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 Conventional Loan versus Kentucky FHA Loan comparison chart

Kentucky FHA Loans are good for borrowers who have the following:

• Credit scores less than 680.
• Less than 5% down payment and no reserves to use.
• Borrowers with past foreclosures between 3 and 7 years old.
• Borrowers with past short sales between 2 and 4 years old.
• Borrowers who need a gift for the down payment and/or closing costs, prepaid taxes and
insurance.
The FHA Mortgage Insurance premium is a premium that exists for the FHA Loan that is
paid up front and monthly by the homebuyer. This premium protects the lender should the
buyer default. They vary per state and per type of loan Kentucky home buyers qualify for. In Kentucky, upfront mortgage insurance premiums are 1.75%.
Below are the rates per type of loan:
• 15-Year Fixed with down payment more than 10%: .45%
• 15-Year Fixed with down payment less than 10%: .70%
• 30-Year Fixed with down payment more than 5%: .80%
• 30-Year Fixed with down payment less than 5%: .85%

Kentucky Conventional loans are usually reserved for the following:

• Credit scores greater than 680
• Greater than or equal to  5% down payment with reserves
• Borrowers with past foreclosures over 7 years old.
• Borrowers with past short sales between 5-7 years old.
• Borrowers who have a lot of money saved up and want to get rid of mortgage insurance within the first 5 years give or take. 20% equity position is needed for no mi

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The biggest difference between conventional loans and FHA loans comes down to the mortgage insurance.  Mortgage insurance is more expensive for FHA loans, but the trade off is a lower fixed rate than conventional loans.

On Conventional loans there is no upfront mortgage insurance like FHA, and if you have a high credit score you can possibly get a lower monthly mi premium as compared to FHA where everybody gets the same mortgage insurance premium not matter your credit score or down payment.

Lastly, FHA Mortgage insurance is for life of loan, whereas Conventional mortgage insurance or pmi it’s called, is discontinued once you reach the 80% threshold equity position of your home loan.

Again, I would not get too caught in FHA having mortgage insurance for life of loan, because most loans are only kept open a minimum of 5-7 years so a lot of times it may make sense to go with the lower rate and pay the mortgage insurance with FHA because most people don’t hold their mortgage for 30 years.

You can call or text me with your questions and we can compare the differences based on your credit score, down payment and income.

Equal Housing Lender.  NMLS#:57916 http://www.nmlsconsumeraccess.org/Rates, terms, and program information are subject to change without notice. Subject to certain approvals, terms and conditions. This is not a commitment to lend.

Not part of any government lending agency and only lending in the State of Kentucky.

Looking at FHA loans vs Conventional loans can arm you with a lot of valuable information as these are the 2 most popular mortgage loan products today. Before getting to the content let’s look at some abbreviations that will need to be defined.

• PMI stands for Private Mortgage Insurance
• MIP stands for Mortgage Insurance Premium
• Credit Scores are a numerical measure of your credit worthiness, the maximum score is 850
• Debt-to-Income Ratio measures your monthly income versus your monthly obligations. A good rule of thumb is to try to be below 45%

FHA Loans vs Conventional Loans

Conventional Mortgage Benefits

• 20% down payment preferred to avoid PMI
• No upfront PMI
• 3% Down Payment Conventional Loan Option is available
• PMI expires once principal balance is less than 78%
• Houses do not have to be owner-occupied (so they can be used at rentals)
• Can purchase any condominium and townhome (no FHA regulations)

Conventional Mortgage Disadvantages

• Significant upfront investment (20% down preferred)
• Credit score of 620 required
• No Down Payment Assistance
• Down Payment must be at least 5% unless you qualify for a 3% conventional mortgage
• Harder to Qualify for a Conventional Mortgage
• No government inspection so the home can be in any quality
• Only a portion of a down payment can be a gift
• Interest rates are higher than FHA loans

Most of the disadvantages of conventional mortgages stem around qualifications and resources needed upfront. If a borrower has significant resources most of these disadvantages are of little consequence.

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Conventional loan rates today

FHA Loan Advantages

The major advantage to going with an FHA loan is that there are much more lax credit standards you have to meet to obtain financing. Usually, FHA mortgages require a lower down payment, can work with lower credit scores, less elapsed time is needed if you have some credit problems (charge-offs, foreclosures) and you can use a non-occupant co-borrower or co-signer (who is a relative) to help you qualify for the loan. That way you can use blended ratios. Blended ratios are debt-to-income ratios that equally blend or combine the primary borrower’s income and the non-occupant co-borrower’s income and monthly payments to help get approval for the loan. Except for HomeReady (formerly Fannie Mae HomePath) mortgages, conventional loans do not allow you to use a non-occupant co-borrower.

