Qualifying for an FHA Loan in Kentucky

When it comes to buying a home in Kentucky, FHA loans are a popular choice for many first-time homebuyers due to their flexible qualifying criteria. If you’re considering an FHA loan in the Bluegrass State, understanding the key qualifying factors is crucial. Here’s a comprehensive guide to the criteria you need to know:

1. Credit Score Requirements:
   • FHA loans are known for accommodating borrowers with lower credit scores. While the minimum required credit score can vary, typically, a credit score of 580 or higher is needed to qualify for the minimum down payment of 3.5%. However, borrowers with credit scores between 500 and 579 may still be eligible with a higher down payment, usually around 10%.
2. Down Payment:
   • The minimum down payment for an FHA loan in Kentucky is 3.5% of the home’s purchase price. This is advantageous for buyers who may not have substantial savings for a larger down payment, making homeownership more accessible.
3. Work History:
   • Lenders typically look for a steady 2 year employment history when considering FHA loan applications. A consistent work history, preferably with the same employer or within the same field, helps demonstrate financial stability and the ability to repay the loan.
4. Debt-to-Income Ratio (DTI):
   • The debt-to-income ratio is a crucial factor in mortgage approval. For FHA loans, the maximum allowable DTI ratio is typically around 40% to 45% of your gross monthly income and can go higher up to 56% with good credit scores, large down payment or shorter term loan although lenders may consider higher ratios in certain cases if compensating factors are present.
5. Bankruptcy and Foreclosure:
   • FHA loans have lenient guidelines regarding bankruptcy and foreclosure. Generally, borrowers with a past bankruptcy may qualify for an FHA loan after two years if they have re-established good credit and demonstrated responsible financial behavior. For foreclosures, the waiting period is usually three years.
6. Mortgage Term:
   • FHA loans offer various mortgage term options, including 15-year and 30-year fixed-rate loans. The choice of term depends on your financial goals and ability to manage monthly payments.
   • Occupancy: Primary residences not for rental properties
   • Mortgage Insurance on the loan for life of loan. Larger down payments and shorter terms will reduce the upfront mi and monthly mi premiums
   • can be used for refinances, not only for purchases.
   • Max FHA loan in Kentucky is $498,257. This changes every year
   • No income limits nor property restrictions on where home is located
   • Can close within 30 days typically with good appraisal and title work

Understanding these qualifying criteria can help you navigate the FHA loan application process in Kentucky more effectively. Working with an experienced mortgage professional can also provide valuable guidance and assistance tailored to your specific financial situation and homeownership goals.

Joel Lobb  Mortgage Loan Officer

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

Text/call: 502-905-3708
fax: 502-327-9119
email: kentuckyloan@gmail.com

http://www.mylouisvillekentuckymortgage.com/

 

 

 

 

NMLS 57916  | Company NMLS #1364/MB73346135166/MBR1574

 

The view and opinions stated on this website belong solely to the authors, and are intended for informational purposes only. The posted information does not guarantee approval, nor does it comprise full underwriting guidelines. This does not represent being part of a government agency. The views expressed on this post are mine and do not necessarily reflect the view of my employer. Not all products or services mentioned on this site may fit all people.
NMLS ID# 57916, (www.nmlsconsumeraccess.org).

 

Kentucky FHA Loan Requirements For 2024

 

The requirements for Kentucky FHA loans are set by HUD.

• Borrowers must have a steady employment history of the last two years within the same industry or line of work. Recent college graduates can use their transcripts to supplant the 2-year work history rule as long as it makes sense.
• Self-Employed will need a 2-year history of tax returns filed with IRS. They will take a 2-year average.
• FHA requires a 3.5% down payment. Can be gifted from a family member or from a retirement savings plan, or money saved up. Any type of cash deposits is not allowed for down payments. No exceptions to this rule!! This is one of the biggest issues I see in FHA underwriting nowadays.
•  FHA loans are for primary residence occupancy. Not rental houses.
• Borrowers must have a property appraisal from an FHA-approved appraiser.
• Borrowers’ front-end ratio (mortgage payment plus HOA fees, property taxes, mortgage insurance, homeowners insurance) needs to be less than 31 percent of their gross income, typically. You may be able to get approved with as high a percentage as 43 percent. If the Automated Underwriting System gives you an Approved Eligible you can go higher on the debt ratios
• Borrowers must have a minimum credit score of 580 for maximum financing with a 3.5% down payment
• Borrowers must have a minimum credit score of 500-579 for maximum LTV of 90 percent with a minimum down payment of 10 percent. Most lenders will not go below 580 to 620 score, and very few lenders will go to 580 score. It’s best to work on getting your scores up before you apply or work with a loan officer to improve them.
• 2 years removed from Chapter 7 is required with good pay history after bankruptcy
• 1 year removed from Chapter 13 is okay with an excellent pay history with the Chapter 13 plan and permission from the trustee. You will need to qualify with the Chapter 13 payment along with a new house payment. Again, scores will play into your loan pre-approval.
• Typically borrowers must be three years out of foreclosure and have re-established good credit. Exceptions can be made if there were extenuating circumstances and you’ve improved your credit. If you were unable to sell your home because you had to move to a new area, this does not qualify as an exception to the three-year foreclosure guideline.
• The property must be appraised by a Kentucky FHA-approved appraiser.
• The property must be safe, sound and secure, in compliance with minimum property standards as defined by the U.S. Department of Housing and Urban Development, or HUD.

