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Complete Guide to FHA Loan Requirements in Kentucky

FHA loans are a popular choice for many first-time homebuyers in Kentucky. This is 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. 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%. Borrowers with credit scores between 500 and 579 might still qualify. They will need 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 is beneficial. It is preferable to have worked with the same employer or within the same field. This 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. It can go higher up to 56% with good credit scores, a large down payment, or a shorter-term loan. Lenders may also 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. This is possible 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, 20 year, 25 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 with 1-4 units. Not for investment properties or second homes.
    • 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.
    • No income limits nor property restrictions on where home is located
    • Can close within 30 days typically with good appraisal and title work

FHA Loan Requirements in Kentucky for Credit scores, Down payment, Debt Ratio and work history below

RequirementDetails
Credit Score– 580+: Eligible for a 3.5% down payment.
– 500-579: Requires a 10% down payment.
Down PaymentMinimum of 3.5% for qualified buyers; 10% for lower credit scores below 580 to 500 score range
Debt-to-Income Ratio (DTI)– Ideal: 45% or lower on front end ratio or housing ratio.
– Acceptable: Up to 57% with compensating factors. There are two ratios. Front end and back end with front end being maxed at 45% and the backed end ratio being 56.99% with an AUS approval. If manually underwritten, see guidelines here
Employment HistoryMust provide at least **2 years of consistent employment—College transcripts can supplement with a less than 2 year work history

Key Benefits of FHA Loans in Kentucky

  1. Low Credit Score Requirements
    • FHA loans accept borrowers with credit scores as low as 500. However, a score of 580+ qualifies you for the lowest down payment option.
  2. Low Down Payment Options
    • You can purchase a home with as little as 3.5% down if you meet credit requirements, making FHA loans more accessible than conventional loans.
  3. Competitive Interest Rates
    • FHA loans typically offer rates comparable to conventional mortgages. They may even offer lower rates. This could save you money over the life of the loan.
  4. Flexible Loan Uses
    • With an FHA 203(k) loan, you can bundle home purchase and renovation costs into a single mortgage.
  5. Assumable Loans
    • FHA loans can be transferred to a new buyer. This feature is especially valuable if you sell your home when interest rates are higher.

Understanding these qualifying criteria can help you navigate the FHA loan application process in Kentucky more effectively. Working with an experienced mortgage professional can provide valuable guidance. They offer assistance tailored to your specific financial situation and homeownership goals.

Joel Lobb  Mortgage Loan Officer

Any questions, please don’t hesitate to reach out via, text, email,  or call.  Advice is always free. 
 
One of Kentucky’s highest rated mortgage loan officers for FHA, VA, USDA, Kentucky Housing KHC and conventional mortgage loans.  
1 – 📅 Email – kentuckyloan@gmail.com 
2.  📞 Call/Text – 502-905-3708
 

Joel Lobb
Mortgage Loan Officer – Expert on Kentucky Mortgage Loans

🌐 Website: www.mylouisvillekentuckymortgage.com
🏢 Address: 911 Barret Ave., Louisville, KY 40204

Evo Mortgage
Company NMLS# 1738461
Personal NMLS# 57916

For assistance with Kentucky mortgage loans, reach out via email, call, or text Joel Lobb directly.

Kentucky Local Home Loan Lender Services

✅ First-Time Home Buyers Welcome
✅ FHA, Rural Housing (USDA), VA, and Kentucky Housing Corporation (KHC) Loans
✅ Conventional Loan Options Available
✅ Fast Local Decision-Making
✅ Experienced Guidance Through the Home Buying Process

 

NMLS 57916  | Company NMLS #173846
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.
(www.nmlsconsumeraccess.org).
Kentucky First Time Homebuyers FHA, VA, USDA & Rural Housing, KHC and Fannie Mae mortgage loans
 
Kentucky Mortgage Broker Offering FHA, VA, USDA, Conventional, and KHC Down Payment Assistance Home Loans employment, Employment Gaps, job gaps FHA Kentucky Loan, job history FHA loan, Self Employed, work history requirements FHA

