Does FHA Restrict down payment requirements on Identity of Interest Transactions?
The 85 percent maximum LTV restriction does not apply for Kentucky FHA Loans in regards to FHA Identity-of-Interest transactions under the following circumstances:
👇👇👇
FAMILY MEMBER TRANSACTIONS• the principal residence of another family member; or a property owned by another family member in which the borrower has been a tenant for at least six months immediately predating the sales contract. A lease or other written evidence to verify occupancy is required.
BUILDER’S EMPLOYEE PURCHASE• An employee of a builder, who is not a family member, purchases one of the builder’s new houses or models as a principal residence.
CORPORATE TRANSFER • A corporation transfers an employee to another location, purchases the employee’s house, and sells the house to another employee.
TENANT PURCHASE• the current tenant purchases the property where the tenant has rented the property for at least six months immediately predating the sales contract. A lease or other written evidence to verify occupancy is required.
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/
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Kentucky offers several grant programs to help residents achieve their dream of homeownership. These programs provide financial assistance to eligible buyers, making the purchase of a home more affordable. Here’s an overview of the current grant options available to Kentucky homebuyers:
1. Kentucky Housing Corporation (KHC) Down Payment Assistance Program
The KHC offers up to $12,500 in down payment assistance to eligible first-time homebuyers. This program can be used in conjunction with KHC’s first mortgage loans.
Eligibility:
Must be a first-time homebuyer or not have owned a home in the past three years
Meet income and purchase price limits, which vary by county
Complete a homebuyer education course
2. Kentucky Affordable Housing Trust Fund
This program provides funds to create or preserve affordable housing for low-income households. While not a direct grant to homebuyers, it can help create affordable housing opportunities.
3. USDA Rural Development Grant
Although not specific to Kentucky, this federal program is available in many rural areas of the state.
Key features:
Provides loans and grants for low-income individuals in rural areas
Can be used for home purchases or repairs
Income limits and location restrictions apply
4. Louisville Metro Down Payment Assistance Program
Specific to Louisville, this program offers forgivable loans of up to $25,000 to help with down payment and closing costs.
Eligibility:
Must be a first-time homebuyer
Income must be at or below 80% of the area median income
Property must be located within Louisville Metro
5. Lexington Homeownership Assistance Program
This program, specific to Lexington, provides up to $15,000 in down payment and closing cost assistance.
Eligibility:
Must be a first-time homebuyer
Income must be at or below 80% of the area median income
Property must be located within Lexington-Fayette Urban County
6. Individual Development Account (IDA) Program
While not exclusive to homebuying, this program can help prospective homeowners save for a down payment.
Key features:
Provides matching funds for savings (typically $2 for every $1 saved)
Can be used for homeownership, education, or starting a small business
Income and asset limits apply
7. Welcome Home Grant
Feature
Welcome Home Grant
KHC DPA
Type
Grant (no repayment if retained)
Repayable loan (second mortgage)
Amount Typical
Up to ~$20,000*
Up to $12,500
Payback
None if stays 5+ years*
Monthly payments over 15 yrs
Retention/Terms
5-year deed restriction
Standard mortgage second lien
Income Limits
≤80% MRB household
MRB or Secondary Market
Qualifying Income
Household inclusive
Dependent on mortgage product underwriter
First-Time Buyer
Optional
Depends on mortgage product
Access
Through FHLB member lenders
Through KHC-approved lenders
Availability
Seasonal, limited
Ongoing
How to Apply
To apply for these grants, contact the respective program administrators:
For city-specific programs: Contact your local housing authority or visit the city’s official website
Welcome Home Grant
Program is administered through participating FHLB Cincinnati member lenders (banks and credit unions that belong to the FHLB system).
Buyers must contact a participating mortgage lender early and reserve funds once the program opens (often first-come, first-served).
A fully executed purchase contract and signed mortgage application are typically required to reserve funds.
KHC DPA
Must work with a KHC-approved lender; you cannot apply directly to KHC.
