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 family member or from retirement savings plan, or money saved-up. Any type of cash deposits are 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 a 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 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 trustee. You will need to qualify with the Chapter 13 payment along with 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.
Max FHA loan in Kentucky is between $275,000 to $299,000 depending on the county in Kentucky
I can answer your questions and usually get you pre-approved the same day.
Call or Text me at 502-905-3708 with your mortgage questions. Email Kentuckyloan@gmail.com
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). Mortgage loans only offered in Kentucky.
All loans and lines are subject to credit approval, verification, and collateral evaluation and are originated by lender. Products and interest rates are subject to change without notice. Manufactured and mobile homes are not eligible as collateral.
This guidance is effective for all case numbers assigned on or after
October 15, 2013.
Documentation Requirements: Collection Accounts and Judgments
Applicable to Manually Underwritten Loans:
The lender must document reasons for approving a mortgage when the borrower has collection accounts or judgments.
Regardless of the amount of outstanding collection accounts or judgments, the lender must determine if the collection account or judgment was a result of:
the borrower’s disregard for financial obligations;
the borrower’s inability to manage debt; or
The borrower must provide a letter of explanation with supporting documentation for each outstanding collection account and judgment. The explanation and supporting documentation must be consistent with other credit information in the file.
Applicable to Loans Run Through TOTAL Mortgage Scorecard:
TOTAL Mortgage Scorecard Accept/Approve – There are no documentation or letter of explanation requirements for loans with collection accounts or judgments run through TOTAL Mortgage Scorecard receiving an “Accept/Approve” despite the presence of collection accounts or judgments. These accounts have been already taken into consideration in the borrower’s credit score. If TOTAL Mortgage Scorecard generates a “Refer,” the lender must manually underwrite the loan in accordance with the guidance above applicable to manually underwritten loans with collection accounts and judgments.
Collections – FHA does not require collection accounts to be paid off as a condition of mortgage approval. However, FHA does recognize that collection efforts by the creditor for unpaid collections could affect the borrower’s ability to repay the mortgage. To mitigate this risk, FHA is requiring a capacity analysis of collection accounts with an aggregate balance equal to or greater than $2,000, as described below.
If the total outstanding balance of all collection accounts for all borrowers is equal to or greater than $2,000, the lender must perform a capacity analysis as detailed below. Unless excluded under state law, collection accounts of a non-purchasing spouse in a community property state are included in the cumulative balance.
All medical collections and charge off accounts are excluded from this guidance and do not require resolution.
Capacity analysis includes any of the following actions:
At the time of or prior to closing, payment in full of the collection account (verification of acceptable source of funds required).
The borrower makes payment arrangements with the creditor. If the borrower has entered into a payment arrangement with the creditor, a credit report or letter from the creditor verifying the monthly payment is required. The monthly payment must be included in the borrower’s debt-to-income ratio.
If evidence of a payment arrangement is not available, the lender must calculate the monthly payment using 5% of the outstanding balance of each collection, and include the monthly payment in the borrower’s debt-to-income ratio.
TOTAL Mortgage Scorecard Accept/Approve/Refer – Regardless of the Accept/Approve/Refer recommendation by TOTAL Mortgage Scorecard, the lender must include the payment amount in the calculation of the borrower’s debt-to-income ratio.
Judgments – FHA requires judgments to be paid off before the mortgage loan is eligible for FHA insurance. An exception to the payoff of a court ordered judgment may be made if the borrower has an agreement with the creditor to make regular and timely payments. The borrower must provide a copy of the agreement and evidence that payments were made on time in accordance with the agreement, and a minimum of three months of scheduled payments have been made prior to credit approval.
Borrowers are not allowed to prepay scheduled payments in order to meet the required minimum of three months of payments. Furthermore, lenders are instructed to include the payment amount in the agreement in the calculation of the borrower’s debt-to-income ratio.
FHA requires judgments of a non-purchasing spouse in a community property state to be paid in full, or meet the exception guidance for judgments above, unless excluded by state law.
Disputed Derogatory Accounts Indicated on the Credit Report
If the credit report utilized by TOTAL Mortgage Scorecard indicates that the borrower is disputing derogatory credit accounts, the borrower must provide a letter of explanation and documentation supporting the basis of the dispute. The lender must analyze the documentation provided for consistency with other credit information in the file to determine if the derogatory credit account should be considered in the underwriting analysis.
Guidance for TOTAL Mortgage Scorecard Accept/Approve loans with disputed accounts.
Disputed Derogatory Credit Accounts greater than or equal to $1,000
If the cumulative outstanding balance of disputed derogatory credit accounts of all borrowers is equal to or greater than $1,000, the mortgage application must be downgraded to a “Refer” and a Direct Endorsement underwriter is required to manually underwrite the loan as described above.
Disputed Derogatory Credit Accounts less than $1,000
If the cumulative outstanding balance of disputed derogatory credit accounts of all borrowers is less than $1,000, a downgrade is not required.
Disputed medical accounts are excluded from the $1,000 limit and do not require documentation.
