FHA mortgage qualifying criteria for Kentucky

Here’s a concise overview of the FHA mortgage qualifying criteria for Kentucky:

1. Credit score: Minimum 580 for 3.5% down payment, 500-579 for 10% down payment
2. Debt-to-income ratio: Generally 43% or less, though exceptions may be made
3. Down payment: Minimum 3.5% of purchase price (with 580+ credit score)
4. Employment: Steady income for at least two years
5. Property requirements: Must meet FHA standards and be primary residence
6. Loan limits: Vary by county in Kentucky
7. Mortgage insurance: Required for the life of the loan
8. Income limits: None, but must be able to afford monthly payments

1. Credit score:
   • 580 or higher allows for a 3.5% down payment
   • 500-579 requires a 10% down payment
   • Lenders may have higher requirements
2. Debt-to-income ratio (DTI):
   • Front-end ratio (housing expenses) should be 31% or less of income
   • Back-end ratio (all debts) should be 43% or less
   • Some lenders may allow higher ratios with compensating factors
3. Down payment:
   • Can come from savings, gifts, or down payment assistance programs
   • Seller can contribute up to 6% of the sale price towards closing costs
4. Employment:
   • Must show stable income for at least two years
   • Self-employed borrowers need two years of tax returns
5. Property requirements:
   • Must be safe, sound, and secure
   • Appraiser will check for minimum property standards
6. Loan limits in Kentucky:
   • Vary by county, ranging from Kentucky  FHA loan limits by county FHA limit $498,257
7. Mortgage insurance:
   • Upfront premium of 1.75% of loan amount
   • Annual premium between 0.45% and 1.05%, depending on loan terms
8. Income requirements:
   • No maximum income limit
   • Must be able to afford payments, including taxes and insurance

Additional information:

• FHA loans are assumable
• Allow for lower credit scores compared to conventional loans
• More flexible on previous bankruptcies or foreclosures

FHA mortgage insurance for Kentucky borrowers:

FHA loans require two types of mortgage insurance:

1. Upfront Mortgage Insurance Premium (UFMIP):
   • 1.75% of the base loan amount
   • Paid at closing or can be financed into the loan
   • Example: On a $200,000 loan, UFMIP would be $3,500
2. Annual Mortgage Insurance Premium (MIP):
   • Paid monthly as part of your mortgage payment
   • Rates vary based on loan term and loan-to-value (LTV) ratio:
     • For 30-year loans with LTV > 95%: 0.85% annually
     • For 30-year loans with LTV ≤ 95%: 0.80% annually
     • For 15-year loans with LTV > 90%: 0.70% annually
     • For 15-year loans with LTV ≤ 90%: 0.45% annually

Key points about FHA mortgage insurance:

• Unlike conventional loans, FHA MIP is required for the life of the loan in most cases
• MIP can only be removed by refinancing to a conventional loan once you have 20% equity
• The annual MIP is divided by 12 and added to your monthly mortgage payment

For example, on a $200,000 30-year loan with 3.5% down payment:

• Annual MIP rate: 0.85%
• Annual MIP amount: $200,000 x 0.85% = $1,700
• Monthly MIP payment: $1,700 / 12 = $141.67 added to your mortgage payment

 Let’s compare FHA mortgage insurance to private mortgage insurance (PMI) on conventional loans:

FHA Mortgage Insurance:

1. Required for all FHA loans, regardless of down payment
2. Upfront premium of 1.75% of loan amount
3. Annual premium of 0.45% to 0.85%, depending on loan terms
4. Generally lasts for the life of the loan
5. Same rates for all borrowers, regardless of credit score

Conventional Loan PMI:

1. Only required if down payment is less than 20%
2. No upfront premium (typically)
3. Annual premium varies widely, usually 0.15% to 1.95%
4. Can be removed when loan-to-value ratio reaches 78%
5. Rates vary based on credit score, down payment, and loan terms

Key differences:

1. Cost: FHA can be more expensive long-term due to the upfront premium and inability to remove MIP without refinancing
2. Duration: Conventional PMI can be cancelled, FHA MIP typically cannot
3. Flexibility: Conventional PMI offers more options (lender-paid, single premium, etc.)
4. Credit impact: FHA MIP doesn’t vary by credit score, conventional PMI does

Advantages of FHA:

• May be cheaper short-term, especially for lower credit scores
• Easier to qualify for with lower credit scores or higher debt-to-income ratios

Advantages of Conventional:

• Potentially lower long-term costs, especially for borrowers with good credit
• Ability to remove PMI without refinancing

Appraisal difference between FHA and conventional loans

FHA Loan Appraisals:

1. Stricter standards: FHA appraisals are more rigorous and detailed.
2. Dual purpose: Assess both the value and the property condition.
3. Minimum Property Standards (MPS): Must meet specific safety, security, and soundness requirements.
4. Repairs: May require repairs to be completed before loan approval.
5. Appraiser qualifications: Must be FHA-approved.
6. Validity period: Typically valid for 120 days.
7. Cost: Generally more expensive due to additional requirements.

Conventional Loan Appraisals:

1. Focus on value: Primarily concerned with determining the property’s market value.
2. Less stringent: Fewer specific property condition requirements.
3. Condition ratings: Use more general ratings (C1-C6) for property condition.
4. Repairs: Less likely to require repairs before closing.
5. Appraiser qualifications: No special FHA approval needed.
6. Validity period: Usually 60-90 days, but can vary by lender.
7. Cost: Typically less expensive than FHA appraisals.

Key differences:

• FHA appraisals are more thorough and may catch more potential issues.
• Conventional appraisals offer more flexibility for properties in less-than-perfect condition.
• FHA appraisals may lead to required repairs, potentially delaying closing or affecting negotiations.

Credit score requirements FHA vs USDA, VA, and conventional loans

Here’s a comparison of credit score requirements for FHA, USDA, VA, and conventional loans:

FHA Loans:

• Minimum score: 500
• 500-579: Requires 10% down payment
• 580+: Eligible for 3.5% down payment
• Many lenders prefer 620+ for better terms

USDA Loans:

• Minimum score: 640 (set by most lenders)
• USDA itself doesn’t set a minimum, but 640 is standard
• Scores below 640 may require manual underwriting

VA Loans:

• No official minimum set by the VA
• Most lenders require 620+
• Some may go as low as 580
• Lower scores may require manual underwriting

Conventional Loans:

• Minimum score: 620 for most lenders
• 620-659: Higher rates and stricter requirements
• 660-679: Better terms
• 740+: Best rates and terms
• 780+: Optimal pricing and easiest approval

Key points:

1. FHA is most lenient, accepting scores as low as 500
2. Conventional loans typically have the highest requirements
3. USDA and VA fall in between, with most lenders requiring 580-640
4. Higher scores generally mean better rates and terms across all loan types

Joel Lobb  Mortgage Loan Officer

American Mortgage Solutions, Inc.
10602 Timberwood Circle
Louisville, KY 40223
Company NMLS ID #1364

Text/call: 502-905-3708

email: kentuckyloan@gmail.com
http://www.mylouisvillekentuckymortgage.com/

NMLS 57916  | Company NMLS #1364/MB73346135166/MBR1574