The KHC-approved lender will bundle the first mortgage and the DPA second mortgage into one closing transaction.
Implication:
Both programs require lender participation. The Welcome Home Grant is tied to a different funding source (FHLB) than KHC’s internal DPA loan.
Remember that grant availability and terms may change, so it’s essential to check with the program administrators for the most up-to-date information. Additionally, many of these programs require participants to complete homebuyer education courses. These courses can provide valuable information about the homebuying process.
By taking advantage of these grant programs, Kentucky residents can make their dream of homeownership more attainable. Be sure to explore all options and consult with housing counselors or financial advisors to determine the best path to homeownership for your specific situation.
The Best Kentucky Mortgage Loan Options When Looking for your first house in Kentucky Kentucky First-time Home Buyer Programs👀💯👇‼
Kentucky Mortgage Requirements for FHA, VA, USDA and Fannie Mae
FHA loan in Kentucky 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 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.
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.
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.
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,
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.
By paying down your credit card balances (credit utilization) and having a good pay history (payment history) ,this is the best way to raise your score.
The credit bureaus don’t update immediately, so I would not add to the balance or open any new bills or have any other lender do an inquiry on your credit report while we wait for the scores to hopefully go up in the next 30 days. Try to keep everything status quo and make your payments on time and keep your balances low or lower than what is now reporting on the credit report.
How to improve your credit score!
Pay Every Single Bill on Time, or Early, Every Month
Please understand one thing; paying your bills on time each month is the single most important thing you can do to increase your credit scores.
Depending on the credit bureau, there are 4 or 5 main items that determine everyone’s credit score. Of those items, your history of paying bills makes up about 35% of the score. THIS IS HUGE!
Paying your bills on time shows lenders that you are responsible. It will also spare you from paying late fees whether it is a charge from a credit card or an added fee from your landlord.
Use a calendar, or a phone app, or some other organized system to make sure that you pay your bills on time every single month.
Another big factor in calculating a credit score is the amount of credit card debt. Credit bureaus look at two things when analyzing your credit cards.
First, they look at your available credit limit. Second, they look at the existing balance on each card. From these two figures an available ratio is developed. As the ratio goes higher, so too will your credit score increase.
Here is one simple example. Suppose a person has the following credit cards, corresponding balances, and credit limits
Credit Card
Current Balance
Credit Limit
Chase Visa
$105
$1,000
MarterCard from local bank
$236
$1,500
BP MasterCard
$87
$500
Totals
$428
$3,000
From these numbers, we get the following calculation
$428/$3,000 = 14%
In other words, the person is using 14% of their available credit and they have 86% available credit. The closer that ratio is to 100%, the better the credit score will be.
MAIN TIP: Keep all credit card balances as low as possible.In this particular example, if they had a problem with their car, or needed medical attention or some other emergency, the person would have the money necessary to handle the situation without incurring new debt. This is wise on the consumer’s part and lenders like to see this kind of money management.
Credit Cards Part 2: 1 or 2 is Better Than a Wallet Full
The previous example showed a person that utilized just three credit cards. This is much better than someone who has 5+ credit cards, all with available balances. Why? Lenders do not like to see someone that has the potential to get too far in debt in a short amount of time.
Some people have 5, 10 or more credit cards and they use many of them. This shows a lack of restraint and control. It is much better, and neater, to have only 2 or 3 cards with low rates that handle all of your transactions. A lower number of cards are easier to manage and it does not give a person the temptation to go on a huge shopping spree that could take years to payoff.
MAIN TIP: Try to limit yourself to no more than 2-3 credit cards.
Keep the Good Stuff Right Where it is
Too many people make the mistake of paying off old debts, such as old credit cards, and then closing the account. This is actually a bad idea.
A small part of the credit score is based on the length of time a person has had credit. If you have a couple of credit cards with a long track history of making payments on time and keeping the balance at a manageable level, it is a bad idea to close out the card.