Kentucky FHA Loan Employment History Requirements

  • No matter what you must provide a 2 year employment history. Conventional or Kentucky FHA Mortgage Loan.  Conventional does not always need to be verified with a written work verification form
    • if you do not have a complete 2 year history you must explain any large gaps.  Typically I have seen this to be greater than 30 days.
    • you must have a 2 year history prior to the gap as well.  (two underwriters from two different lenders have recently told me the same thing)
    • also check your AUS-Automated Underwriting Findings  because that can help when speaking with your potential borrower.
    •  
  • Exception to the 2 year history is college or HS graduation
    • need official college transcripts or they can be unofficial if you get them with the web URL just like bank activity.
    • good idea to snag their diploma as well.
    •  
    • you probably don’t even need to use this exception if the person was a student but also worked and had a 2 year job history.
  •  Kentucky FHA Case Number Assignment
    • if there are any job gaps greater than 6 months in their two year history the borrower must be on their current job for at least 6 months before the FHA case number can be assigned.
    • again you must then get a 2 year employment history prior to the 6 month or more gap.  however far you must go back.
    •  
  •  
  • W2s / 1099s
    • even if you are not using the income to qualify from a part time job please get every single w2 / 1099 from your borrowers.  

– fha pic

 
Kentucky FHA Mortgage Work History and Income Requirements.

1 –  Email – kentuckyloan@gmail.com 2.   Call/Text – 502-905-3708

Joel Lobb
Mortgage Loan Officer – Expert on Kentucky Mortgage Loans


🌐 Website: www.mylouisvillekentuckymortgage.com
🏢 Address: 911 Barret Ave., Louisville, KY 40204

Evo Mortgage
Company NMLS# 1738461
Personal NMLS# 57916

For assistance with Kentucky mortgage loans, reach out via email, call, or text Joel Lobb directly.

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2026 FHA Loan Options for Kentucky Homebuyers

Kentucky FHA Loan Requirements – Updated for 2026

Kentucky FHA loan guidelines are established by the U.S. Department of Housing and Urban Development (HUD). FHA loans remain one of the most flexible mortgage options available to Kentucky homebuyers, particularly first-time buyers, borrowers rebuilding credit, and households using down payment assistance.

Employment and Income Requirements

Borrowers must demonstrate a stable employment history covering the most recent two years. This does not require the same employer, but the work history must show consistency in the same industry or line of work.

Recent college graduates may satisfy the two-year work history requirement by providing college transcripts, provided the current employment aligns logically with the education received.

Self-employed borrowers must document a minimum two-year history of self-employment and provide the most recent two years of federal tax returns filed with the IRS. FHA underwriting uses a two-year average of qualifying income, adjusted for business stability and trends.

All income must be verifiable through acceptable documentation such as pay stubs, W-2s, or tax returns. Cash income, undocumented deposits, or bank-statement-only income is not permitted for FHA qualifying purposes.

Down Payment Requirements

FHA loans require a minimum down payment of 3.5 percent for borrowers with credit scores of 580 or higher.

Borrowers with credit scores between 500 and 579 are limited to a maximum loan-to-value of 90 percent, requiring a minimum 10 percent down payment. In practice, most lenders apply overlays requiring higher credit scores, typically between 580 and 620, even though HUD technically allows lower scores.

Down payment funds must come from an approved source. Acceptable sources include personal savings, retirement account loans or withdrawals, and properly documented gift funds. Large or undocumented cash deposits are not allowed and remain one of the most common reasons for FHA loan delays or denials in underwriting.

Occupancy and Property Use

FHA loans are for primary residences only. The borrower must occupy the property as their primary home and move in within 60 days of closing. FHA financing may not be used for rental properties or investment homes.

Appraisal and Property Standards

The property must be appraised by a Kentucky-licensed, FHA-approved appraiser. The home must meet HUD’s minimum property standards, meaning it must be safe, sound, and secure.

Common appraisal concerns include peeling paint, exposed wiring, missing handrails, roof condition, and health or safety hazards. Most FHA appraisal issues are correctable prior to closing.

Debt-to-Income Ratio Guidelines

FHA evaluates two debt ratios:

The housing ratio (front-end), which includes principal, interest, property taxes, homeowners insurance, mortgage insurance, and HOA dues, is typically capped at 31 percent of gross monthly income.

The total debt ratio (back-end), which includes the housing payment plus all other monthly obligations reported on credit, is typically capped at 43 percent.

However, borrowers receiving an “Approve/Eligible” finding through FHA’s automated underwriting system may qualify with higher ratios, depending on credit scores, cash reserves, and other compensating factors.

Credit Score and Credit History Requirements

The minimum FHA credit score for maximum financing remains 580 in 2026. This does not guarantee approval, as lenders apply additional underwriting standards and overlays.

