5 Bad Credit Mortgage Options in Kentucky for Homebuyers

By Joel Lobb, Senior Loan Officer | NMLS #57916 | Louisville, KY

Are you dreaming of home-ownership in Kentucky but worried your credit score is too low to qualify? Don’t let bad credit stop you from owning a home. With the right guidance and the right loan program, home-ownership is absolutely possible. As a mortgage broker who’s helped over 1,300 Kentucky families get approved, I’m here to show you your options.

Can I Get a Mortgage with Bad Credit in Kentucky?

Yes. There are several home loan programs available in Kentucky specifically designed for borrowers with less-than-perfect credit. These programs include government-backed loans like FHA, VA, and USDA.

1. FHA Loan – Credit Scores from 500+

Best for: First-time homebuyers and low-credit borrowers

  • Minimum Credit Score: 500 (10% down) or 580+ (3.5% down)
  • Loan Type: Government-backed HUD
  • Perks: Flexible credit requirements, low down payments
  • Downside: Monthly mortgage insurance (MIP) is required
  • No Bankruptcies in the last two years
  • No Foreclosures in the last 3 years
  • Stable work history last two years
  • Reserves of at least 1-3 months
  • 3.5% down payment or 10% down payment for scores below 580
  • Can you use down payment assistance programs to cover your down payment with scores above 580 for some lenders

Great option if you’ve had credit challenges but stable income and rental history over the last two years.

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️ 2. Kentucky VA Loan – For Veterans and Active Duty

Best for: Veterans, Active Duty, and surviving spouses

  • Minimum Credit Score: No miimum score but most lenders want a 620 or higher (depends on lender)
  • Down Payment: 0%
  • Perks: No PMI, no down payment, flexible DTI ratios
  • Downside: Must be VA-eligible and have COE
  • Must meet VA residual income requirements
  • Requires Termite Report on all loans
  • Can refinance up to 100% of the home’s value
  • No bankruptiuces or foecles in the last two years
  • stable 2 year workhisotry
  • upfront funding gee see here

As a veteran myself, I’ve closed 300+ VA loans for Kentuckians. You’ve earned this benefit.

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3. Kentucky USDA Loan – Rural Housing, 100% Financing

Best for: Low- to moderate-income buyers in rural Kentucky

  • Credit Score: No minimum score but 620-640 preferred (varies by lender)
  • Down Payment: $0
  • Income Limits: $112,450 (household of 1–4), $148,450 (5+)-Income limits updated every year-Some counties have higher income limits- see income limits here
  • Perks: No money down, flexible underwriting
  • Primary Residence Only
  • 30 year fixed rate term only
  • Cannot refinance for cashout purpsoes
  • No property purchase price limits or loan limits but does have stricter debt to income requirements typically 32% and 45.99% max on front end and back end ratios
  • 3 years removed from bankrupted and foreclosure
  • Upfront mortgage insurance of 1% and monthly mi of .35% mi for life of loan
  • Restricted to rural areas. See map here.

📍 Perfect for buyers in eligible counties outside major metro areas of Kentucky

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4. Non-Qualified Mortgage (Non-QM)

Best for: Self-employed or unconventional credit borrowers who lack documentation. This includes those who can’t provide tax returns, W2’s, or paystubs. They earn money via cash or through bank statements or other means.

  • 🧾 What Is a Non-QM Mortgage Loan?

  • A Non-QM (Non-Qualified Mortgage) loan is a home loan. It doesn’t meet standard government or conventional lending rules, like FHA, VA, USDA, or Fannie Mae.
  • These loans are tailored for borrowers who fall outside the typical approval box. They are suitable for self-employed individuals, investors, or those with recent credit issues.
    While these loans don’t meet “qualified mortgage” standards, they are still fully underwritten. They often require solid reserves and higher down payments.


  • If any of the following describe your situation, a Non-QM loan may be a smart route:


    Self-Employed
    Use bank statements instead of tax returns
    Real Estate Investors
    Qualify based on rental income (DSCR loans)
    High Net-Worth Individuals
    Asset depletion or asset-based income qualification
    Recent Bankruptcy/Foreclosure
    Less waiting period (as short as 1 year post-bankruptcy)
    Retirees or Gig Workers
    Non-traditional or seasonal income accepted

    Pros and Cons of Non-QM Loans

    Flexible income documentation
    Higher interest rates than conventional
    Can close quicker than some QM loans
    Requires larger down payments (10–20%)
    Credit events (BK, foreclosure) allowed
    Not eligible for government backing
    Alternative income types accepted
    May include balloon or interest-only

📍 If you’re a 1099 contractor, truck driver, or business owner, this might be your best bet.

A Non-QM (Non-Qualified Mortgage) loan is a home loan that doesn't meet standard government or conventional lending rules (like FHA, VA, USDA, or Fannie Mae). These loans are tailored for borrowers who fall outside the typical approval box — such as self-employed individuals, investors, or those with recent credit issues. While these loans don’t meet “qualified mortgage” standards, they are still fully underwritten and often require solid reserves and higher down payments.

Kentucky Housing Corporation (KHC) DAP Program

Best for: Buyers who need help with the down payment

  • Credit Score: 620 minimum
  • Assistance: Up to $12,500 in down payment/closing cost help
  • Perks: Can combine with FHA, VA, USDA loans
KHC loans are great for first-time buyers across Louisville, Lexington, Bowling Green, and beyond. Credit Score: 620 minimum Assistance: Up to $12,500 in down payment/closing cost help Perks: Can combine with FHA, VA, USDA loans

📍 KHC loans are great for first-time buyers across Louisville, Lexington, Bowling Green, and beyond.

Who Do These Programs Help?

  • First-time homebuyers
  • Low- to moderate-income households
  • People with collections or past credit issues
  • Self-employed borrowers without W2s
  • Veterans, rural residents, and renters ready to own

What’s Next?

Don’t guess which loan fits you best—let’s build a personalized home loan plan based on your credit, income, and goals. I offer free credit reviews, pre-approvals, and same-day consultations.

📞 Call or Text: (502) 905-3708
📧 Email: kentuckyloan@gmail.com
🌐 Visit: www.mylouisvillekentuckymortgage.com
🏢 Joel Lobb | NMLS #57916 |

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

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 Down Payment Assistance Program (DAP) Through Kentucky Housing Corporation (KHC) 🟦 🏡 Who’s Eligible? ✔️ First-time and repeat homebuyers ✔️ Must occupy the home as primary residence ✔️ Income & purchase price limits apply ✔️ Must meet loan program (FHA, VA, USDA, Conventional) guidelines 🟦 💰 DAP Loan Amounts $10,000 assistance with 0% interest Forgivable after a period (if applicable) Used toward down payment and/or closing costs 🟦 📉 Credit Score Requirements FHA/VA/USDA: Minimum 620 credit score Conventional: Typically 660+ (varies) 🟦 📆 How Long Does It Take? Typical closing timeline: 30–45 days Can combine with seller credits and grants 🟦 📝 Additional Requirements Complete homebuyer education course Stable income and 2-year work history Acceptable debt-to-income ratio (DTI) No recent bankruptcy or foreclosure (timing matters)

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