Are you considering buying a home in the beautiful state of Kentucky? Securing a mortgage loan is a crucial step in the homebuying process, and one of the key factors lenders evaluate is your credit score. Understanding the credit score requirements for mortgage loan approval in Kentucky can help you prepare and improve your chances of securing financing for your dream home.
Importance of Credit Scores
Your credit score is a numerical representation of your creditworthiness based on your credit history. Lenders use this score to assess the risk of lending to you. A higher credit score typically indicates lower risk to lenders, making you more likely to qualify for a mortgage loan and secure better terms and interest rates.
Credit Score Requirements in Kentucky
While specific credit score requirements can vary among lenders and mortgage programs, there are some general guidelines to consider when applying for a mortgage loan in Kentucky.
Conventional Loans: Conventional mortgage loans are not insured or guaranteed by the government. Many lenders prefer borrowers to have a credit score of at least 620 to qualify for a conventional loan. However, some lenders may require higher scores, especially for competitive interest rates.
FHA Loans: The Federal Housing Administration (FHA) offers loans with more lenient credit score requirements compared to conventional loans. In Kentucky, borrowers may be eligible for an FHA loan with a credit score as low as 500, provided they can make a 10% down payment. A credit score of 580 or higher may qualify for a lower down payment option of 3.5%.
VA Loans: If you’re a veteran, active-duty service member, or eligible spouse, you may qualify for a VA loan guaranteed by the Department of Veterans Affairs. VA loans typically have more flexible credit score requirements, and some lenders may consider borrowers with credit scores below 620.
USDA Loans: The U.S. Department of Agriculture (USDA) offers loans to eligible rural and suburban homebuyers with low to moderate incomes. Credit score requirements for USDA loans in Kentucky can vary, but many lenders prefer scores of 640 or higher.
Tips for Improving Your Credit Score
If your credit score is below the desired threshold for a mortgage loan, don’t despair. There are steps you can take to improve your creditworthiness over time:
Check Your Credit Report: Obtain a free copy of your credit report from each of the three major credit bureaus—Equifax, Experian, and TransUnion—and review them for errors or discrepancies.
Pay Bills on Time: Your payment history is one of the most significant factors affecting your credit score. Make sure to pay all your bills, including credit cards, loans, and utilities, on time.
Reduce Credit Card Balances: Aim to keep your credit card balances low relative to your credit limits. High credit utilization can negatively impact your credit score.
Avoid Opening New Credit Accounts: While having a mix of credit accounts can be beneficial, opening multiple new accounts within a short period can lower your credit score.
Conclusion
In Kentucky, credit score requirements for mortgage loans can vary depending on the type of loan and lender you choose. While higher credit scores generally improve your chances of loan approval and favorable terms, there are loan programs available for borrowers with less-than-perfect credit.
Before applying for a mortgage loan, it’s essential to review your credit report, understand your credit score, and take steps to improve it if necessary. By demonstrating responsible financial behavior and maintaining a good credit history, you can increase your likelihood of securing a mortgage loan and achieving your homeownership goals in Kentucky.
580 (or 500 with a minimum 10 percent down payment)
VA loan
No official requirement, but typically 620
USDA loan
No official requirement, but typically 640
Conventional loans
Fannie Mae and Freddie Mac each back conventional loans with a lower minimum credit score: 620 and 660, respectively. Both of these loans require just 3 percent down.
FHA loans
The Federal Housing Administration (FHA) insures FHA loans, which allows mortgage lenders to accept a credit score as low as 580 with a 3.5 percent down payment, or 500 with a 10 percent down payment.
VA loans
If you’re a military member, a veteran or married to someone who has served in the armed forces, you could benefit from a VA loan backed by the U.S. Department of Veterans Affairs. You don’t have to meet a specific credit score minimum to qualify, although many lenders do require at least 620.
USDA loans
If you have a lower income and want to buy a home in a particular rural area, look into a USDA loan. While not a hard-and-fast rule, most USDA-approved lenders require a minimum credit score of just 640.
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
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
Here’s what you need to know about Kentucky FHA Loans and the changes that have been made for 2022.
What is a Kentucky FHA loan?
