• ✅ Free Same-Day Pre-Approvals
• ✅ Expert Guidance Every Step

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Joel Lobb: Your Trusted Mortgage Broker in Kentucky

Welcome, and Thank You for Visiting

I’m glad you’re here. My goal is to make this website a helpful and empowering resource as you explore your mortgage options. Whether you're buying your first home or your fifth, I want you to feel confident in choosing the right loan for your unique situation.

Serving All 120 Counties in Kentucky

With over 20 years of lending experience, I proudly serve all of Kentucky and offer a full range of mortgage loan programs:

• FHA Loans

• VA Loans

• USDA Rural Housing Loans

• Fannie Mae Conventional Loans

• KHC Down Payment Assistance Programs

I've helped more than 1,300 Kentucky families become homeowners. Whether you're just getting started or need a second opinion, I offer honest, no-pressure guidance—always free of charge.

What You Can Expect from Me

• I attend as many closings as possible to personally support you through the final step.

• I provide responsive, personalized service throughout the loan process.

• I ensure quick, accurate, and efficient loan processing from start to finish.

• I remain accessible every step of the way—your questions are always welcome.

Recognized for Excellence in Kentucky

I've been consistently recognized as a top mortgage loan officer in Kentucky for VA, FHA, USDA, and KHC programs. I take pride in being thorough, transparent, and attentive with every client I serve.

Please take a moment to read the reviews below to hear directly from families I’ve helped. If you have any questions or need expert guidance, I’m just a call or text away.

Why Choose Me?

Top-Rated Kentucky Loan Officer

Recognized year after year as one of Kentucky’s most trusted loan officers for VA, FHA, USDA, and KHC programs.

5-Star Client Reviews

“Joel made buying our first home feel easy. He was available day and night to answer questions and made us feel confident every step of the way.”

 — Sarah H., Lexington, KY

 

“We got denied elsewhere. Joel got it done. Can’t recommend him enough.”

 — Marcus D., Bowling Green, KY

 

 

check them out below at the link⬇️

⭐⭐⭐⭐⭐ Rated 5.0 on Google & Facebook with 200+ combined reviews

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.

Kentucky Local Home Loan Lender Services

 First-Time Home Buyers Welcome
 FHA, Rural Housing (USDA), VA, and Kentucky Housing Corporation (KHC) Loans
 Conventional Loan Options Available
 Fast Local Decision-Making
 Experienced Guidance Through the Home Buying Process

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Can you use Foster Income for a Kentucky Mortgage Loan Approval?

 Foster Income for a Kentucky Mortgage 

Yes, if it can be documented that foster care income has been received for the last 2 years that income is likely to continue for at least 3 years from the date of the Note, then it can be used to qualify. 

Yes, we need to show 24 months receipt of this income, possible exception if only received for 12 months, and we would need something from the agency showing this will continue for 3 years.

Foster-Care Income for a Mortgage Loan Approval

What are the guidelines?

Income received from a state- or county-sponsored organization for providing temporary care for one or more children may be considered acceptable stable income if the following requirements are met.

✓	Verification of Foster-Care Income
	Verify the foster-care income with letters of verification from the organizations providing the income.
	Document that the borrower has a two-year history of providing foster-care services. If the borrower has not been receiving this type of income for two full years, the income may still be counted as stable income if the borrower has at least a 12-month history of providing foster-care services, and the income does not represent more than 30% of the total gross income that is used to qualify for the mortgage loan.

Comparison of Guidelines for Foster Care Income by Loan Type

Different loan programs have different rules for foster care income. Below is a comparison table summarizing how each major loan type treats this income, plus their documentation and gross-up allowances:

Loan Program	Use of Foster Care Income	Required History	Continuance Required	Documentation Needed	Gross-Up (Non-Taxable)
FHA (HUD)	Allowed if stable and ongoing. Counts in DTI.	2 years providing care. Less if strong case rarely.	Must be “reasonably likely to continue” (no fixed 3-year proof, just no evidence of stopping).	Letter from agency verifying 2-year history & payments.	Up to 15% increase (if tax-free).
Conventional (Fannie Mae)	Allowed if stable. Counts in DTI.	2 years history OR 12+ months if ≤30% of total income.	No need to document 3-year continuance explicitly.	Letters from paying organization verifying income.	Up to 25% increase (standard for non-taxable income).
Conventional (Freddie Mac)	Allowed if stable. Counts in DTI.	2 years consistent receipts (no short history exception mentioned).	Should likely continue 3+ years (no lender proof required unless doubts).	Agency letters; potentially proof of continued foster placement if available.	Up to 25% increase (standard for non-taxable income).
USDA (Rural)	Not allowed as qualifying income for loan repayment.	N/A – income not counted.	N/A – income not counted.	N/A – they exclude foster payments entirely.	N/A (income can’t be used, so gross-up doesn’t apply).
VA (Veterans)	Not counted toward DTI; used only to offset foster care expenses.	No specific requirement (generally needs consistent history if considered for offset).	N/A for DTI (but must show current foster placement to offset dependents).	Possibly agency letter if using to offset residual requirement.	Generally 25% if used for ratios (but main income listed as net).

Legend: DTI = Debt-to-Income ratio (used for loan qualifying ratios).

Understanding Foster Care Income in Mortgage Approval

What counts as foster care income? 

It’s generally the stipend paid by a state or county agency to you for providing care to a foster child or adult. This income is typically non-taxable (it won’t show up on your tax returns). Lenders can count it only if it’s stable and likely to continue, and they may even “gross it up” (increase it) since it’s tax-free.