Borrowers must demonstrate acceptable recent payment history. FHA places significant weight on the most recent 12 months of credit performance.

Bankruptcy and Foreclosure Guidelines

Chapter 7 bankruptcy requires a minimum waiting period of two years from discharge, with re-established good credit and on-time payments afterward.

Chapter 13 bankruptcy may be eligible after at least 12 months of on-time plan payments, with trustee approval, and the borrower must qualify including the Chapter 13 payment.

Foreclosure generally requires a three-year waiting period from the date of foreclosure completion. Exceptions may be considered only for documented extenuating circumstances beyond the borrower’s control. Job relocation alone does not qualify as an extenuating circumstance.

Federal Debt and CAIVRS Requirements

Borrowers may not have delinquent federal debt, defaulted federal student loans, unpaid federal judgments, or unresolved FHA claims.

Lenders are required to check the CAIVRS (Credit Alert Interactive Voice Response System) database for all federally backed loans, including FHA, VA, USDA, and SBA loans. Title 31 of the U.S. Code prohibits delinquent federal debtors from receiving federal loan insurance or guarantees.

If a CAIVRS alert appears, the debt must be resolved or paid in full before closing.

FHA Gift Fund Rules for Down Payments

FHA permits gift funds for down payments and closing costs, provided there is no expectation of repayment.

Acceptable gift sources include relatives, employers, labor unions, close friends with a documented relationship, charitable organizations, and government or public entities.

Unacceptable gift sources include the seller, real estate agents, brokers, builders, or any party with a financial interest in the transaction.

A proper gift letter is required, stating that repayment is not expected. The donor must provide identifying information and documentation showing the transfer of funds from their account to the borrower.

Government and Employer Assistance Programs

Borrowers without access to family gift funds may qualify for state, local, or employer-assisted housing programs that provide down payment or closing cost assistance. In Kentucky, FHA loans can often be paired with Kentucky Housing Corporation (KHC) down payment assistance programs, subject to income limits and program availability.

How FHA Loans Are Used in Kentucky

FHA does not directly lend money. Instead, it insures loans made by FHA-approved lenders. These loans are designed for borrowers with limited down payment funds, past credit challenges, or non-traditional credit profiles.

Many Kentucky borrowers who do not qualify for conventional financing are still able to achieve homeownership through FHA-insured loans at competitive interest rates.

Pros and Cons of FHA Loans

Advantages include low down payment requirements, flexible credit standards, and the ability to combine FHA loans with down payment assistance programs.

Disadvantages include mandatory mortgage insurance. FHA charges an upfront mortgage insurance premium of 1.75 percent of the loan amount, which can be financed, and an annual mortgage insurance premium that ranges from approximately 0.45 percent to 1.05 percent depending on loan term, loan-to-value, and origination date. This annual premium is paid monthly and, in most cases, remains for the life of the loan unless refinanced.

Final Thoughts for Kentucky Homebuyers in 2026

FHA loans continue to be a practical, reliable option for Kentucky homebuyers who need flexibility without sacrificing long-term stability. While FHA guidelines are forgiving compared to conventional loans, preparation matters. Clean documentation, stable income, responsible credit behavior, and proper sourcing of funds are essential to a smooth approval.

Working with an experienced Kentucky FHA lender can help you navigate overlays, improve credit positioning, and pair FHA financing with available assistance programs.

Joel Lobb
NMLS #57916
Text or Call 502-905-3708
kentuckyloan@gmail.com
www.mylouisvillekentuckymortgage.com

Company NMLS #1738461
Equal Housing Lender

Information is provided for educational purposes only and does not guarantee loan approval. All loans are subject to underwriting guidelines, program availability, and lender approval.

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5 Things to Know about buying a house and getting a Mortgage Loan approval in Kentucky for 2023


1. Do Mortgage Rates Change Daily?

Just like the gas prices at the pump, mortgage rates can change daily or throughout the day. Typically mortgage rates are published at 10-11 am daily by most lenders and you can lock up through the close of business which is usually around 6-7 PM. Mortgage rates can change up or down throughout the day based on various financial, economics, and geopolitical news in the US Financial markets and World markets. Generally speaking, good economic news is bad for rates and vice versa, bad economic news is good for mortgage rates.

The good news is this: Once you find a home and get it under contract, you can lock your mortgage loan rate. Typically it takes about 30-45 days to close a mortgage loan in Kentucky, so the typical lock is for 30-60 days. If rates get better you may be able to negotiate a better rate with your lender, but they usually have to improve by at least 25 basis points (.25) to do that. Not all lenders offer this option. The longer you lock the loan, the greater the costs. It is usually free to lock in a loan for up to 90 days without having to pay a fee.