Similarly, if you have been paying on a car or motorcycle for a long time, do not be in a hurry to pay off the balance. Continue to make the payments like clockwork each month.
An account that has a good record will help your scores. An account that has a good record and multiple years of use will have an even better impact on your score.
MAIN TIP: Keep old accounts open if you have a good payment history with them.
Stop Filling Out Credit Applications
Multiple credit inquiries in a short amount of time can really hurt your credit scores. Lenders view the various inquiries as someone that is desperate and possibly on the verge of making a bad financial choice.Too many people make the mistake of getting more credit after they are approved for a loan. For example, if someone is approved for a new credit card, they feel good about their finances and decide to apply for credit with a local furniture store. If they get approved for the new furniture, they may decide to upgrade their car. This requires yet another loan. They are surprised to learn that their credit score has dropped and the interest rate on the new car loan will be much higher. What happened?
If you currently have 2 or 3 credit cards along with either a car loan or a student loan, don’t apply for any more debt. Make sure the payments on your current debt are all up to date and focus on paying them all down.
In a few months of making timely payments your scores should noticeably go up.
MAIN TIP: Limit your new loans as much as possible
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.
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
Understanding how to get the best mortgage rates today in Kentucky involves several factors. You need to learn the differences between Kentucky FHA, VA, USDA, and conventional home loans. Each loan type has its own criteria, benefits, and rate determinants. Here’s an overview of how to obtain the best rates for each:
1. Kentucky FHA Loans
Federal Housing Administration (FHA) loans are popular among Kentucky first-time homebuyers. They offer flexible credit requirements. They also require low down payments.
Best Practices to Secure the Best Rates:
Credit Score: Aim for a score of 720 or higher. While Kentucky FHA loans accept lower scores, higher scores typically secure better rates.
Down Payment: Putting down more than the minimum 3.5% can sometimes lower the interest rate. 500 is the minimum score with 10 % down and 580 and above score will you get you to a minimum down payment of 3.5%
Debt-to-Income Ratio (DTI): Maintain a DTI of 56.99% or lower to increase your chances of getting a favorable rate.
Shopping Around: Compare offers from different lenders in Kentucky for FHA lenders. Each lender may have different rates and terms for FHA loans.
Larger Loan amounts: will yield better rates. A lender will get you a better rate if the loan is larger due to they will make more money on the loan vs a small loan amount.
2. Kentucky VA Loans
Veterans Affairs (VA) loans are available to veterans, active-duty service members, and certain members of the National Guard and Reserves. These loans often offer lower rates and do not require a down payment or private mortgage insurance (PMI).
Best Practices to Secure the Best Kentucky VA loan Rates:
Credit Score: A score of 720 or higher is generally preferred, although some lenders might accept lower scores. No minimum score set by VA lenders in Kentucky
Service History: Ensure your service record meets the eligibility requirements. 2 year work history usually needed
Loan Comparison: Even within VA loans, rates can vary between lenders. Obtain multiple quotes to find the best rate.
Funding Fee: Understanding the VA funding fee and including it in your budget can help in comparing the true cost of loans.
3. Kentucky USDA Loans
United States Department of Agriculture (USDA) loans are designed for rural and suburban homebuyers who meet certain income requirements.
Best Practices to Secure the Best Kentucky USDA Loan Rates:
Credit Score: Aim for a score of 720 or higher to access better rates. No minimum score for USDA loans
Income Limits: Ensure your income falls within the USDA’s eligibility guidelines for your area.
Property Location: The home must be in an eligible rural or suburban area. Use the USDA’s property eligibility tool to confirm.
Guaranteed Loan Program: USDA offers both direct and guaranteed loan programs. The guaranteed loan program often has more favorable terms.
4. Kentucky Conventional Loans
Conventional loans are not insured or guaranteed by the government and typically require higher credit scores and down payments. They are much more sensitive to down payments. Credit score is important for getting the best rate. Debt to income ratio is also crucial for loan approval. They will typically have a higher rate than government backed mortgage loans in Kentucky like FHA, VA, and USDA. However, the mortgage insurance is cheaper. It is not for the life of the loan and requires less red tape to close.
