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: Understanding these … Continue reading “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:
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%.
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.
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.
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.
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.
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
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).
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 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
5 Things to Know about buying a house and getting a Mortgage Loan approval in Kentucky for 2023
1. Do Mortgage Rates Change Daily?
Just like the gas prices at the pump, mortgage rates can change daily or throughout the day. Typically mortgage rates are published at 10-11 am daily by most lenders and you can lock up through the close of business which is usually around 6-7 PM. Mortgage rates can change up or down throughout the day based on various financial, economics, and geopolitical news in the US Financial markets and World markets. Generally speaking, good economic news is bad for rates and vice versa, bad economic news is good for mortgage rates.
The good news is this: Once you find a home and get it under contract, you can lock your mortgage loan rate. Typically it takes about 30-45 days to close a mortgage loan in Kentucky, so the typical lock is for 30-60 days. If rates get better you may be able to negotiate a better rate with your lender, but they usually have to improve by at least 25 basis points (.25) to do that. Not all lenders offer this option. The longer you lock the loan, the greater the costs. It is usually free to lock in a loan for up to 90 days without having to pay a fee.
What a lot of lenders are experiencing now is that some loans don’t close on time for various reasons. You can always extend the lock on the loan but it will costs you usually .125 basis points to do so. If you let the lock expire on the loan, then you have to take worse case pricing on that day when you go to relock. It is usually best to extend the lock on your loan.
2. What kind of Credit Score Do I need to qualify?
When applying for a mortgage loan, lenders will pull what they call a “tri-merge” credit report which will show three different fico scores from Trans union, Equifax, and Experian. The lenders will throw out the high and low score and take the “middle score” For example, if you had a 614, 610, and 629 score from the three main credit bureaus, your qualifying score would be 614. Most lenders will want at least two scores. So if you only have one score, you may not qualify. Lenders will have to pull their own credit report and scores so if you had it ran somewhere else or saw it on a website or credit card you may own, it will not matter to the lender, because they have to use their own credit report and scores. Most lenders will pull your credit report for free nowadays so this should not be a big deal as long as your scores are high enough. The Secondary Market of Mortgage loans offered by FHA, VA, USDA, Fannie Mae, and KHC all have their minimum fico score requirements and lenders will create overlays in addition to what the Government agencies will accept, so even if on paper FHA says they will go down to 580 or 500 in some cases on fico scores, very few lenders will go below the 620 threshold. If you have low fico scores it may make sense to check around with different lenders to see what their minimum fico scores are for loans. The lenders I currently deal with have the following fico cutoffs for credit scores: FHA–580 minimum score VA—-580 minimum score Fannie Mae–620 minimum score USDA–620 minimum score KHC with Down Payment Assistance –620 minimum score.
As you can see, 580-620 is the minimum score with most lenders for a FHA, VA, or Fannie Mae loan, is required for the no down payment programs offered by USDA for Kentucky for First Time Home Buyers wanting to go no money down.
3. What are the down payment requirements?
The most popular programs for Kentucky First Time Home Buyers usually involves one of the following housing programs outlined in bold below: FHA:
FHA will allow a home buyer to purchase a house with as little as 3.5% down. If your credit scores are low, say 680 and below, a lot of times it makes sense to go FHA because everyone pays the same mortgage insurance premiums no matter what your score is, and the down payment can be gifted to you. Meaning you really don’t have to have any skin into the game when it comes to down payment.
They even allow down payment assistance for down payment requirements of 3.5% through eligible parties like Kentucky Housing, Welcome Home Grants and Louisville KY and Covington Kentucky Down Payment Grants.
Lastly, FHA will allow for higher debt to income ratios with sometimes getting loan pre-approvals up to 55% of your total gross monthly income. So if you have a debt to income ratio of over 50%, Fannie Mae will not do the loan and USDA usually likes their debt to income ratios no more than 45%.
Think back to the last time you financed a purchase — be it a home, automobile, or what have you… You may remember having heard the term “debt-to-income ratio.” Today I want to spend some time going over exactly what this ratio is, and to also touch on how it can effect your personal finances.