What a lot of lenders are experiencing now is that some loans don’t close on time for various reasons. You can always extend the lock on the loan but it will costs you usually .125 basis points to do so. If you let the lock expire on the loan, then you have to take worse case pricing on that day when you go to relock. It is usually best to extend the lock on your loan.

2. What kind of Credit Score Do I need to qualify?

When applying for a mortgage loan, lenders will pull what they call a “tri-merge” credit report which will show three different fico scores from Trans union, Equifax, and Experian. The lenders will throw out the high and low score and take the “middle score” For example, if you had a 614, 610, and 629 score from the three main credit bureaus, your qualifying score would be 614. Most lenders will want at least two scores. So if you only have one score, you may not qualify. Lenders will have to pull their own credit report and scores so if you had it ran somewhere else or saw it on a website or credit card you may own, it will not matter to the lender, because they have to use their own credit report and scores.
Most lenders will pull your credit report for free nowadays so this should not be a big deal as long as your scores are high enough.
The Secondary Market of Mortgage loans offered by FHA, VA, USDA, Fannie Mae, and KHC all have their minimum fico score requirements and lenders will create overlays in addition to what the Government agencies will accept, so even if on paper FHA says they will go down to 580 or 500 in some cases on fico scores, very few lenders will go below the 620 threshold.
If you have low fico scores it may make sense to check around with different lenders to see what their minimum fico scores are for loans.
The lenders I currently deal with have the following fico cutoffs for credit scores:
FHA–580 minimum score
VA—-580 minimum score
Fannie Mae–620 minimum score
USDA–620 minimum score
KHC with Down Payment Assistance –620 minimum score.

As you can see, 580-620 is the minimum score with most lenders for a FHA, VA, or Fannie Mae loan, is required for the no down payment programs offered by USDA for Kentucky for First Time Home Buyers wanting to go no money down.

3. What are the down payment requirements?

The most popular programs for Kentucky First Time Home Buyers usually involves one of the following housing programs outlined in bold below:
FHA:

FHA will allow a home buyer to purchase a house with as little as 3.5% down. If your credit scores are low, say 680 and below, a lot of times it makes sense to go FHA because everyone pays the same mortgage insurance premiums no matter what your score is, and the down payment can be gifted to you. Meaning you really don’t have to have any skin into the game when it comes to down payment.

They even allow down payment assistance for down payment requirements of 3.5% through eligible parties like Kentucky Housing, Welcome Home Grants and Louisville KY and Covington Kentucky Down Payment Grants.

Lastly, FHA will allow for higher debt to income ratios with sometimes getting loan pre-approvals up to 55% of your total gross monthly income. So if you have a debt to income ratio of over 50%, Fannie Mae will not do the loan and USDA usually likes their debt to income ratios no more than 45%.

Think back to the last time you financed a purchase — be it a home, automobile, or what have you… You may remember having heard the term “debt-to-income ratio.” Today I want to spend some time going over exactly what this ratio is, and to also touch on how it can effect your personal finances.

4. What is your debt-to-income ratio?

Commonly referred to as your “DTI,” your debt-to-income ratio is a personal finance benchmark that relates your monthly debt payments to your monthly gross income.
As an example… Let’s say that your gross monthly salary is $5,000 and you are spending $2,800 of it toward monthly debt payments. In that case, your DTI would be an unhealthy 56%.
This version of your DTI is sometimes referred to as your “back-end” DTI. This is often broken down further to give a front-end debt-to-income ratio, which is a component of your back-end DTI.

How to calculate your front-end DTI for a Kentucky Mortgage Loan Approval

Your front-end DTI is calculated by dividing your monthly housing costs by your monthly gross income. Front-end DTI for renters is simply the amount paid in rent, whereas for homeowners it is the sum of mortgage principal, interest, property taxes, and home insurance (i.e., your PITI) divided by gross monthly income.