• You may not have delinquent federal debt or judgments, or debt associated with past FHA loans. Caivrs Alert System will show up if you owe the government money.

Why Lenders Use CAIVRS

It is true that your CAIVRS report can help lenders to predict the risk of doing business with you, just like a traditional consumer credit report. But the primary reason lenders check your CAIVRS report is because they are generally required to do so for any applications that involve a federal loan (FHA, VA, USDA, SBA, etc.). Lenders are required to conduct a CAIVRS search because of Title 31 of the United States Code (Section 3720B) bars “delinquent federal debtors from obtaining federal loans or loan insurance guarantees.”

Kentucky FHA Loan Requirements for 2024

• Gift Rules for Down-Payment Sources Guidelines on FHA Mortgage Programs

  One of the biggest obstacles to buying a home for Americans is the down payment. There was a time when you needed a 20% down payment and a high credit score to buy a home. But in 2022, you can buy a home with average to below-average credit and low down payment in some cases. One of the most popular loan programs for these buyers if the FHA loan. A major advantage of the FHA mortgage loan is you can get approved with only a 3.5% down payment with a 580 or higher credit score. If you have a lower score than that, you need a 10% down payment.

  Still, there are situations where the borrower is having trouble coming up with the down payment for the loan. What to do then? FHA guidelines do allow other options. Keep reading to learn more.

  More on FHA Down Payments and Approved Sources

  As we noted above, you are required to have at least a 3.5% down payment to be approved for an FHA loan. The money must be verified by the FHA-approved lender to come from an ‘approved source.’ What is an approved source, anyway? Most people get their down payment from cash reserves, investments, borrow from 401k or IRA, etc. The idea behind verifying where the money came from is to make sure the borrower did not get the down payment from a credit card or payday loan, etc.

  But there are other options for your down payment. The funds also can come from a gift. The gift and the giver do need to meet FHA requirements, but this flexible guideline makes it possible to get into an FHA loan with, technically, zero money down. To determine if the down payment gift can be used or not, it is necessary to check HUD rules. According to HUD 41.55.1 Chapter 5 Section B, for the funds to be a gift, there cannot be any expected repayment of the money.

  Also, FHA will scrutinize the giver of the gift. Chapter 5 of the HUD Code states the cash gift is OK if it comes from your relative; employer or labor union; close friend with a defined interest in you; charitable organization; government agency or public entity.

  FHA also states who cannot give gift funds to you for the down payment. These are the seller; the real estate agent or broker on the deal; the builder or an associated entity.

  Gift Terms Explained

  The gift for your down payment cannot be made based upon paying it back later. You are required to get a gift letter from the person or organization. The letter should state that you are not required to pay the money back. It also should provide the contact information for the borrower, such as name, address, and phone number. Also included should be the bank account from which the funds will be sent.

  The gift donor should be OK with giving a bank statement with the letter. Also, he or she should ensure that the transfer amount matches what is in the gift letter and what is deposited into your account.

  FHA rules are very specific on these areas to ensure that the home buying process through FHA is fair and just. But as long as you follow the FHA rules, you should be able to get help with your down payment from a friend or relative.

  Don’t Have Friends or Family Who Can Help?

  Not every borrower has friends or family who can give them a gift for their down payment. But HUD lists many government programs spread throughout the country in most states that can offer down payment and closing cost help for certain borrowers.

  It also is worth checking if your employer and state have employer-assisted housing. This program can help people with moderate incomes to get a loan to cover closing costs and down payment. Look up FHA  in your state on Google to see what is available.

  The FHA is actually not the lender. They insure the loans that are issued by FHA-approved lenders. FHA loans are gear more toward borrower’s with less than 20% down payment and credit issues in the past.

  Qualifying for a FHA Loan Mortgage In Kentucky

  Credit Scores and Down Payment Percentages – Each year, the rules for qualifying for these loans changes. For 2024, applicants need a minimum credit score of 580 in order to get the low down payment, which is 3.5 percent.