4. What is your debt-to-income ratio?
Commonly referred to as your “DTI,” your debt-to-income ratio is a personal finance benchmark that relates your monthly debt payments to your monthly gross income. As an example… Let’s say that your gross monthly salary is $5,000 and you are spending $2,800 of it toward monthly debt payments. In that case, your DTI would be an unhealthy 56%. This version of your DTI is sometimes referred to as your “back-end” DTI. This is often broken down further to give a front-end debt-to-income ratio, which is a component of your back-end DTI.
How to calculate your front-end DTI for a Kentucky Mortgage Loan Approval
Your front-end DTI is calculated by dividing your monthly housing costs by your monthly gross income. Front-end DTI for renters is simply the amount paid in rent, whereas for homeowners it is the sum of mortgage principal, interest, property taxes, and home insurance (i.e., your PITI) divided by gross monthly income.
From above, if that $2,800 in debt payments is attributable to $1,500 in housing costs and $1,300 in non-housing costs, then your front-end DTI is $1,500/$5,000 = 30% (and your back-end ratio is still 56%, as calculated above). Fannie Mae: Fannie Mae requires just 3% down with their new Home Possible Program, but if you use their traditional mortgage loan, then 5% is the Fannie Mae Standard. Fannie Mae will go down 620 score, but if your scores are below 680, I would look seriously at the FHA loan program because Fannie Mae has steep increases to the interest rate and the mortgage insurance premiums if your scores are low. A couple of good things about Fannie Mae is that you can buy a larger priced home and have a large loan amount due to FHA only allowing most Kentucky Home Buyers a maximum mortgage loan amount of $356,000 for a max FHA loan and $545,000 for Fannie Mae Conventional loans in Kentucky for 2020. Lastly when it comes to mortgage insurance, FHA mortgage insurance premiums are for life of loan while Fannie Mae mortgage insurance premiums drop off when you develop 80% equity position in your house. But as a tell most people, nobody has a loan for 30 years, and the average mortgage is either refinanced or home sold within the first 5-7 years. VA Loans-
VA loans offer eligible Veterans and Active Duty Personnel to buy a home going no money down with no monthly mortgage insurance. This is probably the best no money down loan out there since the rates are traditionally very low on comparison to other government insured mortgages and no monthly mortgage insurance. The VA loan can be used anywhere in the state of Kentucky with the maximum VA loan limit being removed for 2021 USDA Loans-
USDA loans offer people buying a home in rural areas (typically towns of $20k or less) to buy a home going zero down. You cannot currently own another home and there is household income limits of $90,200 for a household family of four, and up to $119,300 for a household of five or more. You search USDA website for eligible areas and household income limits below at the yellow highlighted link :
KHC or Kentucky Housing- Kentucky First Time Home Buyers typically use KHC for their down payment assistance. KHC currently offers $10,000 for down payment assistance and sometimes throughout the year they will offer low mortgage rates on their mortgage revenue bond program.
The down payment assistance usually never runs out because you have to pay it back in the form of a second mortgage. It helps a lot of home buyers that want to buy in urban areas that cannot utilizer the USDA program in rural areas. Most of the time the first mortgage is a FHA loan tied with the 2nd mortgage fore down payment assistance. All KHC programs require a 620 score and rates are locked for 45 days.
5. What if I have had a bankruptcy or foreclosure in the past?
FHA and VA are the easiest on previous bankruptcies. FHA and VA both require 2 years removed from the discharge date on a Chapter 7. If you are in the middle of a Chapter 13, FHA will allow for financing with a 12 month clean history payment to the Chapter 13 courts, and with trustee permission.
VA requires 2 years removed from a foreclosure (sheriff sale date of home) and FHA requires 3 years.
USDA requires 3 years removed from both a foreclosure and bankruptcy, but on the foreclosure they do not go off the sale date. This may save you a little time if you had a previous foreclosure.
Fannie Mae (Conventional Loan)
Fannie Mae is by far the strictest. They require 4-7 years out of a foreclosure or bankruptcy
If you have questions about qualifying as first time home buyer in Kentucky, please call, text, email or fill out free prequalification below for your next mortgage loan pre-approval.
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 views of my employer. Not all products or services mentioned on this site may fit all people
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Originally posted on Louisville Kentucky Mortgage Loans: Here are some benefits of Kentucky FHA loans 🤩
✅ Low down payment options
✅ Down payment assistance programs available
✅ Higher DTI ratios accepted
Is an Kentucky FHA loan right for you?