Key considerations for using foster income:

• History of Income: Most programs want a track record (often 12–24 months) of you providing foster care and receiving payments.

• Documentation: You’ll need official verification, usually letters from the agency that pays you.

• Continuance: Lenders want to know the income is likely to keep coming. Some require proof it will continue for 3 more years, while others are satisfied if no evidence suggests it will stop.

• Portion of Total Income: If foster payments are a small part of your total income, some rules are more flexible. For example, Fannie Mae will allow just 12 months of history if foster income is ≤30% of your total income.

Foster care income, typically provided by state or county-sponsored organizations to caregivers, and AFC income for adult care, are forms of government assistance. Their eligibility for mortgage qualification depends on the loan type and underwriting guidelines of agencies like FHA, Fannie Mae, Freddie Mac, VA, and USDA. 

Given the variability in lender practices and agency policies, this analysis aims to clarify conditions for using such income, drawing from multiple sources including mortgage blogs, official guides, and expert articles, with a focus on Kentucky’s unique programs.

The guidelines for using foster care and AFC income vary across loan types. Below is a detailed breakdown, organized by agency and loan program, based on recent findings as of April 2025.

• FHA Loans

  • FHA loans allow foster care income with a 12-month history if received regularly and likely to continue, aligning with their flexibility for non-traditional income sources.
  • Non-taxable income can be grossed up by 25%, enhancing qualifying potential.
  • Documentation includes a letter from the organization, bank statements showing regular deposits, and verification of continuance for at least three years, as per FHA Loan Income Requirements.
  • Perfect for first-time buyers, especially in Kentucky, given FHA’s lenient DTI ratios up to 50% with strong credit.

• Conventional Loans (Fannie Mae)

  • Fannie Mae requires a 12-month history if foster care income is no more than 30% of total gross income, or 2 years otherwise, with confirmation it will continue for at least 3 years.
  • Non-taxable income may be grossed up by 25%, similar to FHA.
  • Documentation involves letters from the foster care agency, 1099s for 2 years if applicable, and bank statements, as outlined in Fannie Mae Other Sources of Income.
  • Stricter than FHA, but suitable for borrowers with stable income histories.

• Conventional Loans (Freddie Mac)

  • Freddie Mac requires a 2-year history of receiving foster care income, with evidence it will continue for at least 3 years, reflecting a more conservative approach.
  • Non-taxable income gross-up is typically 25%, consistent with industry standards.
  • Documentation includes 1099s for 2 years and a 24-month average for calculation, ensuring consistency, as per Freddie Mac Seller/Servicer Guide.

• VA Loans

  • VA loans accept foster care income if stable and verifiable, with a 12-month documentation period often sufficient via bank statements or agency contracts.
  • Non-taxable income can be grossed up, but there’s some debate on its universal acceptance, so lender consultation is advised.
  • Documentation includes standard income verification like letters and bank statements, as noted in VA Loan Employment Requirements.
  • Great for veterans or spouses, but clarity on foster care income usage varies, requiring lender verification.

• USDA Loans

  • USDA loans do not count foster care income for eligibility purposes (income limits), as it’s excluded from household income calculations, per USDA Income Eligibility Guidelines.
  • However, it may be considered for qualification (repayment ability) if stable and reliable, with 12-month proof and verification of continuance for 3 years.
  • Gross-up allowed for non-taxable income (typically 25%), but this is less common due to eligibility exclusions.
  • Documentation includes standard verification, but usage for qualification needs lender confirmation, given rural focus and income limits.

Documentation Requirements

Across loan types allowing foster care income, documentation is critical to verify stability and continuity. Common requirements include:

• A letter from the state or county organization providing the foster care income, confirming amount, payment schedule, and expected continuation.
• Copies of the borrower’s signed federal income tax returns, particularly 1099s for non-employment income, to establish history.
• Bank statements or deposit slips showing regular deposits of foster care payments, ensuring consistency.
• For FHA loans, additional verification may involve checking state agency guidelines and the age of individuals in care, reflecting the unique nature of foster care.

The table below summarizes the key guidelines for each loan type, highlighting the minimum history, continuance requirements, and documentation needed:

Loan Type	Agency	Minimum History	Continuance	Documentation	Additional Notes
VA, USDA	N/A	Not Allowed	N/A	N/A	Foster income cannot be considered for qualification.
Conventional	Freddie Mac	2 years	3 years likely	1099s for 2 years, 24-month average for calculation	Must be from state/county-sponsored organization.
Conventional, FHA	Fannie Mae	12 months (if ≤30% of total gross income) or 2 years	Likely to continue	Letter from organization, verification of 2 years receipt	If 12 months, income must not exceed 30% of total gross income for qualification.
FHA	N/A	24 months (averaged like commission) or 2 years	Likely to continue	Letter from organization, verification of receipt, state agency guidelines, age of children	Same as Fannie Mae for 12 months/2 years, must verify stability and continuance.

This table illustrates the variability in requirements, with Fannie Mae and FHA offering more flexibility for shorter histories under certain conditions, while Freddie Mac and VA/USDA impose stricter or exclusionary rules.

Learn more below about using Foster Care Income below at the following links:

• FHA Loan Income Requirements for 2023
• Fannie Mae Other Sources of Income
• Freddie Mac Seller/Servicer Guide
• VA Loan Employment Requirements and Income Verification
• USDA Income Eligibility Guidelines and Maximum
• KHC Down Payment Assistance Program
• Lexington First-Time Homebuyer Program
• LouisvilleKY.gov Down Payment Assistance Program

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