  For those whose credit score is less than 580, they will have to come up with 10 percent for their down payment. This does not guaranteed a mortgage loan approval if you have the certain credit scores, just a the minimum required.

  Compensating Factors for FHA loan Approval

  The credit score is just one part of the story. The FHA will also evaluate the borrower’s bankruptcies, foreclosures, prior payment history on other debts. They will also want information on difficulties that kept the borrower from making payments on other debts in the past.

  Negative strikes against qualifying for the loan include not having any credit history or a bankruptcy.

  Someone with a bankruptcy will have to wait for two or more years after their bankruptcy before applying for an FHA-insured loan.

  If you have late payments on debt obligations, it is best to wait until you have had a full year of on-time payments before you apply for a FHA-insured loan.

  If you have had a foreclosure in the past, you may still be able to get a FHA-insured loan three years after your foreclosure. The lender will be looking at the circumstances behind the foreclosure.

  If you have had any civil judgement against you for money owed, collections actions or unpaid/unresolved federal debt, the FHA-approved lender will be required by the FHA to establish that all of these outstanding issues are resolved or paid before you can go through closing.

  Watch out for student loans if they are delinquent because sometime this can cause a lien against you in the form of a CAVIRS Alert with HUD

  As you can see, many types of borrowers who would not be eligible for a traditional mortgage, or who would face exorbitant interest rates, will be able to qualify for a FHA-insured loan at attractive interest rates.

  Employment and Income for a Kentucky FHA Loan

  You must have an employment history that is steady for the last two years. Does not have to be same employer.

  Your income has to be verifiable in some way, whether that be through pay stubs, your income tax returns. No bank statements or cash deposits , or undocumented income can be used for income qualifying purposes.

  

  Debt-to-Income Ratio Requirements –

  Depending on the automated underwriting system from Desktop Originator, your Debt-to-income ratio is the percentage of your income before taxes that you spend on monthly debt.

  Taking into account the proposed mortgage payment as well as the other debts, the FHA requires that these debts all total less than 43 percent of your pretax income in order to qualify for the loan.

  If your debt load is too high, you will struggle to pay all of your bills and mortgage expenses and care for yourself and your family.

  

  Property Requirements for a Kentucky FHA Loan

  It must be the place where you intend to reside. You must move into the home within 60 days of closing the loan. The home cannot be an investment. There will be an inspection to ensure that the home is safe and habitable.

  It is really not too hard to pass FHA loans and the appraisal process.

  

  Pros of FHA Loans –

  • New homebuyers and those who have lower credit scores or who have other blemishes on their credit history will often qualify for FHA-insured loans.

  • Even though these borrowers are considered “subprime” to a traditional lender, they will receive attractive interest rates through the FHA-insured mortgage programs.

  • The down payments required from borrowers are lower than those required by traditional mortgage lenders.

  • These loans can be combined with other forms of public assistance for lower income or new borrowers so that the borrower will not need to come up with a down payment of any kind.

  Cons of FHA Loans –

  • Since the FHA is not actually the lender, and you have to go through FHA-approved lenders, you may not qualify due to stricter standards that the lender has for the loan.

  • Because you are not paying 20 percent as a down payment, the FHA requires two mortgage insurance premiums to be paid. One is an upfront premium that is 1.75 percent of the loan amount. Lenders often will allow you to make that mortgage insurance premium a part of your loan. The second is an annual mortgage insurance premium that is .45 percent or 1.05 percent. This premium is paid monthly.

   FHA FINANCING

  CREDIT REQUIREMENTS FOR KENTUCKY FHA FINANCING

  What credit score do I need to qualify for a Kentucky FHA loan is one of the most common questions I hear from Kentucky homebuyers?

  The short answer is you must have a minimum credit score of 500 to be eligible for an FHA loan in Kentucky.  Anything lower than 500 disqualifies you from consideration for an FHA loan.

  There are two sets of credit score requirements for a Kentucky FHA Loan

  One important thing to understand is that the Federal Housing Administration (FHA) does not lend money directly to home buyers. You will fill out an application with a regular lender just as you would if you were applying for any other type of mortgage. What the FHA does is ensure your loan to help protect the lender in case you default.

  You will be required not only to meet the FHA guidelines to qualify for a loan but also meet any additional qualifications required by the lender. This means there are two sets of requirements you have to meet with your credit score.

  1. The first set of requirements comes from the Department of Housing and Urban Development (HUD). HUD oversees the FHA and determines what a borrower’s minimum eligibility requirements will be to obtain an FHA loan.

  2. The second set of requirements comes from the mortgage lender. The mortgage lender has the right to add its requirements to those mandated by HUD.

  What HUD requires of borrowers to be eligible for an FHA loan

  The HUD Handbook 4000.1 includes the official guidelines when it comes to the FHA mortgage insurance program.