Here are some benefits of Kentucky FHA loans 🤩 ✅ Low down payment options ✅ Down payment assistance programs available ✅ Higher DTI ratios accepted
FHA requires you to establish that the income is in fact stable. I am covering Time on Job, Part Time Income, Seasonal Income and Job Gaps below.
Time on Job
There is not a minimum length of time a borrower must have held a position for the income to be eligible. However, the application must identify the most recent 2 years of employment.
If the borrower’s employment history indicates that they were in school or in the military, then the borrower must provide evidence supporting this such as college transcripts or discharge papers.
The current type of employment has to be supported by the college transcripts or discharge papers showing that he borrower’s training enabled them to gain employment in their field of training.
Part Time Income
Part-time and second job income can be used to qualify if documentation is obtained to prove that the borrower has worked the part-time job uninterrupted for the past two years, and plans to continue.
For Qualifying purposed, “part-time” income refers to jobs taken to supplement the borrower’s main income from regular employment, such as a second job that is less than 40 hours per week.
Income: Is averaged over the previous 2 years. If there was a pay rate increase and we can document the increase in pay, you can average the new pay rate over 12 months.
Seasonal Income
Seasonal income may be acceptable for qualifying. It is not unusual to have out-of-season income from unemployment income. If the borrower has a 2 year history and continuance is probable, this type of income may be allowed to qualify the borrower.
The key here is history and continuance.
Job Gaps
The borrower must provide a signed explanation for gaps in employment as follows:
Income can be considered effective if the following can be verified:
1. Borrower has been employed in the current job for at least six months at the time of the case number assignment AND
2. A two year work history prior to the absence from employment.
What does FHA stand for?
FHA stands for Federal Housing Administration, and the FHA is a government agency that insures mortgages. It was created just after the Great Depression, at a time when homeownership was prohibitively expensive and difficult to achieve because so many Americans lacked the savings and credit history to qualify for a loan. The government stepped in and began backing mortgages with more accessible terms. Approved lenders began funding FHA loans, which offered more reasonable down payment and credit score standards.
Today, government-backed mortgages still offer a safety net to lenders—because a federal entity (in this case, the FHA) is guaranteeing the loans, there’s less financial risk if a borrower defaults on their payments. Lenders are then able to loosen their qualifying guidelines, making mortgages available to middle and low income borrowers who might not otherwise be approved under conventional standards.
What’s the difference between FHA and conventional loans?
Home loans fall into two broad categories: government and conventional. A conventional loan is any mortgage that is not insured by a federal entity. Because private lenders assume all the risk in funding conventional loans, the requirements to qualify for these loans are more strict. Generally speaking, FHA loans might be a good fit if you have less money set aside to fund your down payment and/or you have a below-average credit score. While low down payment minimums and competitive interest rates are still possible with a conventional loan, you’ll need to show a strong credit score to qualify for those advantages.
Each loan type has advantages and disadvantages—including different mortgage insurance requirements, loan limits, and property appraisal guidelines—so choosing the one that works best for you really depends on your financial profile and your homebuying priorities.
FHA loans pros and cons
FHA loans are meant to make homeownership more accessible to people with fewer savings set aside and lower credit scores. They can be a great fit for some borrowers, particularly first time homebuyers who often need lower down payment options, but you should weigh the costs and benefits of any mortgage before committing. Here’s a breakdown of the key pros and cons when it comes to FHA loans:
Pros
Cons
Low down payment. Down payments make up the majority of cash to close in any purchase loan, and saving up for one can be a significant barrier for some borrowers. FHA loans make it possible to put down as little as 3.5% upfront and still get competitive rates.
Mandatory MIP payments. FHA loans are more lenient, but they also come with insurance costs to mitigate risk to the lender. You’ll have to pay Mortgage Insurance Premiums (MIP) no matter what—either for 11 years or for the life of your loan, depending on your down payment.
Lower credit score. Credit scores can be a major hurdle when it comes to conventional loans, but borrowers with credit scores starting at 500 can qualify for FHA loans.
