A Chapter 13 bankruptcy does not disqualify a Kentucky Borrower from obtaining an Kentucky FHA-insured Mortgage, if at the time of case number assignment at least 12 months of the payout period under the Chapter 13 bankruptcy has elapsed.
The Borrower’s payment performance must have been satisfactory and all required payments have been made on time; and the Borrower has received written permission from bankruptcy court to enter into the mortgage transaction.
Kentucky FHA Loans Highlight Info below:
HA loans can be the long-sought answer for first-time home buyers with lower credit scores and low down payments. The question remains, though: Do you have a FICO credit score that would qualify you for an FHA loan? Here’s what you need to know.
Lowest allowable credit score: 500
You’ve got to bat at least 500 to get into this game. With a FICO score below 500, you won’t qualify for a Federal Housing Administration loan. And even with that, you won’t get the full low-down-payment benefit that FHA borrowers with higher scores will.
Better credit score = lower down payment
If your credit score is just a little bit higher, you get a major break on the down payment.
“To qualify for FHA’s minimum down payment of 3.5%, a borrower must have a credit score of 580 or above,” says Brian Sullivan, a public affairs specialist for the Department of Housing and Urban Development.
“Between 500 and 579, the borrower must put 10% down,” Sullivan says.
It’s not just about your credit score
“FHA’s standard underwriting criteria is rolled up into a ‘scorecard’ that considers many factors related to income and debt,” Sullivan adds. “Under certain conditions, particularly when a borrower doesn’t fit into our general scorecard requirements, a manual underwriting is required.”
That means a lender has to pull your file out of its automated loan process and review it by hand, and lenders aren’t always eager to do that.
Required scores can vary by lender
The credit score thing may seem pretty cut and dried, but hang on. The fact is: “Lenders set the interest rate, not FHA,” Sullivan cautions.
Lenders set the interest rate, not FHA.
“FHA is a government mortgage insurance company,” Sullivan explains. The FHA can set its standards and commit to insure mortgages that meet those requirements, “and yet, lenders may add on what are called ‘credit overlays’ on top of our standards,” he adds.
So lenders may require a higher credit score to make a loan or stack on additional credit qualifications. To make sure you get the best interest rate and loan terms, shop more than one FHA-approved lender and compare.
Kentucky FHA loan Credit Score requirements
Minimum down payment: 3.5% to 10% depending on the credit score
Minimum credit score: 500 to 579 requires 10% down payment, 580 Credit score or higher 3.5% down payment.
Maximum debt-to-income ratio: determined by AUS or a manual underwrite will be 31% and 43%
FHA loans are great for first-time buyers or people without sterling credit or much money. Created by the Federal Housing Administration, these loans are insured by this government agency, so that guarantees that lenders won’t lose their money if borrowers default on their mortgage. In short, it allows lenders to take on riskier borrowers, while also helping hopeful home buyers in less-than-ideal circumstances achieve the dream of homeownership.
FHA loans may be a boon to home buyers (particularly first-timers) who might not qualify for a loan otherwise, but they do have a few disadvantages. For one, they’re usually capped at $417,000 (in certain high-cost areas, the limit is $625,000)—meaning you may have limited buying power. Also, because the federal government insures these loans, you have to pay an upfront mortgage insurance premium (currently, the fee is about 1.75%) and annual mortgage insurance (typically 0.85% of the borrowed loan amount), which remains throughout the life of the loan (or until you can refinance the loan into a conventional mortgage).
Kentucky FHA loan advantages
- FHA loans have lower down payment requirements (3.5%) than conventional loans (typically 5% to 20%).
- FHA loans have lower credit score requirements (as low as 500 for qualified borrowers).
- FHA loans have less stringent DTI requirements (56% or less) than conventional loans.
Unlike conventional home loans, FHA loans are government-backed, which protects lenders against defaults, making it possible to for them to offer prospective borrowers more competitive interest rates on traditionally more risky loans.
An FHA home loan works like any other mortgage in that you borrow a certain amount of money from a lender and pay it back, typically over 30 years. The main distinction is that FHA loans charge both upfront and monthly mortgage insurance premiums, often for the life of the loan.
However, they also come with low down payment and credit score requirements, making them one of the easier home loans to qualify for. Oh, and FHA interest rates are some of the lowest around!
Let’s explore some of the finer details to give you a better understanding of these common loans to see if one is right for you.
Can I get an FHA loan with bad credit?
Borrowers with credit scores of 580 and above are eligible for maximum financing, or just 3.5% down. This is the low-down payment loan program the FHA is famous for.
And a 580 credit score is what I would define as “bad,” so the answer to that question is yes.
What if my credit score is below 580?
If your credit score is between 500 and 579, your FHA loan is limited to 90% loan-to-value (LTV), meaning you must put down at least 10%. This is why you’ll probably want to aim higher.
If your credit score is below 500, you are not eligible for an FHA loan.
I can’t find a lender willing to give me an FHA loan with a 500 credit score.
As noted earlier, these are just FHA guidelines – individual banks and mortgage lenders will likely have higher minimum credit score requirements, so don’t be surprised if your 580 FICO score isn’t sufficient (at least one lender now goes as low as 500).
Can I get an FHA loan with no credit score?
Surprisingly, yes! The FHA makes exceptions for those with non-traditional credit and those with no credit scores whatsoever. You can even get maximum financing (3.5% down) as long as you meet certain requirements.
The FHA is a little tougher on this type of borrower, imposing lower maximum DTI ratios, requiring two months of cash reserves, and they do not permit the use of a non-occupant co-borrower.
If you have rental history, it needs to be clean. If not, you still need to create a 12-month credit history using Group I credit references (rent, utilities, etc.) or Group II references (insurance, tuition, cell phone, rent-to-own contracts, child care payments, etc.).
You are allowed no more than one 30-day late on a credit obligation over the past 12 months, and no major derogatory events like collections/court records filed in the past 12 months (other than medical).
Assuming you can muster all that, it is possible to get an FHA loan without a credit score. Of course, it’s probably a lot easier if you have a credit score (and a good one at that!).
Since the mortgage crisis struck, FHA loans have become increasingly popular, essentially replacing subprime lending, largely because of their relatively easy underwriting requirements and government guarantee.
But make sure you compare FHA loans with conventional loans as well. There will be cases when the benefit of one outweighs the other.
FHA loans are not guaranteed to be a better deal than other mortgages, so take the time to shop around. And watch out for unscrupulous FHA-qualified lenders who may attempt to misinform you.
Sometimes certain types of loan benefit them more than you, so knowing which is best for you before you speak to an interested party might be the best way to go