Disputed derogatory credit accounts resulting from identity theft, credit card theft, or unauthorized use are also excluded from the $1,000 limit. However, the lender must provide in the case binder a credit report, letter from the creditor, or other appropriate documentation to support the dispute, such as a police report disputing the fraudulent charges
Disputed derogatory credit accounts are defined as follows:
disputed charge-off accounts,
disputed collection accounts, and
disputed accounts with late payments in the last 24 months.
Disputed derogatory credit accounts of a non-purchasing spouse in a community property state are not included in the cumulative balance for determining if the mortgage application is downgraded to a “Refer”.
Non-derogatory disputed accounts are excluded from the $1,000 cumulative total.
Non-Derogatory Disputed Accounts and Disputed Accounts Not Indicated on the Credit Report.
Non-derogatory disputed accounts include the following types of accounts:
disputed accounts with zero balance,
disputed accounts with late payments aged 24 months or greater, and
disputed accounts that are current and paid as agreed.
If a borrower is disputing non-derogatory accounts, or is disputing accounts which are not indicated on the credit report as being disputed, the lender is not required to downgrade the application to a “Refer.” However, the lender must analyze the effect of the disputed accounts on the borrower’s ability to repay the loan. If the dispute results in the borrower’s monthly debt payments utilized in computing the debt-to-income ratio being less than the amount indicated on the credit report, the borrower must provide documentation of the lower payments.
I. ML 2013-25 (and 2013-24) – Collections, Judgments and Disputed Accounts
This guidance amends the TOTAL Scorecard User Guide (FHA’s guide for
using AUS) and is effective for all case numbers assigned on or after October
15, 2013. It applies to all FHA loans with the exception of non-credit
qualifying streamline refinance transactions.
A. FHA does not necessarily require collection accounts to be paid off for
approval, but it is recognized that collection efforts by the creditor could
affect the borrower’s ability to repay the mortgage. To that end, FHA is
requiring lenders to follow these guidelines when collection accounts are
present with an aggregate balance equal to or greater than $2000. When
the loan is rated approve/eligible or accept/accept by TOTAL:
1. If the cumulative outstanding balance of all collections is LESS than
$2000, then no further consideration is required.
2. If the cumulative outstanding balance of all collections of ALL
borrowers is equal to or greater than $2000 the lender must include
monthly payments in the borrower’s debt to income ratio for accounts
that will remain open after closing. This means that you will need to
document payment arrangements with the creditor and count the
payment or use 5% of the outstanding balance.
Note 1: Collections accounts of a non-purchasing spouse in a community
property state are included in the cumulative balance.
Note 2: Medical collections and charge offs are excluded from this
guidance.B. Judgments – Loans for borrowers with outstanding judgments are
generally not acceptable unless the following documentation is obtained.
a. Judgment must be on the credit report that is linked to the TOTAL
Scorecard findings and the findings must be “approve/eligible” or
b. If the judgment will not be paid off and released prior to the
closing, evidence of a payment agreement may be considered. The
payment agreement must be in writing and provided at the time of
underwriting. Crescent will require evidence that 12 months
satisfactory payments have been made as scheduled. Borrowers
may not pre-pay scheduled payments in order to meet this
requirement. The monthly payment must be considered in the
borrower’s debt-to-income ratio for qualifying.
c. Any judgments that are discovered in the processing of the loan
that ARE NOT on the credit report linked to the TOTAL findings
require the loan to be manually downgraded to “refer” status.
Crescent does not approve loans that must be manually
d. A subordination agreement will be required for any judgment that
is also a lien against the borrower and/or the subject property.
C. Disputed Accounts – Because disputed accounts are not generally
considered in the borrower’s credit report FHA will now require loans of
borrowers who have derogatory disputed accounts with cumulative
balances of $1000 or more (excluding medical) to be downgraded to
“refer” findings and manually underwritten. As you are aware, Crescent
does not approve loans that require manual underwriting.
NOTE 1: Disputed derogatory credit account of a non-purchasing spouse
in a community property state are not included in the cumulative balance
for purposes of determining if the mortgage application must be
downgraded to a “refer.”
NOTE 2: Disputed medical collections are excluded from the $1000 limit
as are derogatory credit accounts resulting from identity theft, credit theft
unauthorized use, etc. However, documentation must be provided to
conclusively support the disputed status. Documentation might entail
police reports, letters from the creditor, etc.
II. ML 2013-26 – Back to Work-Extenuating Circumstances
The guidance provided in ML 13-26 requires loans to be manually
underwritten. For this reason Crescent cannot approve loans that need these
credit underwriting leniencies. III. ML 2013-29 – Application of Unused Funds from Escrow Account on
This guidance is effective with case numbers assigned on or after November
A. Unused funds from an escrow account that are not sent directly to the
borrower must be used for a purpose authorized by the borrower.