Less competitive. Sometimes sellers can be more hesitant to accept FHA loans. In a competitive market, you might not win out against conventional loan bids.
Higher DTI accepted. Your debt-to-income (DTI) ratio gives lenders an understanding of other major financial obligations in your life. This ratio is a key factor in any loan application because it indicates your ability to afford a mortgage based on current household income and existing debt. Again, FHA loans offer more leniency here and borrowers at or below 43% DTI can qualify.
Stricter property standards. To offset risk and further protect lenders, FHA loans have strict criteria when it comes to assessing the condition of any property being purchased with an FHA loan. The downside? The house you want to buy might not qualify for an FHA loan. The upside? You’re less likely to be financially burdened by a home that requires expensive repairs or updates.
No income limitations. It’s a common misconception that FHA loans are only available to first-time homebuyers or borrowers with limited income—but they’re not. There’s no maximum income limit that would disqualify you from this type of loan.
Loan limits: FHA loan limits are typically lower than conventional loan limits, which means you might not be able to get funding for more expensive houses. This isn’t necessarily a bad thing, since it helps ensure that borrowers get loans they can afford to repay.
How to qualify for an FHA loan
Qualifying for an FHA loan is generally easier than qualifying for a conventional loan, but you’ll still need to meet some basic minimum standards set by the FHA. While the government insures these loans, the funding itself comes through FHA-approved lenders each lending institution may have slightly different qualifying guidelines for its borrowers. Keep in mind that, while these FHA standards offer a basic framework, you’ll need to confirm the individual qualifying rules with your specific lender.
Credit score minimum 500. Your exact credit score will play a big role in determining your down payment minimum; typically, the higher your credit score, the lower your down payment and the more favorable your interest rate.
Debt-to-income ratio at or below 56.9%. DTI is a standard way of comparing the amount of money you earn to the amount you spend paying off other debts, and FHA loans are more lax on this number.
Steady income and proof of employment. Being able to provide at least 2 years of income and employment records is a standard requirement for all loans.
Down payment between 3.5%-10%. The down payment minimum for an FHA loan is typically lower than conventional loan, and can be as little as 3.5% depending on your credit score and lender.
Property standards apply. You won’t qualify for an FHA loan if the house you want to buy doesn’t pass the appraisal process, which is more strict with this type of loan than conventional mortgages.
Maximum FHA loan amount. The amount of money you borrow cannot exceed the FHA loan limits; this number changes based on your county and is determined by how expensive the local market is; the maximum FHA loan limit in 2021 is $420,000 (check HUD resources to confirm the latest limits.)
Joel Lobb Senior Loan Officer (NMLS#57916)
American Mortgage Solutions, Inc. 10602 Timberwood Circle, Suite 3 Louisville, KY 40223
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, (http://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.
Joel E Lobb American Mortgage 5029053708 email us here
Kentucky FHA, VA, USDA & Rural Housing, KHC and Fannie Mae mortgage loans.
FHA loans are a good option, especially if you have low credit or a lot of debt. But they come with their own set of drawbacks too.
FHA pros
Some of the best reasons to apply for an FHA home loan include:
Lenient credit requirements: You can generally qualify for maximum FHA financing with a credit score of 500 to 580 versus a 620 to 640 score for a USDA loan. You might also be eligible with a credit score between 500 and 579 if you can make a 10% down payment.
Higher debt-to-income ratios: Your back-end DTI — that is, your total monthly debt obligations — can be as high as 56.9% for FHA loans, but only 45% for USDA loans.
Potentially lower interest rates: FHA interest rates can be lower than rates for USDA loans because you have the option to choose shorter repayment terms, including a 15-year fixed interest rate. The USDA only offers 30-year fixed loans, which naturally have higher rates.
Multi-family units can qualify: Properties with up to four units can qualify for financing with an FHA loan when one unit is your primary residence. For example, purchasing a duplex with an FHA loan is allowed as long as you live in one half of the property. Like USDA loans, however, second homes and investment properties are ineligible.
FHA cons
Higher down payment requirements: Depending on your credit score, you’ll need to make a 3.5% or 10% down payment. USDA loans require no down payment.
Higher mortgage insurance premiums: Your upfront and annual mortgage insurance premiums are higher than the USDA guarantee fee and annual fee.
