What are the Kentucky FHA Credit Score Requirements for 2019 Mortgage Loan Approvals?

 

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Kentucky Mortgage Requirements for FHA, VA, USDA and Fannie Mae

 

 

Getting a FHA loan in Kentucky in 2019 you will be confronted with minimum credit score requirements set forth by FHA and the lender. Even though FHA will insure the mortgage loan at a certain credit score, you will see that lenders will create  “credit-overlays” to protect their risk and ask for a higher credit score.

So keep in mind when you are getting an FHA loan in 2019 some lenders will have higher credit score minimums in addition to the FHA Mortgage Insurance program.

For a Kentucky Homebuyer wanting to purchase a home or refinance their existing FHA loan, FHA requires a 3.5% down payment and the borrower must have a 580 FICO Credit Score. If the score is below 580, then you would need 10% down and still qualify on a manual underwrite.

You must have a FICO score of at least 500 to be eligible for a Kentucky  FHA loan. If your FICO score is from 500 to 579, your down payment on the loan is 10 percent of the loan.

If your FICO score is 580 or higher, your down payment is only 3.5 percent. If your credit score is less than 580, it may be more cost-effective to take the necessary steps to improve your score before taking out the loan, rather than putting the money into a larger down payment.

How do they get the credit score:  There are three main credit bureaus in the US. Equifax, Experian, and Transunion. The three scores vary but should be relatively close as long as the same creditors are reporting to the same bureaus.

You will get a variation in the scores due to all creditors or collection companies don’t report to all three bureaus. This is why they take the mid score.  So if you have a 590 Experian, 680 Equifax, and 620 TransUnion, your qualifying credit score would be 620

Based on my experience with lenders that I deal with in Kentucky on FHA loans,  most lenders require 620 middle credit score for consideration for loan approval.

How do they get the score:  They take the mid score, so if you have a 590 Experian, 680 Equifax, and 620 TransUnion, your qualifying score would be 620.

 

 

Kentucky FHA Loans with less than 620 Score

If your score is below 620, a manual underwrite is where the AUS (Automated Underwriting System) refers your loan to a human being, and they look at the entire file to see if they can overturn and approve the mortgage loan because the Desktop Underwriting Automated Software could not approve you.

With scores below 620, they typically will want to verify your rent history, have no bankruptcies in the last two years, and no foreclosures in the last 3 years.

If you have had any lates since the bankruptcy this will probably result in a denial on a refer manual underwrite file.

Your max house payment will be set at 31% of your gross monthly income,  and your new house payment plus the bills you are paying on the credit report cannot be more than 43%.

Typically, on scores below 620 for FHA loans, they will also look at reserves or money you have saved up after the loan is made to try and qualify you. For example, if you have a 401k or savings account that has at least 4 months reserves (take your mortgage payment x 4) and this would equal your reserves. They look at this as a rainy day fund and could help you keep up on your bills if you were unemployed or could not work.

Maximum FHA loan limits in Kentucky are set around $314,500 and below.

If you are looking to take a FHA loan in 2019 to buy or refinance a home in Kentucky, please contact me below with your questions about the credit score requirements and how they affect your loan approval.

What credit score do you need to qualify for a Kentucky mortgage loan?

The first thing to keep in mind is that qualifying for a mortgage involves a lot more than just a credit score. While your FICO score is a very important ingredient, it is just one factor. Lenders also look at your income and level of debt, among other things.

As a rule of thumb, however, a credit score below 620 will make buying a home very difficult. A FICO score below 620 is considered sub-prime. In the past, there were mortgage companies that specialized in sub-prime mortgages. Because of the challenges in the credit market over the last year or so, however, sub-prime loans have become difficult if not impossible to obtain.

A FICO score between 600 and 640  is considered fair to good credit. But keep in mind, this range of credit scores does not guarantee you will qualify for a mortgage, and if you do qualify, it won’t get you the lowest interest rate possible. Still, to buy a home aim for a score of at least 620, recognizing that other factors weigh in the decision and that some banks may require a higher score.

What credit score do you need to get a low rate mortgage?

It uses to be that a score of about 720 would yield the lowest mortgage rates available. Today, the best rates kick in with a FICO score of 760. And interest rates go up significantly as your credit score drops. To give you an idea, the following table shows current rates by credit score and calculates a monthly principal and interest payment based on a $300,000 loan:

lenders will pull what they call a “tri-merge” credit report which will show three different fico scores from Transunion, Equifax, and Experian. The lenders will throw out the high and low scores 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.
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.
Lastly, 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.
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:
As you can see, different government-backed loan programs have different minimum score requirements with most lenders for an FHA, VA, or Fannie Mae loan, and 620  is required for the no down payment programs offered by USDA and KHC in Kentucky for First Time Home Buyers wanting to go no money down.

A Complete Guide to Closing Costs

Joel Lobb
Senior  Loan Officer
(NMLS#57916)
 Company ID #1364 | MB73346

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text or call my phone: (502) 905-3708
email me at 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). USDA Mortgage loans only offered in Kentucky.