• Government-backed program. Ideal for first-time home buyers
• Easier to obtain, lower credit scores needed and lower minimum down payment
• Down Payment minimum is 3.5%
• All of down payment can be a gift
• Down Payment Assistance Available (in some circumstances)
• No reserves required
• Minimum credit score is 500 (for 3.5% down payment)
• edition to be approved for FHA so there are less potential upfront repairs needed
• Lower interest rates than conventional mortgages

FHA Loan Disadvantages

• FHA loans require the owners to live in the home
• Mortgage Insurance Premium required if borrowers put down less than 10%
• Private Mortgage Insurance monthly cost is higher for FHA loans
• Government Licensed Inspector required to inspect home before sale can be approved
• Condominiums require FHA approval
• FHA Loans take longer to process because of government requirements and all mandated repairs have to be completed before sales can be finalized

Most of these disadvantages involve extra requirements or limits added to the process of the house (see Pros and Cons of FHA Loans). Some of these might not be disadvantages depending on one’s personal situation, but they are extra steps to note. Since FHA mortgages are a government program, more care and consideration goes into the process, which may be better in some situations.

 FHA loans vs Conventional loans

There are four important numbers in deciding which loan you will go with: credit scores, down payment amount, debt-to-income, and mortgage insurance percentage rate. Conventional mortgages and FHA home loans have different limits and rates which are important to examine. They also have important differences which affect the availability of properties, the condition of the properties one wishes to buy and how your down payment can be paid. So comparing FHA loans vs Conventional loans can sometimes be a tricky endeavor.

Down Payment Requirements

• Conventional Mortgages require between 5 and 20% upfront
  • In certain circumstances, down payments can be as low as 3% (Conventional 97 loan program)
• FHA Mortgages have 2 possibilities
  • If Credit Score is 500-579 then 10% down payment is required (not all lenders will even go down this low)
  • If Credit Score is 580+ then 3.5% down payment is required

Debt-to-Income Ratio

• Conventional Mortgages’ maximum debt-to-income ratio is 43% (hard cap)
• FHA Mortgages’ maximum debt-to-income ratio is 45%
  • Soft cap as in certain circumstances this can be adjusted up to 50%

Mortgage Insurance Premium Rates

• FHA Mortgages
  • If Down Payment is 10% or more the percentage is .80% MIP
  • If Down Payment is less than 10% the rate is .85% MIP.

Credit Score Minimum Requirement

• Conventional Mortgage minimum credit score
  • Most lenders will require between 620 and 640
  • Some lenders it will be as high as 700
• FHA Mortgage minimum credit score
  • Credit Score is a minimum of 500 if putting 10% down
  • Credit Score is a minimum of 580 if not

These four numbers are important to know and will affect one’s decision to pursue a particular type of home loan. Knowing your combination of numbers as you are looking to buy a house will help buyers find the best loans for their particular situation.

OTHER COMPARISONS

• All sellers will take conventional mortgages and some sellers will not take FHA Loans
  • People looking for short-sells won’t take FHA because FHA has a longer closing process.
  • If sellers know there are FHA repairs that are needed in order to sell their house, they will not always accept FHA financing.

Thus, if one is wanting a low-risk transaction then the FHA home loan route is a better option to pursue, even though it limits your options for homes that you might wish to buy. If one is looking to fix-up a house and raise its equity quickly then a conventional loan is going to be more beneficial because there are no requirements as to the condition of the house and it’s occupied status.

DOWN PAYMENT GIFTING

• Making the Down Payments (Assistance and Gifts)
  • Conventional mortgages have no assistance but can be partially fulfilled with a gift
  • FHA Mortgages have loans and assistance programs available and the whole down payment can be fulfilled with a gift

In this article, we have given you the basic parameters of FHA loans vs Conventional loans. The conventional loans are for people who have a better financial track record and can handle a larger upfront cost. Because of PMI, conventional loans are cheaper in the long run if you can put enough of a down payment to get rid of PMI. However, there are no down payment assistance programs to help you reach that goal. FHA loans are for people who are looking to build their investment and in some cases may not have a great financial track record. FHA loans have lower down payment requirements and many grants/forgivable loans to help people wanting to buy a first house in which to live for at least a few years. It is important to assess your situation and decide which mortgage is going to work better for your circumstances.