Difficult to cancel mortgage insurance: You’ll pay an annual mortgage insurance premium for the life of the loan unless your down payment is at least 10% — in which case, you’ll only pay mortgage insurance for the first 11 years.
Mortgage limits: The maximum loan amount in 2022 in Kentucky is $420,680 for most counties.
FHA Limits for 2022 Lending Limits for FHA Loans in KENTUCKY Counties FHA mortgage lending limits in KENTUCKY
ADAIR County NON-METRO Single Duplex Tri-plex Four-plex $420,680 $538,650 $651,050 $809,150 ALLEN County BOWLING GREEN, KY Single Duplex Tri-plex Four-plex $420,680 $538,650 $651,050 $809,150 ANDERSON County FRANKFORT, KY Single Duplex Tri-plex Four-plex $420,680 $538,650 $651,050 $809,150 BALLARD County PADUCAH, KY-IL Single Duplex Tri-plex Four-plex $420,680 $538,650 $651,050 $809,150 BARREN County GLASGOW, KY Single Duplex Tri-plex Four-plex $420,680 $538,650 $651,050 $809,150 BATH County MOUNT STERLING, KY Single Duplex Tri-plex Four-plex $420,680 $538,650 $651,050 $809,150 BELL County MIDDLESBOROUGH, KY Single Duplex Tri-plex Four-plex $420,680 $538,650 $651,050 $809,150 BOONE County CINCINNATI, OH-KY-IN Single Duplex Tri-plex Four-plex $420,680 $538,650 $651,050 $809,150 BOURBON County LEXINGTON-FAYETTE, KY Single Duplex Tri-plex Four-plex $420,680 $538,650 $651,050 $809,150 BOYD County HUNTINGTON-ASHLAND, WV-KY-OH Single Duplex Tri-plex Four-plex $420,680 $538,650 $651,050 $809,150 BOYLE County DANVILLE, KY Single Duplex Tri-plex Four-plex $420,680 $538,650 $651,050 $809,150 BRACKEN County CINCINNATI, OH-KY-IN Single Duplex Tri-plex Four-plex $420,680 $538,650 $651,050 $809,150 BREATHITT County NON-METRO Single Duplex Tri-plex Four-plex $420,680 $538,650 $651,050 $809,150 BRECKINRIDGE County NON-METRO Single Duplex Tri-plex Four-plex $420,680 $538,650 $651,050 $809,150 BULLITT County LOUISVILLE/JEFFERSON COUNTY, KY-IN Single Duplex Tri-plex Four-plex $420,680 $538,650 $651,050 $809,150 BUTLER County BOWLING GREEN, KY Single Duplex Tri-plex Four-plex $420,680 $538,650 $651,050 $809,150 CALDWELL County NON-METRO Single Duplex Tri-plex Four-plex $420,680 $538,650 $651,050 $809,150 CALLOWAY County MURRAY, KY Single Duplex Tri-plex Four-plex $420,680 $538,650 $651,050 $809,150 CAMPBELL County CINCINNATI, OH-KY-IN Single Duplex Tri-plex Four-plex $420,680 $538,650 $651,050 $809,150 CARLISLE County NON-METRO Single Duplex Tri-plex Four-plex $420,680 $538,650 $651,050 $809,150 CARROLL County NON-METRO Single Duplex Tri-plex Four-plex $420,680 $538,650 $651,050 $809,150 CARTER County HUNTINGTON-ASHLAND, WV-KY-OH Single Duplex Tri-plex Four-plex $420,680 $538,650 $651,050 $809,150 CASEY County NON-METRO Single Duplex Tri-plex Four-plex $420,680 $538,650 $651,050 $809,150 CHRISTIAN County CLARKSVILLE, TN-KY Single Duplex Tri-plex Four-plex $420,680 $538,650 $651,050 $809,150 CLARK County LEXINGTON-FAYETTE, KY Single Duplex Tri-plex Four-plex $420,680 $538,650 $651,050 $809,150 CLAY County LONDON, KY Single Duplex Tri-plex Four-plex $420,680 $538,650 $651,050 $809,150 CLINTON County NON-METRO Single Duplex Tri-plex