  Borrowers with credit scores from 500 to 579 are eligible for a 90% loan with 10% down.

  Individuals with credit scores below 500 are not eligible for the FHA program.

  What lenders may require of borrowers to be eligible for an Kentucky FHA loan

  Lenders have the right to add requirements over and above the minimum requirements of HUD. These additional requirements are called overlays. Your lender may or may not require them.

  This is not something that should come as a surprise to you, however. Requiring a credit score of 580 to 620 is not unusual. In addition to your credit score, you must have a manageable debt level that lenders are comfortable with and enough income to repay your loan.

•  
•  

   

• 
   
   
  Joel Lobb (NMLS#57916)
  Senior  Loan Officer

   

  American Mortgage Solutions, Inc.

  10602 Timberwood Circle Suite 3

  Louisville, KY 40223

  Company ID #1364 | MB73346

   

  
  Text/call 502-905-3708
  kentuckyloan@gmail.com

   

   

#fhaloans #fhaloan #fha #conventionalloans #conventionalmortgage #kentuckymortgage #louisville #mortgage #homeloan #firsttimehomebuyers #khcloan #fhaloanky

#mortgagebroker #mortgagelender #homeloan

How to Qualify For a Kentucky FHA Mortgage Loan

How to Qualify For a Kentucky FHA Mortgage Loan

 

The requirements for Kentucky FHA loans are set by HUD.

• Borrowers must have a steady employment history of the last two years within the same industry or line of work. Recent college graduates can use their transcripts to supplant the 2-year work history rule as long as it makes sense.
• Self-Employed will need a 2-year history of tax returns filed with IRS. They will take a 2-year average.
• FHA requires a 3.5% down payment. Can be gifted from a family member or from a retirement savings plan, or money saved up. Any type of cash deposits is not allowed for down payments. No exceptions to this rule!! This is one of the biggest issues I see in FHA underwriting nowadays.
•  FHA loans are for primary residence occupancy. Not rental houses.
• Borrowers must have a property appraisal from an FHA-approved appraiser.
• Borrowers’ front-end ratio (mortgage payment plus HOA fees, property taxes, mortgage insurance, homeowners insurance) needs to be less than 31 percent of their gross income, typically. You may be able to get approved with as high a percentage as 43 percent. If the Automated Underwriting System gives you an Approved Eligible you can go higher on the debt ratios
• Borrowers must have a minimum credit score of 580 for maximum financing with a 3.5% down payment
• Borrowers must have a minimum credit score of 500-579 for maximum LTV of 90 percent with a minimum down payment of 10 percent. Most lenders will not go below 580 to 620 score, and very few lenders will go to 580 score. It’s best to work on getting your scores up before you apply or work with a loan officer to improve them.
• 2 years removed from Chapter 7 is required with good pay history after bankruptcy
• 1 year removed from Chapter 13 is okay with an excellent pay history with the Chapter 13 plan and permission from the trustee. You will need to qualify with the Chapter 13 payment along with a new house payment. Again, scores will play into your loan pre-approval.
• Typically borrowers must be three years out of foreclosure and have re-established good credit. Exceptions can be made if there were extenuating circumstances and you’ve improved your credit. If you were unable to sell your home because you had to move to a new area, this does not qualify as an exception to the three-year foreclosure guideline.
• The property must be appraised by a Kentucky FHA-approved appraiser.
• The property must be safe, sound and secure, in compliance with minimum property standards as defined by the U.S. Department of Housing and Urban Development, or HUD.
• You may not have delinquent federal debt or judgments, or debt associated with past FHA loans. Caivrs Alert System will show up if you owe the government money.

Why Lenders Use CAIVRS

It is true that your CAIVRS report can help lenders to predict the risk of doing business with you, just like a traditional consumer credit report. But the primary reason lenders check your CAIVRS report is because they are generally required to do so for any applications that involve a federal loan (FHA, VA, USDA, SBA, etc.). Lenders are required to conduct a CAIVRS search because of Title 31 of the United States Code (Section 3720B) bars “delinquent federal debtors from obtaining federal loans or loan insurance guarantees.”