It stands for a Federal Housing Administration loan, meaning it is backed by the U.S. government. It is not made by a government agency. You deal directly with a mortgage lender or broker to get the loan, but the FHA will typically buy the loan from the lender after it is made or guarantee the lender against loss. FHA loans typically require lower down payments and credit scores than most conventional loans, making them a clear favorite among first-time buyers.
What Are the Terms?
These loans can have terms of either 30 years or 15 years. The interest rate is fixed for the entire loan length.
FHA borrowers are required to pay mortgage insurance premiums, but after a borrower’s equity in their home increases they may be able to refinance into a conventional loan and eliminate the monthly mortgage insurance premiums.
What Are the Qualifications?
To qualify for an FHA mortgage, home buyers need a FICO credit score of 580 or higher and a down payment of 3.5% (or a minimum down payment of 10% with a 500 FICO score).
These loans also require a two-year employment and income verification and the property as must be used as a primary residence.
If a borrower has had a bankruptcy, they must wait one to two years depending on if Chapter 13 or Chapter 7 before applying and three years after a foreclosure.
Increased Loan Limits for 2022
In 2022, for most parts of the U.S., Kentucky FHA borrowers can take out a loan for up to $420,680, an increase from 2021’s limit of $356,362.
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.
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
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 … Continue reading Credit Score Information For Kentucky Home buyers
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…
When you think credit score, you probably think FICO Since the Fair Isaac Corporation introduced its FICO scoring system in 1989, “What is my FICO score?” has become a common question. FICO scores have burrowed their way into all kinds of lending decisions, most notably mortgages, credit cards, and rentals.
But over the last decade or so, FICO’s market dominance has been challenged by a newcomer called VantageScore. As the result of a collaboration between the three major credit reporting agencies (CRAs) — Experian, Equifax, and TransUnion — VantageScore uses similar scoring methods to FICO but with slightly different results.
So what are the differences, and more importantly, do they really matter to you, the consumer? The short answer: usually no. But you might want to look at different scores for different needs or goals.In this article, we’ll cover the five main differences between FICO and VantageScore and tell you which one to watch.
What credit score is needed to buy a house?
1. Difference in scoring models
FICO and VantageScore aren’t the only scoring models on the market. Lenders use a multitude of scoring methods to determine your creditworthiness and make financial decisions. But despite the numerous options, FICO and VantageScore are likely the only scores you’ll ever personally see.How do FICO and VantageScore rate you? Both use the same basic criteria:
Payment history
Length of credit
Types of credit
Credit usage
Recent inquiries
Although both FICO and VantageScore consider much of the same information, they gather their data in different ways.
FICO bases its scoring model on credit reports from millions of consumers at once. They gather these reports from the three major credit bureaus and analyze the reports’ anonymous consumer data to generate an accurate scoring model.Alternatively, VantageScore uses a combined set of consumer credit files, also obtained from those same three credit bureaus, to come up with a single formula.
Both FICO and VantageScore issue scores ranging from 300 to 850. In the past, VantageScore has used a range of 501 to 990, but the range was adjusted when VantageScore 3.0 was issued in 2013. VantageScore’s numerical rankings now match FICO’s, which makes it easier for consumers and lenders to implement the VantageScore model — plus, it’s less confusing for consumers who check both their FICO score and VantageScore.
2. Variance in scoring requirements
If you don’t have a long history of credit, VantageScore is the score you want to monitor. Before it’s able to establish your credit score, FICO requires at least six months of credit history and at least one account reported to a CRA within the last six months. VantageScore only requires one month of history and one account reported within the past two years.
Because VantageScore allows a shorter credit history and a long period for reported accounts, it’s able to issue credit ratings to millions of consumers who wouldn’t qualify for FICO scores. Considering how everyone from employers to landlords wants to see your credit score these days, if you’re new to credit or haven’t been using it recently, VantageScore might be able to prove your trustworthiness before FICO has enough data to issue a rating.
3. Significance of late payments
A history of late payments will impact both your FICO score and your VantageScore. Both models consider these factors:
How recently the last late payment occurred
How many of your accounts have had late payments
How many payments you’ve missed on an account
However, while FICO treats all late payments the same, VantageScore judges them differently — it penalizes late mortgage payments more harshly than other types of credit.If you’ve had late payments on your credit cards, they will have about the same impact on both your FICO and your VantageScore. But if you’ve had late payments on your mortgage, you might find you have a higher FICO score than VantageScore.