Four-plex $420,680 $538,650 $651,050 $809,150 CRITTENDEN County NON-METRO Single Duplex Tri-plex Four-plex $420,680 $538,650 $651,050 $809,150 CUMBERLAND County NON-METRO Single Duplex Tri-plex Four-plex $420,680 $538,650 $651,050 $809,150 DAVIESS County OWENSBORO, KY Single Duplex Tri-plex Four-plex $420,680 $538,650 $651,050 $809,150 EDMONSON County BOWLING GREEN, KY Single Duplex Tri-plex Four-plex $420,680 $538,650 $651,050 $809,150 ELLIOTT County NON-METRO Single Duplex Tri-plex Four-plex $420,680 $538,650 $651,050 $809,150 ESTILL County RICHMOND-BEREA, KY Single Duplex Tri-plex Four-plex $420,680 $538,650 $651,050 $809,150 FAYETTE County LEXINGTON-FAYETTE, KY Single Duplex Tri-plex Four-plex $420,680 $538,650 $651,050 $809,150 FLEMING County NON-METRO Single Duplex Tri-plex Four-plex $420,680 $538,650 $651,050 $809,150 FLOYD County NON-METRO Single Duplex Tri-plex Four-plex $420,680 $538,650 $651,050 $809,150 FRANKLIN County FRANKFORT, KY Single Duplex Tri-plex Four-plex $420,680 $538,650 $651,050 $809,150 FULTON County NON-METRO Single Duplex Tri-plex Four-plex $420,680 $538,650 $651,050 $809,150 GALLATIN County CINCINNATI, OH-KY-IN Single Duplex Tri-plex Four-plex $420,680 $538,650 $651,050 $809,150 GARRARD County NON-METRO Single Duplex Tri-plex Four-plex $420,680 $538,650 $651,050 $809,150 GRANT County CINCINNATI, OH-KY-IN Single Duplex Tri-plex Four-plex $420,680 $538,650 $651,050 $809,150 GRAVES County MAYFIELD, KY Single Duplex Tri-plex Four-plex $420,680 $538,650 $651,050 $809,150 GRAYSON County NON-METRO Single Duplex Tri-plex Four-plex $420,680 $538,650 $651,050 $809,150 GREEN County CAMPBELLSVILLE, KY Single Duplex Tri-plex Four-plex $420,680 $538,650 $651,050 $809,150 GREENUP County HUNTINGTON-ASHLAND, WV-KY-OH Single Duplex Tri-plex Four-plex $420,680 $538,650 $651,050 $809,150 HANCOCK County OWENSBORO, KY Single Duplex Tri-plex Four-plex $420,680 $538,650 $651,050 $809,150 HARDIN County ELIZABETHTOWN-FORT KNOX, KY Single Duplex Tri-plex Four-plex $420,680 $538,650 $651,050 $809,150 HARLAN County NON-METRO Single Duplex Tri-plex Four-plex $420,680 $538,650 $651,050 $809,150 HARRISON County NON-METRO Single Duplex Tri-plex Four-plex $420,680 $538,650 $651,050 $809,150 HART County NON-METRO Single Duplex Tri-plex Four-plex $420,680 $538,650 $651,050 $809,150 HENDERSON County EVANSVILLE, IN-KY Single Duplex Tri-plex Four-plex $420,680 $538,650 $651,050 $809,150 HENRY County LOUISVILLE/JEFFERSON COUNTY, KY-IN Single Duplex Tri-plex Four-plex $420,680 $538,650 $651,050 $809,150 HICKMAN County NON-METRO Single Duplex Tri-plex Four-plex $420,680 $538,650 $651,050 $809,150 HOPKINS County MADISONVILLE, KY Single Duplex Tri-plex Four-plex $420,680 $538,650 $651,050 $809,150 JACKSON County NON-METRO Single Duplex Tri-plex Four-plex $420,680 $538,650 $651,050 $809,150 JEFFERSON County LOUISVILLE/JEFFERSON COUNTY, KY-IN Single Duplex Tri-plex Four-plex $420,680 $538,650 $651,050 $809,150 JESSAMINE County LEXINGTON-FAYETTE, KY Single Duplex Tri-plex Four-plex $420,680 $538,650 $651,050 $809,150 JOHNSON County NON-METRO Single Duplex