Kentucky FHA Loan Requirements for 2023

• Gift Rules for Down-Payment Sources Guidelines on FHA Mortgage ProgramsOne of the biggest obstacles to buying a home for Americans is the down payment. There was a time when you needed a 20% down payment and a high credit score to buy a home. But in 2022, you can buy a home with average to below-average credit and low down payment in some cases. One of the most popular loan programs for these buyers if the FHA loan. A major advantage of the FHA mortgage loan is you can get approved with only a 3.5% down payment with a 580 or higher credit score. If you have a lower score than that, you need a 10% down payment.Still, there are situations where the borrower is having trouble coming up with the down payment for the loan. What to do then? FHA guidelines do allow other options. Keep reading to learn more.More on FHA Down Payments and Approved SourcesAs we noted above, you are required to have at least a 3.5% down payment to be approved for an FHA loan. The money must be verified by the FHA-approved lender to come from an ‘approved source.’ What is an approved source, anyway? Most people get their down payment from cash reserves, investments, borrow from 401k or IRA, etc. The idea behind verifying where the money came from is to make sure the borrower did not get the down payment from a credit card or payday loan, etc.But there are other options for your down payment. The funds also can come from a gift. The gift and the giver do need to meet FHA requirements, but this flexible guideline makes it possible to get into an FHA loan with, technically, zero money down. To determine if the down payment gift can be used or not, it is necessary to check HUD rules. According to HUD 41.55.1 Chapter 5 Section B, for the funds to be a gift, there cannot be any expected repayment of the money.Also, FHA will scrutinize the giver of the gift. Chapter 5 of the HUD Code states the cash gift is OK if it comes from your relative; employer or labor union; close friend with a defined interest in you; charitable organization; government agency or public entity.FHA also states who cannot give gift funds to you for the down payment. These are the seller; the real estate agent or broker on the deal; the builder or an associated entity.Gift Terms ExplainedThe gift for your down payment cannot be made based upon paying it back later. You are required to get a gift letter from the person or organization. The letter should state that you are not required to pay the money back. It also should provide the contact information for the borrower, such as name, address, and phone number. Also included should be the bank account from which the funds will be sent.The gift donor should be OK with giving a bank statement with the letter. Also, he or she should ensure that the transfer amount matches what is in the gift letter and what is deposited into your account.FHA rules are very specific on these areas to ensure that the home buying process through FHA is fair and just. But as long as you follow the FHA rules, you should be able to get help with your down payment from a friend or relative.Don’t Have Friends or Family Who Can Help?Not every borrower has friends or family who can give them a gift for their down payment. But HUD lists many government programs spread throughout the country in most states that can offer down payment and closing cost help for certain borrowers.It also is worth checking if your employer and state have employer-assisted housing. This program can help people with moderate incomes to get a loan to cover closing costs and down payment. Look up FHA  in your state on Google to see what is available.The FHA is actually not the lender. They insure the loans that are issued by FHA-approved lenders. FHA loans are gear more toward borrower’s with less than 20% down payment and credit issues in the past.Qualifying for a FHA Loan Mortgage In KentuckyCredit Scores and Down Payment Percentages – Each year, the rules for qualifying for these loans changes. For 2022, applicants need a minimum credit score of 580 in order to get the low down payment, which is 3.5 percent.For those whose credit score is less than 580, they will have to come up with 10 percent for their down payment. This does not guaranteed a mortgage loan approval if you have the certain credit scores, just a the minimum required.Compensating Factors for FHA loan ApprovalThe credit score is just one part of the story. The FHA will also evaluate the borrower’s bankruptcies, foreclosures, prior payment history on other debts. They will also want information on difficulties that kept the borrower from making payments on other debts in the past.https://www.youtube.com/embed/iM74Gt0GmMI?version=3&rel=1&showsearch=0&showinfo=1&iv_load_policy=1&fs=1&hl=en&autohide=2&wmode=transparentNegative strikes against qualifying for the loan include not having any credit history or a bankruptcy.Someone with a bankruptcy will have to wait for two or more years after their bankruptcy before applying for an FHA-insured loan.If you have late payments on debt obligations, it is best to wait until you have had a full year of on-time payments before you apply for a FHA-insured loan.If you have had a foreclosure in the past, you may still be able to get a FHA-insured loan three years after your foreclosure. The lender will be looking at the circumstances behind the foreclosure.If you have had any civil judgement against you for money owed, collections