4. Impact of credit inquiries
You’ve probably heard you shouldn’t open too many credit cards in a short period of time. One reason for this is every time you apply for a credit card, the lender does a “hard inquiry” to check your creditworthiness.
VantageScore and FICO both penalize consumers who have multiple hard inquiries in a short period of time, and they both do “deduplication.” Deduplication is important for things like auto loans, where your application may be sent to multiple lenders, thereby resulting in multiple inquiries. Both FICO and VantageScore don’t count each of these inquiries separately — they deduplicate them, or consider them one inquiry. However, the timespan they use for deduplication differs.
FICO uses a 45-day span to deduplicate your credit inquiries. VantageScore limits its focus to only a 14-day range. VantageScore also looks at multiple hard inquiries for all types of credit, including credit cards. FICO considers only mortgages, auto loans, and student loans.
Inquiries aren’t your biggest concern when it comes to your credit score, but they do have an impact. If you want to buy a house or a car, restrict hard inquiries as much as possible to avoid lowering your credit score.
5. Influence of low-balance collections
VantageScore and FICO both have penalties for accounts sent to collection agencies. However, FICO might give you a bit more of a break when it comes to low-amount collection accounts.
FICO ignores all collections where the original balance was under $100. It also doesn’t count collection accounts you’ve paid off. VantageScore, on the other hand, ignores only paid collection accounts, regardless of the original balance amount.
Keep your credit high
Regardless of the differences between FICO and VantageScore, the essential advice for keeping your credit score high remains the same:
Avoid late payments. Pay your bills, and pay them on time.
Keep your credit balances low. Don’t max out your credit cards, and try to keep your cumulative balance to less than 30% — the lower the better.
Apply for new credit only when you have to. Don’t open a bunch of new cards in a short period of time, and don’t close old accounts without good reason.
Which credit scores do mortgage lenders use to qualify people for a mortgage?
While it’s common knowledge that mortgage lenders use FICO scores, most people with a credit history have three FICO scores, one from each of the three national credit bureaus (Experian, Equifax, and TransUnion).
Which FICO Score is Used for Mortgages
Most lenders determine a borrower’s creditworthiness based on FICO® scores, a Credit Score developed by Fair Isaac Corporation (FICO™). This score tells the lender what type of credit risk you are and what your interest rate should be to reflect that risk. FICO scores have different names at each of the three major United States credit reporting companies. And there are different versions of the FICO formula. Here are the specific versions of the FICO formula used by mortgage lenders:
Equifax Beacon 5.0
Experian/Fair Isaac Risk Model v2
TransUnion FICO Risk Score 04
Lenders have identified a strong correlation between Mortgage performance and FICO Bureau scores (FICO score). FICO scores range from 300 to 850. The lower the FICO score, the greater the risk of default.
Which Score Gets Used?
Since most people have three FICO scores, one from each credit bureau, how do lenders choose which one to use?
For a FICO score to be considered “usable”, it must be based on adequate, concrete information. If there is too little information, or if the information is inaccurate, the FICO score may be deemed unusable for the mortgage underwriting process. Once the underwriter has determined if a score is usable or not, here’s how they decide which score(s) to use for an individual borrower:
If all three scores are different, they use the middle score
If two of the scores are the same, they use that score, regardless of whether the two repeated scores are higher or lower than the third score
Lenders have identified a strong correlation between Mortgage performance and FICO Bureau scores (FICO score). FICO scores range from 300 to 850. The lower the FICO score, the greater the risk of default.
If it helps to visualize this information:
Identifying the Underwriting Score
Example
Score 1
Score 2
Score 3
Underwriting Score
Borrower 1
680
700
720
700
Joel Lobb (NMLS#57916)
Senior Loan Officer
American Mortgage Solutions, Inc. 10602 Timberwood Circle Suite 3 Louisville, KY 40223
Company ID #1364 | MB73346
Text/call 502-905-3708
kentuckyloan@gmail.com
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/
Joel Lobb, American Mortgage Solutions (Statewide)
Joel has worked with KHC for 12 of his 20 years in the mortgage lending business. Joel said, “A lot of my clients would not have been able to purchase a home of their own or possibly delayed their purchase due to lack of down payment but with the $6,000 DAP loan program, this gets them into a house sooner and starts their path to homeownership while building equity instead of throwing their money away.”
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 