From above, if that $2,800 in debt payments is attributable to $1,500 in housing costs and $1,300 in non-housing costs, then your front-end DTI is $1,500/$5,000 = 30% (and your back-end ratio is still 56%, as calculated above).
Fannie Mae:
Fannie Mae requires just 3% down with their new Home Possible Program, but if you use their traditional mortgage loan, then 5% is the Fannie Mae Standard. Fannie Mae will go down 620 score, but if your scores are below 680, I would look seriously at the FHA loan program because Fannie Mae has steep increases to the interest rate and the mortgage insurance premiums if your scores are low.
A couple of good things about Fannie Mae is that you can buy a larger priced home and have a large loan amount due to FHA only allowing most Kentucky Home Buyers a maximum mortgage loan amount of $356,000 for a max FHA loan and $545,000 for Fannie Mae Conventional loans in Kentucky for 2020.
Lastly when it comes to mortgage insurance, FHA mortgage insurance premiums are for life of loan while Fannie Mae mortgage insurance premiums drop off when you develop 80% equity position in your house.
But as a tell most people, nobody has a loan for 30 years, and the average mortgage is either refinanced or home sold within the first 5-7 years.
VA Loans-

VA loans offer eligible Veterans and Active Duty Personnel to buy a home going no money down with no monthly mortgage insurance. This is probably the best no money down loan out there since the rates are traditionally very low on comparison to other government insured mortgages and no monthly mortgage insurance. The VA loan can be used anywhere in the state of Kentucky with the maximum VA loan limit being removed for 2021
USDA Loans-

USDA loans offer people buying a home in rural areas (typically towns of $20k or less) to buy a home going zero down. You cannot currently own another home and there is household income limits of $90,200 for a household family of four, and up to $119,300 for a household of five or more. You search USDA website for eligible areas and household income limits below at the yellow highlighted link :

KHC or Kentucky Housing-
Kentucky First Time Home Buyers typically use KHC for their down payment assistance. KHC currently offers $10,000 for down payment assistance and sometimes throughout the year they will offer low mortgage rates on their mortgage revenue bond program.

The down payment assistance usually never runs out because you have to pay it back in the form of a second mortgage. It helps a lot of home buyers that want to buy in urban areas that cannot utilizer the USDA program in rural areas. Most of the time the first mortgage is a FHA loan tied with the 2nd mortgage fore down payment assistance. All KHC programs require a 620 score and rates are locked for 45 days.

5. What if I have had a bankruptcy or foreclosure in the past?

FHA and VA are the easiest on previous bankruptcies. FHA and VA both require 2 years removed from the discharge date on a Chapter 7. If you are in the middle of a Chapter 13, FHA will allow for financing with a 12 month clean history payment to the Chapter 13 courts, and with trustee permission.

VA requires 2 years removed from a foreclosure (sheriff sale date of home) and FHA requires 3 years.

USDA requires 3 years removed from both a foreclosure and bankruptcy, but on the foreclosure they do not go off the sale date. This may save you a little time if you had a previous foreclosure.

Fannie Mae (Conventional Loan)

Fannie Mae is by far the strictest. They require 4-7 years out of a foreclosure or bankruptcy

If you have questions about qualifying as first time home buyer in Kentucky, please call, text, email or fill out free prequalification below for your next mortgage loan pre-approval.

Bankruptcy Requriements for a FHA, VA, USDA, and Fannie Mae Loan Approval in Kentucky
click on link to apply for free mortgage quote

Joel Lobb
Senior Loan Officer
(NMLS#57916)

Text or call phone: (502) 905-3708

email me at kentuckyloan@gmail.com

http://www.mylouisvillekentuckymortgage.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 views of my employer. Not all products or services mentioned on this site may fit all people

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What income is acceptable for FHA, VA, USDA and Fannie Mae Mortgage Loan Approval in Kentucky?

How to qualify for a Kentucky mortgage

The type of mortgage you’re applying for determines the minimum requirements you’ll have to meet for your down payment, credit score, and debt-to-income ratio.

Find out what type of loan you might qualify for or what aspects of your finances you’ll need to improve to get a better shot at qualifying for a mortgage.

Loan Type Min. Down Payment Min. Credit Score Max DTI Property Type
Conventional 3% 620 45% Primary, secondary, investment
VA 0% none none Primary
FHA 3.5% 500 50% Primary
USDA 0% none 41% Primary

Keep in mind: The minimum down payment, minimum credit score, and maximum DTI shown in the table apply to mortgages used to purchase a primary residence. While you can use a conventional loan or a jumbo loan to purchase a home for another purpose, you might need a larger down payment, a higher credit score, more cash reserves, or all three.