B. If the current servicer nets the escrow balance out of the payoff, it does not
change the way the new loan amount is calculated. You must still start
with the unpaid principal balance on the current loan, NOT the payoff
C. When the borrower has determined that they want the unused funds to be
applied to costs associated with the new FHA loan the lender is required
a. Obtain a written authorization from the borrower to apply the funds
from an existing mortgage for any purpose prior to using them. The
borrower’s written authorization must clearly state the purpose for
which the authorization is provided.
b. The credit must show on the HUD-1 when the funds are applied to
settlement charges or to the new escrow account.
IV. Reminder: Loan officers are not to sign the initial 92900a (addendum to the loan application for sponsored originator cases. This includes lenders who
have their FHA approval, but have not completed the test case phase of the
A link to the FHA mortgagee letters is provided here > Mortgagee Letters.
Joel Lobb (NMLS#57916) Senior Loan Officer
Today, credit scores plays a big role in determining whether or not your mortgage loan is approved and at what interest rate. Obtaining a mortgage loan at an interest rate just one point less results in a savings of about $5,000 on the average 15 year mortgage, and significantly more on a 30 year mortgage (about $50,000).
Why do lenders use your credit score in their lending decisions? Because they discovered that there is a direct correlation between your credit score and the odds of your becoming delinquent on your monthly mortgage payments. Consider the following statistics the mortgage industry has compiled:
As the above table illustrates, those with credit scores below 630 are not a very good risk, so they will obtain a mortgage at a significantly higher interest rate and this will add anywhere from $50 to about $250 to their monthy mortgage payment and add thousands to the price of the home.
If your score is 660 or above, you can get a mortgage loan fairly easily since you are a pretty good risk. As stated above, the higher your score the lower your interest rate, so your goal shouldn’t be to obtain a credit score of 660; it should be to achieve a credit score of at least 700. Some lenders will reward you if your credit score is higher than 725, by lowering your interest rate by about 1/4th of a percent. If it is between 700 and 724, it will be lowered by 1/8th of a percent.
Does an interest point or two make such a big difference in the price of the house? You bet it does! It means saving thousands in finance charges and a lower monthly payment. For example, paying an interest rate just two points higher means paying an additional $200 each month on your house payment on the typical $150,000, 30-year mortgage loan. That’s at least $72,000 more you’re going to pay for your house!
There are steps you can take to raise your credit score or overcome a low credit score:
(1) Offer a larger down payment so that you aren’t borrowing so much money
(2) Lower your debt-to-income ratio by paying off as much debt as you possibly can before applying for a mortgage loan in order to increase your credit score
(3) Don’t buy a car just before applying for a mortgage loan as it lowers your credit score
I’m often asked if having certain types of credit or loans is better or worse than other types of credit or loans.
I get questions like, “John, is it better to have a car loan or a mortgage for my scores?” I also hear, “John, is it better to have a secured card or an unsecured card for my scores?”
In fact, you can swap in almost any type of credit-related account and I’ve been asked about that scenario.
I’ve been getting this type of question for almost 15 years now, and it seems that people believe there’s value or a penalty for having certain types of loans or accounts on your credit reports. That’s completely understandable and, thankfully, almost a complete myth.
First, let’s tackle the secured credit card, versus the unsecured credit card, versus the charge card question. The assumption is that the type of card has a direct impact on your credit scores. That’s an incorrect assumption, meaning, you’re not penalized or rewarded for having one type of card over another.
That doesn’t mean one form of plastic isn’t better or worse for your credit than another. For example, a secured credit card is easier to max out than an unsecured credit card.
Why? The reason is because secured cards have considerably lower credit limits than unsecured credit cards. It has nothing to do with the fact that one is secured and one isn’t. It has everything to do with the credit limits.
When it comes to installment loans, the issue of credit limits disappears because installment loans don’t have credit limits. They do, however, have original loan amounts.
An auto loan is likely to have a considerably lower loan amount than a mortgage, home equity loan and perhaps even a student loan. And, balances do matter on installment loans, albeit slightly.
Exactly like credit cards, credit scores do not treat installment loans of one variety or another differently. The collateral issue of balances can cause variable score impact, however.
One thing we haven’t addressed yet is the issue of missing payments and defaulting. Defaulting on a credit card, secured card, charge card, auto loan, mortgage, or any other kind of credit card, is treated equally — as one default.
You’re not penalized because you’ve defaulted on one variety of credit account versus another. You can, however, have a much larger default amount on a mortgage than any other type of credit account and that’s where the score impact can be variable.
The bottom line is: it’s not really the type of account that’s important, but it’s the incident that matters.
One Exception to the Rule
There is one very small exception to this rule. In fact, it’s so small that I thought very hard about omitting it.
There’s a chance your score could be negatively impacted if you have too many finance company accounts on your credit reports. These are the loans offered by consumer finance lenders who often target the near or subprime consumer.
Notwithstanding the consumer finance issue, the lender is also meaningless in your scores. So, you don’t get rewarded for doing business with a large, well-known credit card issuer and you don’t get penalized for doing business with a subprime credit card issuer.
In fact, credit scores are brand agnostic when it comes to your credit accounts. The most important factor is how you manage them.
Editor’s Note: This article by John Ulzheimer was originally published on MintLife.