CONCLUSION

Both mortgages have a lot of benefits and drawbacks because they are designed for people with different needs. This article has hopefully helped you to get a basic understanding of the different terms and conditions of different mortgage packages when looking at FHA loans vs Conventional loans. Home buying can be an emotional roller coaster and the knowledge in this article will help you navigate the various emotional struggles of home buying.

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Credit Scores for Kentucky Mortgages

Credit Score Needed to Buy a House and get a Kentucky Mortgage?

Credit Score Needed to Buy a House and get a Kentucky Mortgage?

Conventional Loan

• At least 3%-5% down• Closing costs will vary on which rate you choose and the lender. Typically, the higher the rate, the lesser closing costs due to the lender giving you a lender credit back at closing for over par pricing. Also, called a no-closing costs option. You have to weigh the pros and cons to see if it makes sense to forgo the lower rate and lower monthly payment for the higher rate and less closing costs.

Fico scores needed start at 620, but most conventional lenders will want a higher score to qualify for the 3-5% minimum down payment requirements Most buyers using this loan have high credit scores (over 720) and at least 5% down.

The rates are a little higher compared to FHA, VA, or USDA loan but the mortgage insurance is not for life of loan and can be rolled off when you reach 80% equity position in home. Conventional loans require 4-7 years removed from Bankruptcy and foreclosure.
Kentucky USDA Rural Housing Program

If you meet income eligibility requirements and are looking to settle in a rural area, you might qualify for the KY USDA Rural Housing program. The program guarantees qualifying loans, reducing lenders’ risk and encouraging them to offer buyers 100% loans. That means Kentucky home buyers don’t have to put any money down, and even the “upfront fee” (a closing cost for this type of loan) can be rolled into the financing.

 
Fico scores usually wanted for this program center around 620 range, with most lenders wanting a 640 score so they can obtain an automated approval through GUS. GUS stands for the Guaranteed Underwriting system, and it will dictate your max loan pre-approval based on your income, credit scores, debt to income ratio and assets.

 
They also allow for a manual underwrite, which states that the max house payment ratios are set at 29% and 41% respectively of your income.

They loan requires no down payment, and the current mortgage insurance is 1% upfront, called a funding fee, and .35% annually for the monthly mi payment. Since they recently reduced their mi requirements, USDA is one of the best options out there for home buyers looking to buy in a rural area

A rural area typically will be any area outside the major cities of Louisville, Lexington, Paducah, Bowling Green, Richmond, Frankfort, and parts of Northern Kentucky. There is a map link below to see the qualifying areas.

There is also a max household income limits with most cutoff starting at 109,500 for a family of four, and up to $136,000 for a family of five or more.

The income limits change every spring, so make sure and check to see what updated income limits are.
USDA requires 3 years removed from bankruptcy and foreclosure
There is no max USDA loan limit.

 

Kentucky FHA Loan

FHA loans are good for home buyers with lower credit scores and no much down, or with down payment assistance grants. FHA will allow for grants, gifts, for their 3.5% minimum investment and will go down to a 580-credit score.

 
The current mortgage insurance requirements are kind of steep when compared to USDA, VA, but the rates are usually good so it can counteract the high mi premiums. As I tell borrowers, you will not have the loan for 30 years, so don’t worry too much about the mi premiums.

 
The mi premiums are for life of loan like USDA.

 
FHA requires 2 years removed from bankruptcy and 3 years removed from foreclosure. 

 

Kentucky VA Loan

VA loans are for veterans and active-duty military personnel. The loan requires no down payment and no monthly mi premiums, saving you on the monthly payment. It does have an funding fee like USDA, but it is higher starting at 2% for first time use, and 3% for second time use. The funding fee is financed into the loan, so it is not something you have to pay upfront out of pocket.

 
VA loans can be made anywhere, unlike the USDA restrictions, and there is no income household limit and no max loan limits in Kentucky

 
Most VA lenders I work with will want a 580-credit score, even though VA says in their guidelines there is no minimum score, good luck finding a lender
VA requires 2 years removed from bankruptcy or foreclosure
Clear Caviars needed to for a VA loan.