Credit score needed to buy a house

Mortgage lending is risky, and lenders want a way to quantify that risk. They use your three-digit credit score to gauge the risk of loaning you money since your credit score helps predict your likelihood of paying back a loan on time. Lenders also consider other data, such as your income, employment, debts and assets to decide whether to offer you a loan.

Different lenders and loan types have different borrower requirements, loan terms and minimum credit scores. Here are the requirements for some of the most common types of mortgages.

Conventional loan

Minimum credit score: 620

A conventional loan is a mortgage that isn’t backed by a federal agency. Most mortgage lenders offer conventional loans, and many lenders sell these loans to Fannie Mae or Freddie Mac — two government-sponsored enterprises. Conventional loans can have either fixed or adjustable rates, and terms ranging from 10 to 30 years.

You can get a conventional loan with a down payment as low as 3% of the home’s purchase price, so this type of loan makes sense if you don’t have enough for a traditional down payment. However, if your down payment is less than 20%, you’re required to pay for private mortgage insurance (PMI), which is an insurance policy designed to protect the lender if you stop making payments. You can ask your servicer to cancel PMI once the principal balance of your mortgage falls below 80% of the original value of your home.

FHA loan

Minimum credit score (10% down): 500

Minimum credit score (3.5% down): 580

FHA loans are backed by the Federal Housing Administration (FHA), a part of the U.S. Department of Housing and Urban Development (HUD). The FHA incentivizes lenders to make mortgage loans available to borrowers who might not otherwise qualify by guaranteeing the federal government will repay the mortgage if the borrower stops making payments. This makes an FHA loan a good option if you have a lower credit score.

FHA loans come in 15- or 30-year terms with fixed interest rates. Unlike conventional mortgages, which only require PMI for borrowers with less than 20% down, all FHA borrowers must pay an up-front mortgage insurance premium (MIP) and an annual MIP, as long as the loan is outstanding.

VA loan

Minimum credit score: N/A

VA loans are mortgages backed by the U.S. Department of Veterans Affairs (VA). The VA guarantees loans made by VA-approved lenders to qualifying veterans or service members of the U.S. armed forces, or their spouses. This type of loan is a great option for veterans and their spouses, especially if they don’t have the best credit and don’t have enough for a down payment.

VA loans are fixed-rate mortgages with 10-, 15-, 20- or 30-year terms.

Most VA loans don’t require a down payment or monthly mortgage insurance premiums. However, they do require a one-time VA funding fee, that ranges from 1.4% to 3.6% of the loan amount.

USDA loan

Minimum credit score: N/A

The U.S. Department of Agriculture guarantees loans for borrowers interested in buying homes in certain rural areas. USDA loans don’t require a minimum down payment, but you have to meet the USDA’s income eligibility limits, which vary by location.

All USDA mortgages have fixed interest rates and 30-year repayment terms.

USDA-approved lenders must pay an up-front guarantee fee of up to 3.5% of the purchase price to the USDA. That fee can be passed on to borrowers and financed into the home loan. If the home you want to buy is within an eligible rural area (defined by the USDA) and you meet the other requirements, this could be a great loan option for you.

What else do mortgage lenders consider?

Your credit score isn’t the only factor lenders consider when reviewing your loan application. Here are some of the other factors lenders use when deciding whether to give you a mortgage.

  • Debt-to-income ratio — Your debt-to-income (DTI) ratio is the amount of debt payments you make each month (including your mortgage payments) relative to your gross monthly income. For example, if your mortgage payments, car loan and credit card payments add up to $1,800 per month and you have a $6,000 monthly income, your debt-to-income ratio would be $1,800/$6,000, or 30%. Most conventional mortgages require a DTI ratio no greater than 36%. However, you may be approved with a DTI up to 45% if you meet other requirements.
  • Employment history — When you apply for a mortgage, lenders will ask for proof of employment — typically two years’ worth of W-2s and tax returns, as well as your two most recent pay stubs. Lenders prefer to work with people who have stable employment and consistent income.
  • Down payment — Putting money down to buy a home gives you immediate equity in the home and helps to ensure the lender recoups their loss if you stop making payments and they need to foreclose on the home. Most loans — other than VA and USDA loans — require a down payment of at least 3%, although a higher down payment could help you qualify for a lower interest rate or make up for other less-than-ideal aspects of your mortgage application.
  • The home’s value and condition — Lenders want to ensure the home collateralizing the loan is in good condition and worth what you’re paying for it. Typically, they’ll require an appraisal to determine the home’s value and may also require a home inspection to ensure there aren’t any unknown issues with the property.

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