Tri-plex Four-plex $420,680 $538,650 $651,050 $809,150 KENTON County CINCINNATI, OH-KY-IN Single Duplex Tri-plex Four-plex $420,680 $538,650 $651,050 $809,150 KNOTT County NON-METRO Single Duplex Tri-plex Four-plex $420,680 $538,650 $651,050 $809,150 KNOX County LONDON, KY Single Duplex Tri-plex Four-plex $420,680 $538,650 $651,050 $809,150 LARUE County ELIZABETHTOWN-FORT KNOX, KY Single Duplex Tri-plex Four-plex $420,680 $538,650 $651,050 $809,150 LAUREL County LONDON, KY Single Duplex Tri-plex Four-plex $420,680 $538,650 $651,050 $809,150 LAWRENCE County NON-METRO Single Duplex Tri-plex Four-plex $420,680 $538,650 $651,050 $809,150 LEE County NON-METRO Single Duplex Tri-plex Four-plex $420,680 $538,650 $651,050 $809,150 LESLIE County NON-METRO Single Duplex Tri-plex Four-plex $420,680 $538,650 $651,050 $809,150 LETCHER County NON-METRO Single Duplex Tri-plex Four-plex $420,680 $538,650 $651,050 $809,150 LEWIS County NON-METRO Single Duplex Tri-plex Four-plex $420,680 $538,650 $651,050 $809,150 LINCOLN County DANVILLE, KY Single Duplex Tri-plex Four-plex $420,680 $538,650 $651,050 $809,150 LIVINGSTON County PADUCAH, KY-IL Single Duplex Tri-plex Four-plex $420,680 $538,650 $651,050 $809,150 LOGAN County NON-METRO Single Duplex Tri-plex Four-plex $420,680 $538,650 $651,050 $809,150 LYON County NON-METRO Single Duplex Tri-plex Four-plex $420,680 $538,650 $651,050 $809,150 MADISON County RICHMOND-BEREA, KY Single Duplex Tri-plex Four-plex $420,680 $538,650 $651,050 $809,150 MAGOFFIN County NON-METRO Single Duplex Tri-plex Four-plex $420,680 $538,650 $651,050 $809,150 MARION County NON-METRO Single Duplex Tri-plex Four-plex $420,680 $538,650 $651,050 $809,150 MARSHALL County NON-METRO Single Duplex Tri-plex Four-plex $420,680 $538,650 $651,050 $809,150 MARTIN County NON-METRO Single Duplex Tri-plex Four-plex $420,680 $538,650 $651,050 $809,150 MASON County MAYSVILLE, KY Single Duplex Tri-plex Four-plex $420,680 $538,650 $651,050 $809,150 MCCRACKEN County PADUCAH, KY-IL Single Duplex Tri-plex Four-plex $420,680 $538,650 $651,050 $809,150 MCCREARY County NON-METRO Single Duplex Tri-plex Four-plex $420,680 $538,650 $651,050 $809,150 MCLEAN County OWENSBORO, KY Single Duplex Tri-plex Four-plex $420,680 $538,650 $651,050 $809,150 MEADE County ELIZABETHTOWN-FORT KNOX, KY Single Duplex Tri-plex Four-plex $420,680 $538,650 $651,050 $809,150 MENIFEE County MOUNT STERLING, KY Single Duplex Tri-plex Four-plex $420,680 $538,650 $651,050 $809,150 MERCER County NON-METRO Single Duplex Tri-plex Four-plex $420,680 $538,650 $651,050 $809,150 METCALFE County GLASGOW, KY Single Duplex Tri-plex Four-plex $420,680 $538,650 $651,050 $809,150 MONROE County NON-METRO Single Duplex Tri-plex Four-plex $420,680 $538,650 $651,050 $809,150 MONTGOMERY County MOUNT STERLING, KY Single Duplex Tri-plex Four-plex $420,680 $538,650 $651,050 $809,150 MORGAN County NON-METRO Single Duplex Tri-plex Four-plex $420,680 $538,650 $651,050 $809,150 MUHLENBERG County CENTRAL CITY, KY Single Duplex Tri-plex Four-plex $420,680 $538,650 $651,050 $809,150 NELSON County BARDSTOWN, KY