VA Mortgage Loan Guide for Kentucky (2025–2026)

Kentucky veterans and active-duty service members continue to use the VA home loan program as one of the most powerful financing tools available. This guide is designed to reflect current VA policy, practical lender requirements, and Kentucky market realities, so you are working with accurate information instead of outdated rules or generic national advice.

What Is a VA Mortgage Loan?

A VA mortgage is a home loan backed by the U.S. Department of Veterans Affairs. The VA does not lend money directly. Instead, private lenders fund the loan and the VA guarantees a portion of it. That guarantee allows qualified Kentucky veterans and service members to access more flexible guidelines and better terms than most other loan programs can offer.

Key Benefits of a Kentucky VA Mortgage

• Zero down payment required for most eligible buyers
• No monthly private mortgage insurance (PMI)
• More flexible credit standards than many conventional loans
• Competitive fixed interest rates
• Higher allowable debt-to-income ratios when residual income is strong
• Streamlined refinance options, including IRRRL (Interest Rate Reduction Refinance Loan)
• Assumable loans, subject to lender approval and buyer qualification

Basic VA Eligibility for Kentucky Borrowers

You may qualify for a VA home loan if you meet one of these service requirements:

• At least 90 days of active-duty service during wartime, or
• At least 181 days of active-duty service during peacetime, or
• At least 6 years in the National Guard or Reserves, or
• You are an eligible surviving spouse of a veteran who died in service or from a service-connected cause

A Certificate of Eligibility (COE) confirms your entitlement. Most lenders can obtain your COE electronically in a few minutes.

Credit Score Requirements (What Actually Matters)

The VA itself does not publish a minimum credit score requirement. Instead, lenders use their own credit overlays. In Kentucky, many lenders look for a minimum score in the 580 to 620 range, with the best pricing typically starting around 620 and above.

The real focus is on your overall credit profile and recent payment history, not just a single score. A strong record of on-time payments, limited recent derogatory items, and responsible use of credit can offset a lower score in some cases.

Bankruptcy, Foreclosure, and Derogatory Credit

• Chapter 7 bankruptcy: Generally at least 2 years from discharge
• Chapter 13 bankruptcy: At least 12 months of on-time plan payments, with trustee approval
• Foreclosure or short sale: Typically a 2-year waiting period
• Late payments: Isolated older lates can be acceptable, but recent serious delinquencies may require additional documentation or a manual underwrite

Income, Debt-to-Income, and Residual Income

Many borrowers focus only on debt-to-income ratio (DTI), but VA underwriting heavily emphasizes residual income. Both work together.

Debt-to-Income Ratio (DTI)

There is no hard maximum DTI in the VA program. A 41 percent DTI ratio is a common benchmark, but approvals above that level are allowed when the file is otherwise strong, especially if residual income and credit history are solid.

Residual Income

Residual income is the amount of money left over each month after paying your major obligations, including the new housing payment, taxes, insurance, and recurring debts. VA uses regional residual income tables based on household size. Kentucky is in the South Region.

Strong residual income can help offset higher DTI ratios, limited cash reserves, or a lower credit score, and it is one of the main reasons VA loans have historically low default rates.

Property Requirements for Kentucky VA Loans

Occupancy Rules

• The property must be used as your primary residence
• Occupancy is generally required within about 60 days after closing
• A spouse can often satisfy the occupancy requirement if you are deployed or temporarily away

Eligible Property Types

• Single-family homes
• VA-approved condominiums
• Townhomes
• Two- to four-unit properties when you live in one of the units
• Some manufactured homes, if they meet VA and lender guidelines

Pure investment properties, short-term vacation rentals, or homes that you do not plan to occupy as a primary residence are not eligible.

VA Minimum Property Requirements (MPRs)

VA MPRs focus on safety, soundness, and sanitation. Examples include:

• No major structural issues or unsafe conditions
• Roof and mechanical systems in acceptable condition
• Functioning heating, electrical, and plumbing systems
• No active termites or severe wood-destroying insect damage
• Safe access to the property and acceptable water and waste disposal
• Peeling lead-based paint corrected on older homes

Loan Amounts, Down Payment, and Funding Fee

Loan Limits and Entitlement

If you have full VA entitlement, there is no formal VA loan limit. In that situation, the amount you can borrow in Kentucky is mainly driven by your income, debts, and the property value, not a published county loan limit.

If you have partial entitlement because of an existing VA loan or a prior loss, then the standard Federal Housing Finance Agency (FHFA) conforming loan limits apply. For most Kentucky counties, that limit is currently around the mid-800 thousand range for one-unit properties, and lenders will calculate your maximum loan based on remaining entitlement and the purchase price.

Down Payment

Most Kentucky VA buyers purchase with zero down payment. A down payment may be required if you have reduced entitlement, are purchasing above certain price points with partial entitlement, or choose to put money down to lower the payment or funding fee.

VA Funding Fee

The VA funding fee helps keep the program self-sustaining. It is a one-time cost paid at closing or financed into the loan. The amount depends on your service history, down payment, and whether this is your first or subsequent use of VA eligibility.

Common examples include:

• First-time use with zero down: typically a little over two percent of the loan amount
• Subsequent use with zero down: typically a little over three percent of the loan amount

Many veterans do not pay the funding fee at all. If you receive qualifying VA disability compensation, hold certain Purple Heart or surviving spouse statuses, you may be exempt.

Kentucky VA Loan Process

1. Initial conversation and prequalification – Review your goals, income, credit, and service history.
2. COE request – The lender pulls your Certificate of Eligibility from the VA portal.
3. Full application and documentation – Collect pay stubs, W-2s, LES statements, tax returns, bank statements, and award letters as needed.
4. Automated underwriting – The file runs through an automated underwriting system to generate an Approve/Eligible or Refer finding.
5. Appraisal and property review – A VA appraiser confirms value and checks Minimum Property Requirements.
6. Underwriting review – The underwriter verifies income, assets, employment, credit, and residual income.
7. Clear to close – Final conditions are met and closing documents are prepared.
8. Closing and move-in – You sign your closing package, the loan funds, and you receive the keys.

Common VA Loan Myths in Kentucky

• Myth: You need perfect credit to qualify. Reality: VA guidelines are often more flexible than conventional or even FHA in many areas.
• Myth: VA loans always take longer. Reality: With a complete file and responsive parties, VA loans can close on the same timeline as other programs.
• Myth: Sellers should avoid VA offers. Reality: VA buyers are often strong, and the VA’s lower default rates can be a positive signal.
• Myth: VA loan amounts are capped at the county limit. Reality: Full entitlement borrowers are not bound by traditional loan limits.

How VA Compares to FHA, USDA, and Conventional in Kentucky

Who Is a Good Fit for a Kentucky VA Loan?

• Eligible veterans and service members who want zero down financing
• Borrowers with moderate credit who have strong residual income
• Homebuyers planning to live in the property as a primary residence
• Veterans with a qualifying VA disability rating who can benefit from a funding fee exemption