 

Kentucky Down Payment Assistance

This type of loan is administered by KHC in the state of Kentucky. They typically have $10,000 down payment assistance year around, that is in the form of a second mortgage that you pay back over 10 years.

 

 

Sometimes they will come to market with other down payment assistance and lower market rates to benefit lower income households with not a lot of money for down payment.

KHC offers FHA, VA, USDA, and Conventional loans with their minimum credit scores being set at 620 for all programs. The conventional loan requirements at KHC requires 660 credit score.
The max debt to income ratios is set at 40% and 50% respectively.

 

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/

Credit Score Information For Kentucky Home buyers

What Will My Lender Use?

FICO is used by 90% of lenders, according to myFICO, and has been around

since 1989. (VantageScore only hit the scene in 2006.)

If you’re not sure which scoring model a lender will use, just ask!

FICO Scores used for mortgages

USDA loan:

Most lenders prefer at least a 620
The U.S. Department of Agriculture insures for low- to moderate-income homebuyers. The USDA does not set a minimum credit score requirement and does not require a down payment.

Conventional loan:

620 is the minimum but in reality most will need a 720 or higher for a pre-approval if you are putting down less than 20%

Conventional loans aren’t insured by a government agency either, but they are covered by mortgage loan companies Fannie Mae and Freddie Mac. The down payment amount varies.

VA loan:

Most lenders prefer at least a 580
A Veterans Affairs loan is backed by the U.S. Department of Veterans Affairs and meant for military members and their spouses. These loans don’t require a minimum score or money down.

FHA loan:

500 (with 10% down payment) or 580 (with 3.5% down payment)
FHA loans, those guaranteed by the Federal Housing Administration, are for higher-risk borrowers who have poor credit and little money saved for a down payment. The credit requirements can fluctuate based on how much of a down payment you can afford.Most lenders have overlays now wanting a minimum 620 credit score even for FHA loans.

Are you interested in seeing how your current credit score might affect a new mortgage?

Let’s take a look together.

Joel Lobb
Mortgage Loan Officer
Individual NMLS ID #57916

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

Text/call: 502-905-3708

email: kentuckyloan@gmail.com
https://kentuckyloan.blogspot.com/

What Will My Lender Use? FICO is used by 90% of lenders, according to myFICO, and has been around since 1989. (VantageScore only hit the scene in 2006.) If you’re not sure which scoring model a lender will use, just ask! USDA loan: Most lenders prefer at least a 620 The U.S. Department of Agriculture …

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Credit scores required for A Kentucky Mortgage Loan Approval for FHA, VA, USDA and Conventional Fannie Mae

What credit score is needed to buy a house in Kentucky?

Ultimately, there is no singular credit score that can guarantee you a mortgage approval. Each lender is free to set their own credit score requirements.

But many loan types are insured by government organizations. And lenders cannot accept borrowers with credit scores below the minimum these organizations set. The four most popular home loan types are:

Conventional: Not backed by any government agency, but must meet the Fannie Mae and Freddie Mac underwriting guidelines

FHA: Loans backed by the Federal Housing Administration

VA: Loans backed by the US Department of Veterans Affairs (for military members)

USDA: Loans backed by the US Department of Agriculture (for low- to moderate-income families who buy homes in rural areas)

And here are the minimum credit score requirements for each of these loan types:

Conventional: 

620 SCORE NEEDED. BUT TO GET APPROVED FOR A FANNIE MAE LOAN MOSTLY LIKE YOU WILL NEED A 720 SCORE OR HIGHER IF YOU HAVE LESS THAN 20% EQUITY POSITION OR LESS THAN 20% DOWN PAYMENT DUE TO PRIVATE MORTGAGE INSURANCE

FHA: 

580 for a 3.5% down payment
500 for down payments of at least 10%

**MOST FHA LENDERS WILL WANT A 580 to 620  CREDIT SCORE NOWADAYS

VA: 

No minimum BUT MOST VA LENDERS WILL WANT A 580 to 620 CREDIT SCORE

USDA: 

No minimum, but with a credit score of at least 620 to 640 you could qualify for streamlined credit analysis and chances of approval goes way down if score is below 640…

Joel Lobb
Senior  Loan Officer

(NMLS#57916)

phone: (502) 905-3708

 Fax:     (502) 327-9119

kentuckyloan@gmail.com

 

 Company ID #1364 | MB73346

http://mylouisvillekentuckymortgage.com/