actions or unpaid/unresolved federal debt, the FHA-approved lender will be required by the FHA to establish that all of these outstanding issues are resolved or paid before you can go through closing.Watch out for student loans if they are delinquent because sometime this can cause a lien against you in the form of a CAVIRS Alert with HUDAs you can see, many types of borrowers who would not be eligible for a traditional mortgage, or who would face exorbitant interest rates, will be able to qualify for a FHA-insured loan at attractive interest rates.Employment and Income for a Kentucky FHA LoanYou must have an employment history that is steady for the last two years. Does not have to be same employer.Your income has to be verifiable in some way, whether that be through pay stubs, your income tax returns. No bank statements or cash deposits , or undocumented income can be used for income qualifying purposes.Debt-to-Income Ratio Requirements –Depending on the automated underwriting system from Desktop Originator, your Debt-to-income ratio is the percentage of your income before taxes that you spend on monthly debt.Taking into account the proposed mortgage payment as well as the other debts, the FHA requires that these debts all total less than 43 percent of your pretax income in order to qualify for the loan.If your debt load is too high, you will struggle to pay all of your bills and mortgage expenses and care for yourself and your family.Property Requirements for a Kentucky FHA LoanIt must be the place where you intend to reside. You must move into the home within 60 days of closing the loan. The home cannot be an investment. There will be an inspection to ensure that the home is safe and habitable.It is really not too hard to pass FHA loans and the appraisal process.Pros of FHA Loans –
  • New homebuyers and those who have lower credit scores or who have other blemishes on their credit history will often qualify for FHA-insured loans.
  • Even though these borrowers are considered “subprime” to a traditional lender, they will receive attractive interest rates through the FHA-insured mortgage programs.
  • The down payments required from borrowers are lower than those required by traditional mortgage lenders.
  • These loans can be combined with other forms of public assistance for lower income or new borrowers so that the borrower will not need to come up with a down payment of any kind.
  Cons of FHA Loans –
  • Since the FHA is not actually the lender, and you have to go through FHA-approved lenders, you may not qualify due to stricter standards that the lender has for the loan.
  • Because you are not paying 20 percent as a down payment, the FHA requires two mortgage insurance premiums to be paid. One is an upfront premium that is 1.75 percent of the loan amount. Lenders often will allow you to make that mortgage insurance premium a part of your loan. The second is an annual mortgage insurance premium that is .45 percent or 1.05 percent. This premium is paid monthly.
   FHA FINANCINGCREDIT REQUIREMENTS FOR KENTUCKY FHA FINANCINGWhat credit score do I need to qualify for a Kentucky FHA loan is one of the most common questions I hear from Kentucky homebuyers?The short answer is you must have a minimum credit score of 500 to be eligible for an FHA loan in Kentucky.  Anything lower than 500 disqualifies you from consideration for an FHA loan.There are two sets of credit score requirements for a Kentucky FHA LoanOne important thing to understand is that the Federal Housing Administration (FHA) does not lend money directly to home buyers. You will fill out an application with a regular lender just as you would if you were applying for any other type of mortgage. What the FHA does is ensure your loan to help protect the lender in case you default.You will be required not only to meet the FHA guidelines to qualify for a loan but also meet any additional qualifications required by the lender. This means there are two sets of requirements you have to meet with your credit score.1. The first set of requirements comes from the Department of Housing and Urban Development (HUD). HUD oversees the FHA and determines what a borrower’s minimum eligibility requirements will be to obtain an FHA loan.2. The second set of requirements comes from the mortgage lender. The mortgage lender has the right to add its requirements to those mandated by HUD.What HUD requires of borrowers to be eligible for an FHA loanThe HUD Handbook 4000.1 includes the official guidelines when it comes to the FHA mortgage insurance program.Borrowers with credit scores from 500 to 579 are eligible for a 90% loan with 10% down.Individuals with credit scores below 500 are not eligible for the FHA program.What lenders may require of borrowers to be eligible for an Kentucky FHA loanLenders have the right to add requirements over and above the minimum requirements of HUD. These additional requirements are called overlays. Your lender may or may not require them.This is not something that should come as a surprise to you, however. Requiring a credit score of 580 to 620 is not unusual. In addition to your credit score, you must have a manageable debt level that lenders are comfortable with and enough income to repay your loan.
•  
•  
• Joel Lobb (NMLS#57916)
  Senior  Loan OfficerAmerican Mortgage Solutions, Inc.10602 Timberwood Circle Suite 3Louisville, KY 40223Company ID #1364 | MB73346
  Text/call 502-905-3708
  kentuckyloan@gmail.com