Single Duplex Tri-plex Four-plex $420,680 $538,650 $651,050 $809,150 NICHOLAS County NON-METRO Single Duplex Tri-plex Four-plex $420,680 $538,650 $651,050 $809,150 OHIO County NON-METRO Single Duplex Tri-plex Four-plex $420,680 $538,650 $651,050 $809,150 OLDHAM County LOUISVILLE/JEFFERSON COUNTY, KY-IN Single Duplex Tri-plex Four-plex $420,680 $538,650 $651,050 $809,150 OWEN County NON-METRO Single Duplex Tri-plex Four-plex $420,680 $538,650 $651,050 $809,150 OWSLEY County NON-METRO Single Duplex Tri-plex Four-plex $420,680 $538,650 $651,050 $809,150 PENDLETON County CINCINNATI, OH-KY-IN Single Duplex Tri-plex Four-plex $420,680 $538,650 $651,050 $809,150 PERRY County NON-METRO Single Duplex Tri-plex Four-plex $420,680 $538,650 $651,050 $809,150 PIKE County NON-METRO Single Duplex Tri-plex Four-plex $420,680 $538,650 $651,050 $809,150 POWELL County NON-METRO Single Duplex Tri-plex Four-plex $420,680 $538,650 $651,050 $809,150 PULASKI County SOMERSET, KY Single Duplex Tri-plex Four-plex $420,680 $538,650 $651,050 $809,150 ROBERTSON County NON-METRO Single Duplex Tri-plex Four-plex $420,680 $538,650 $651,050 $809,150 ROCKCASTLE County NON-METRO Single Duplex Tri-plex Four-plex $420,680 $538,650 $651,050 $809,150 ROWAN County NON-METRO Single Duplex Tri-plex Four-plex $420,680 $538,650 $651,050 $809,150 RUSSELL County NON-METRO Single Duplex Tri-plex Four-plex $420,680 $538,650 $651,050 $809,150 SCOTT County LEXINGTON-FAYETTE, KY Single Duplex Tri-plex Four-plex $420,680 $538,650 $651,050 $809,150 SHELBY County LOUISVILLE/JEFFERSON COUNTY, KY-IN Single Duplex Tri-plex Four-plex $420,680 $538,650 $651,050 $809,150 SIMPSON County NON-METRO Single Duplex Tri-plex Four-plex $420,680 $538,650 $651,050 $809,150 SPENCER County LOUISVILLE/JEFFERSON COUNTY, KY-IN Single Duplex Tri-plex Four-plex $420,680 $538,650 $651,050 $809,150 TAYLOR County CAMPBELLSVILLE, KY Single Duplex Tri-plex Four-plex $420,680 $538,650 $651,050 $809,150 TODD County NON-METRO Single Duplex Tri-plex Four-plex $420,680 $538,650 $651,050 $809,150 TRIGG County CLARKSVILLE, TN-KY Single Duplex Tri-plex Four-plex $420,680 $538,650 $651,050 $809,150 TRIMBLE County NON-METRO Single Duplex Tri-plex Four-plex $420,680 $538,650 $651,050 $809,150 UNION County NON-METRO Single Duplex Tri-plex Four-plex $420,680 $538,650 $651,050 $809,150 WARREN County BOWLING GREEN, KY Single Duplex Tri-plex Four-plex $420,680 $538,650 $651,050 $809,150 WASHINGTON County NON-METRO Single Duplex Tri-plex Four-plex $420,680 $538,650 $651,050 $809,150 WAYNE County NON-METRO Single Duplex Tri-plex Four-plex $420,680 $538,650 $651,050 $809,150 WEBSTER County NON-METRO Single Duplex Tri-plex Four-plex $420,680 $538,650 $651,050 $809,150 WHITLEY County LONDON, KY Single Duplex Tri-plex Four-plex $420,680 $538,650 $651,050 $809,150 WOLFE County NON-METRO Single Duplex Tri-plex Four-plex $420,680 $538,650 $651,050 $809,150 WOODFORD County LEXINGTON-FAYETTE, KY Single Duplex Tri-plex Four-plex $420,680 $538,650 $651,050 $809,150
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 –
Kentucky FHA Mortgage Lender 