All loans and lines are subject to credit approval, verification, and collateral evaluation

J

 

 

How to qualify for a Kentucky FHA Home Loan ?

How to qualify for a Kentucky FHA Home Loan ?

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FHA stands for the Federal Housing Administration which is a government agency created to increase home-ownership across the United States all the way back in 1934. The agency itself doesn’t offer home loans but insures loan that are offered by private lenders (i.e. mortgage companies).

It’s important to understand the different types of loan programs available to you and what benefits and drawbacks there are to each type.

For example, if you’re looking to find a fixer upper this may not be the right loan program for you. But an FHA loan may be a better fit for you if you have little cash saved up for a down payment or if you don’t have a high credit score.

Kentucky FHA loan requirements:

  • At least 18 years old to apply
  • No age limit. just must be 18 years of age to apply.
  • Must occupy the home as a primary residence, no rental homes or investment property
  • An appraisal must be done by an FHA-approved appraiser.Typically FHA appraisal in Kentucky costs anywhere from low-end $325 to $525 with most FHA lenders in KY.
  • Home inspection is not required
  • Termite inspection not required
  • 2 years removed from Chapter 7 bankruptcy, and 1 year in Chapter 13 bankruptcy is possible to get a loan while in bankruptcy
  • Foreclosure or short sale on previous home mortgage requires 3 years removal from those dates.
  • Mortgage insurance (MIP) is required
  • Upfront Mortgage Insurance Premium is 1.75% and monthly mortgage insurance is .85% or .80% depending on loan term and loan to value.
  • Mortgage insurance is for life of loan.
  • No matter your credit scores, everyone pays the same mortgage insurance premiums.
  • Must have 2 years of employment history proving a reliable source of income
  • 500 FICO score requirement with at least 10% down payment
  • 580 FICO score requirement with at least 3.5% down payment
  • Gifts and down payment assistance programs are allowed to meet your down payment requirements. Cannot come from seller, but seller can contribute up to 6% of the sales price toward buyer’s closing costs and prepaids.
  • Student loan payments are factored into the debt-to-income ratio when applying. Typically if loans are deferred, or in an income=based repayment plan, the FHA underwriters will use 1% of the outstanding balance, which sometimes can make it difficult to qualify.
  • Your debt-to-income ratio must not be higher than 31% or total debt obligation cannot be higher than 43% of your current income. This is for a manual underwriter, meaning that if the AUS underwriting system by mortgage lenders will approve you for a higher debt to income ratio, that is fine.

 

New FHA loan limits for 2019 in Kentucky:

The Kentucky FHA has a maximum loan limit it will insure. These Kentucky FHA loan limits are updated each year and are influenced by the conventional loan limits set by Fannie Mae and Freddie Mac. Other things like the type of home (i.e. duplex or single-family) can also affect the FHA loan limits. *

For low-cost areas, the loan limit increased from $294,515 to $314,827 for all Kentucky Counties in 2019. . You can check the FHA loan limits in your area here.

 

American Mortgage Solutions, Inc.
10602 Timberwood Circle Suite 3
Louisville, KY 40223
Company ID #1364 | MB73346


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

http://www.nmlsconsumeraccess.org/
If you are an individual with disabilities who needs accommodation, or you are having difficulty using our website to apply for a loan, please contact us at 502-905-3708.

Disclaimer: No statement on this site is a commitment to make a loan. Loans are subject to borrower qualifications, including income, property evaluation, sufficient equity in the home to meet Loan-to-Value requirements, and final credit approval. Approvals are subject to underwriting guidelines, interest rates, and program guidelines and are subject to change without notice based on applicant’s eligibility and market conditions. Refinancing an existing loan may result in total finance charges being higher over the life of a loan. Reduction in payments may reflect a longer loan term. Terms of any loan may be subject to payment of points and fees by the applicant  Equal Opportunity Lender. NMLS#57916http://www.nmlsconsumeraccess.org/

— Some products and services may not be available in all states. Credit and collateral are subject to approval. Terms and conditions apply. This is not a commitment to lend. Programs, rates, terms and conditions are subject to change without notice. The content in this marketing advertisement has not been approved, reviewed, sponsored or endorsed by any department or government agency. Rates are subject to change and are subject to borrower(s) qualification.

FHA vs Conventional Infograhic

FHA eases rules for some credit-impaired applicants

FHA eases rules for some credit-impaired applicants.

Kentucky FHA Mortgage Guidelines for Collections in 2014
Kentucky FHA Mortgage Guidelines for Collections in 2014

Handling of Collections and Disputed Accounts

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

 extenuating circumstances.

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.

Excluded Accounts

 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.

 


 
Joel Lobb
Senior  Loan Officer

(NMLS#57916)
American Mortgage Solutions, Inc.
800 Stone Creek Pkwy, Ste 7,
Louisville, KY 40223
 Fax:     (502) 327-9119
 
 Company ID #1364 | MB73346