What income is acceptable for FHA, VA, USDA and Fannie Mae Mortgage Loan Approval in Kentucky?

How to qualify for a Kentucky mortgage

The type of mortgage you’re applying for determines the minimum requirements you’ll have to meet for your down payment, credit score, and debt-to-income ratio.

Find out what type of loan you might qualify for or what aspects of your finances you’ll need to improve to get a better shot at qualifying for a mortgage.

Loan Type	Min. Down Payment	Min. Credit Score	Max DTI	Property Type
Conventional	3%	620	45%	Primary, secondary, investment
VA	0%	none	none	Primary
FHA	3.5%	500	50%	Primary
USDA	0%	none	41%	Primary

Keep in mind: The minimum down payment, minimum credit score, and maximum DTI shown in the table apply to mortgages used to purchase a primary residence. While you can use a conventional loan or a jumbo loan to purchase a home for another purpose, you might need a larger down payment, a higher credit score, more cash reserves, or all three.

Credit score needed to buy a house

Mortgage lending is risky, and lenders want a way to quantify that risk. They use your three-digit credit score to gauge the risk of loaning you money since your credit score helps predict your likelihood of paying back a loan on time. Lenders also consider other data, such as your income, employment, debts and assets to decide whether to offer you a loan.

Different lenders and loan types have different borrower requirements, loan terms and minimum credit scores. Here are the requirements for some of the most common types of mortgages.

Conventional loan

Minimum credit score: 620

A conventional loan is a mortgage that isn’t backed by a federal agency. Most mortgage lenders offer conventional loans, and many lenders sell these loans to Fannie Mae or Freddie Mac — two government-sponsored enterprises. Conventional loans can have either fixed or adjustable rates, and terms ranging from 10 to 30 years.

You can get a conventional loan with a down payment as low as 3% of the home’s purchase price, so this type of loan makes sense if you don’t have enough for a traditional down payment. However, if your down payment is less than 20%, you’re required to pay for private mortgage insurance (PMI), which is an insurance policy designed to protect the lender if you stop making payments. You can ask your servicer to cancel PMI once the principal balance of your mortgage falls below 80% of the original value of your home.

FHA loan

Minimum credit score (10% down): 500

Minimum credit score (3.5% down): 580

FHA loans are backed by the Federal Housing Administration (FHA), a part of the U.S. Department of Housing and Urban Development (HUD). The FHA incentivizes lenders to make mortgage loans available to borrowers who might not otherwise qualify by guaranteeing the federal government will repay the mortgage if the borrower stops making payments. This makes an FHA loan a good option if you have a lower credit score.

FHA loans come in 15- or 30-year terms with fixed interest rates. Unlike conventional mortgages, which only require PMI for borrowers with less than 20% down, all FHA borrowers must pay an up-front mortgage insurance premium (MIP) and an annual MIP, as long as the loan is outstanding.

VA loan

Minimum credit score: N/A

VA loans are mortgages backed by the U.S. Department of Veterans Affairs (VA). The VA guarantees loans made by VA-approved lenders to qualifying veterans or service members of the U.S. armed forces, or their spouses. This type of loan is a great option for veterans and their spouses, especially if they don’t have the best credit and don’t have enough for a down payment.

VA loans are fixed-rate mortgages with 10-, 15-, 20- or 30-year terms.

Most VA loans don’t require a down payment or monthly mortgage insurance premiums. However, they do require a one-time VA funding fee, that ranges from 1.4% to 3.6% of the loan amount.

USDA loan

Minimum credit score: N/A

The U.S. Department of Agriculture guarantees loans for borrowers interested in buying homes in certain rural areas. USDA loans don’t require a minimum down payment, but you have to meet the USDA’s income eligibility limits, which vary by location.

All USDA mortgages have fixed interest rates and 30-year repayment terms.

USDA-approved lenders must pay an up-front guarantee fee of up to 3.5% of the purchase price to the USDA. That fee can be passed on to borrowers and financed into the home loan. If the home you want to buy is within an eligible rural area (defined by the USDA) and you meet the other requirements, this could be a great loan option for you.

What else do mortgage lenders consider?

Your credit score isn’t the only factor lenders consider when reviewing your loan application. Here are some of the other factors lenders use when deciding whether to give you a mortgage.

• Debt-to-income ratio — Your debt-to-income (DTI) ratio is the amount of debt payments you make each month (including your mortgage payments) relative to your gross monthly income. For example, if your mortgage payments, car loan and credit card payments add up to $1,800 per month and you have a $6,000 monthly income, your debt-to-income ratio would be $1,800/$6,000, or 30%. Most conventional mortgages require a DTI ratio no greater than 36%. However, you may be approved with a DTI up to 45% if you meet other requirements.
• Employment history — When you apply for a mortgage, lenders will ask for proof of employment — typically two years’ worth of W-2s and tax returns, as well as your two most recent pay stubs. Lenders prefer to work with people who have stable employment and consistent income.
• Down payment — Putting money down to buy a home gives you immediate equity in the home and helps to ensure the lender recoups their loss if you stop making payments and they need to foreclose on the home. Most loans — other than VA and USDA loans — require a down payment of at least 3%, although a higher down payment could help you qualify for a lower interest rate or make up for other less-than-ideal aspects of your mortgage application.
• The home’s value and condition — Lenders want to ensure the home collateralizing the loan is in good condition and worth what you’re paying for it. Typically, they’ll require an appraisal to determine the home’s value and may also require a home inspection to ensure there aren’t any unknown issues with the property.

Louisville Kentucky Mortgage Loans

Acceptable Income and Job History for a Mortgage Loan Approval in Kentucky

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Kentucky FHA Manual Underwriting Guidelines for Approval

 We have the expertise to manually underwrite even the most difficult Kentucky  FHA Mortgage loans. Whether it’s purchase or refi—we work hard to approve what other lenders won’t. 

 

Did you know over 50% of our Kentucky  FHA loans are manual underwrites?

 

Kentucky FHA will consider the borrower’s entire story, including extenuating circumstances and compensating factors, to justify loan approvals. If your borrower falls under any of these conditions, they may benefit from manual underwriting:

• Non-traditional credit / lack of credit
• True extenuating circumstances affecting credit or income history
• Lack of seasoning on a Chapter 13
• Disputed accounts over $1,000
• Frequent job changes in the last 12 months

If you think your borrower could benefit from  manual underwriting call us to learn more about manual underwriting or submit your scenario today.

Lowest Minimum Decision Credit Score Maximum Qualifying Ratios (%) Acceptable Compensating Factors
All manual underwritten loans require a VOR.
If the borrower does not pay rent a letter of explanation from borrower stating where living rent free.
620 & Above
31/43
• No compensating factors required.
• Energy Efficient Homes may have stretch ratios of 33/45.
620 & Above
37/47
One of the following:
• Verified & documented cash reserves equal to at least three total monthly mortgage payments.
• New total monthly mortgage payment is not more than $100 or 5% higher than previous total monthly housing payment, whichever is less; and there is a documented twelve-month housing payment history with no more than one thirty-day late payment.
• Residual Income per VA chart.
620 & Above
40/40
• Borrower has established credit lines in his/her own name (open for at least six months) but carries no discretionary debt (monthly total housing payment is only open installment account and borrower can document that revolving credit has been paid off in full monthly for at least the past six months).
620 & Above
40/50
Two of the following:
• Verified & documented cash reserves equal to at least three total monthly mortgage payments.
• New total monthly mortgage payment is not more than $100 or 5% higher than previous total monthly housing payment, whichever is less; and there is a documented twelve-month housing payment history with no more than one thirty-day late payment.
• Verified and documented significant additional income that is not considered effective income and likely to continue (part-time or seasonal income verified for more than 1 year but less than 2 years). The income if it were included in gross effective income is sufficient to reduce the qualifying ratios to not more than 37/47.
• Residual Income per VA chart.

KENTUCKY FHA MORTGAGE MANUAL UNDERWRITING GUIDELINES FOR VA RESIDUAL INCOME

Residual Income
Calculating Residual Income
Residual income is calculated in accordance with the following:
• Calculate the total gross monthly income of all occupying borrowers
• Deduct from the gross monthly income the following items:
➢ State income taxes
➢ Federal income taxes
➢ Municipal or other income taxes
➢ Retirement or Social Security
➢ Proposed total monthly fixed mortgage payment
➢ All recurring monthly debt obligations
➢ Estimated maintenance and utilities ($0.14 x sq. ft.)
➢ Job related expenses (e.g., child care)
• The difference between the gross monthly income and the deductions above is the residual income
Compensating Factors
Using Residual Income as a Compensating Factor
Count all members of the household of the occupying borrowers without regard to the nature of their relationship and without regard to whether they are joining on title or the note.
Exception: As stated in the VA Guidelines, the mortgagee may omit any individuals from “family size” who are fully supported from a source of verified income which is not included in the effective income in the loan analysis. These Individuals must voluntarily provide sufficient documentation to verify their income to qualify for this exemption.
From the table below, select the applicable loan amount and household size. If residual income equals or exceeds the corresponding amount on the table, it may be cited as a compensating factor.

Kentucky FHA Mortgage Manual Undewriting Guidelines for FHA Mortgage Refer Eligible or Manual Downgrades Compensating Factors for Manual FHA approval

 

Accept Risk Class required downgrade to Manual Underwriting
The Mortgagee must downgrade and manually underwrite any mortgage that received an accept or approve/eligible recommendation if:
• The mortgage file contains information or documentation that cannot be evaluated by TOTAL.
• Additional information, not considered in the AUS recommendation affects the overall insurability of the mortgage.
• The borrower has $1,000 or more collectively in Disputed Derogatory Credit Accounts.
• The date of the borrower’s bankruptcy discharge as reflected on bankruptcy documents is within two years from the date of the case number assignment.
• The case number assignment date is within three years of the date of the transfer of title through a Pre-Foreclosure Sale (Short Sale).
• The case number assignment date is within three years of the date of the transfer of title through a foreclosure sale.
• The case number assignment date is within three years of the date of the transfer of title through a Deed-in-Lieu (DIL) of foreclosure.
• The Mortgage Payment history, for any mortgage trade line reported on the credit report used to score the application, requires a downgrade as defined in Housing Obligations/Mortgage Payment History.
• The Borrower has undisclosed mortgage debt that requires a downgrade.
• Business income shows a greater than 20 percent decline over the analysis period.