Best Practices to Secure the Best Conventional loan Rates:
Credit Score: A score of 780 or higher is ideal to secure the best rates. Minimum credit score for Conventional loans in Kentucky is 620
Down Payment: A larger down payment (40% or more) can significantly lower your interest rate and eliminate PMI.
DTI Ratio: A DTI ratio of 45% or lower is preferred.
Loan Term: Consider shorter loan terms (15 or 20 years) for lower rates, though monthly payments will be higher.
Large Loan Amounts: Larger Loan Amounts will yield better rates vs a small loan amount.
General Tips for All Loan Types to get the lowest Mortgage Rates in Kentucky
Credit Score, debt ratio, : Maintain a strong credit history, stable income, and low debt levels.
Rate Shopping: Use online comparison tools and consult multiple lenders. Rates can vary significantly with each lender.
Points: Consider paying points to lower your interest rate. This is an upfront fee that can reduce your monthly payments over the loan term.
Pre-approval: Get pre-approved for a mortgage to understand what rate you qualify for and to strengthen your offer when shopping for a home.
Locking Loan: Lock in for a shorter term. For example, lock in the rate for 30 days vs 60 days and you will get a better rate. Be aware if you go past the lock the date, you will be subject to worse case pricing.
By understanding the specific requirements and best practices for each loan type, you can position yourself to secure the most favorable mortgage rates in Kentucky.–
Kentucky Mortgage Loan ExpertFHA | VA | USDA | KHC Down Payment Assistance | Fannie MaeEqual Housing Lender. This is not a commitment to lend. All loans are subject to credit approval and program requirements.
Kentucky FHA Loans: New Guidelines for Collections & Disputes 2026
Kentucky FHA Loans: New 2026 Guidelines
Collections, Disputes & Judgements Explained
If you’re a Kentucky first-time homebuyer with collections, disputes, or judgements on your credit report, you’re not alone—and you’re not disqualified from homeownership. The Federal Housing Administration (FHA) recently updated its lending guidelines to provide more flexibility and clarity around credit challenges.
Whether you’ve faced financial hardship, billing disputes, or collection accounts, understanding these new FHA rules could be the key to securing your Kentucky mortgage.
📋 Effective Date: All loans with case numbers assigned on or after September 9th, 2026
Understanding FHA Loans with Bad Credit, Disputes & Collections
What Are Disputed Accounts on Your Credit Report?
A disputed account appears on your credit report when you’ve officially challenged information you believe is inaccurate or incorrect. Many Kentucky borrowers don’t realize that disputed accounts can affect their ability to qualify for an FHA loan. The good news? FHA has clarified how these accounts will be evaluated going forward.
Collection Accounts & FHA Loan Qualification
Collection accounts are one of the biggest obstacles for Kentucky first-time homebuyers trying to get approved. Under the new 2026 FHA guidelines, the agency has provided specific underwriting rules that actually offer more opportunity than you might think.
Judgements on Credit Reports
If you have judgements on your credit report, FHA underwriters will evaluate them carefully, but they don’t automatically disqualify you. The new guidelines provide specific direction on how these accounts are assessed during the mortgage approval process.
New FHA Guidelines for Collections, Judgements & Disputes
Collection Account Rules: The $2,000 Threshold
Here’s how FHA Fannie Mae’s DU (Desktop Underwriter) system now handles collection accounts:
If your collection accounts total $2,000 or more cumulatively:
Pay in Full — The collection debt(s) must be paid in full prior to or at closing, OR
Payment Plan — You can establish a payment arrangement with the creditor, and the monthly payment is included in your debt-to-income ratio, OR
5% Payment Calculation — Include a monthly payment of 5% of the outstanding balances of each collection account in your debt-to-income ratio
If your collection accounts total less than $2,000: These may be treated more favorably during underwriting, though FHA DU will still require verification.
💡 Important for Kentucky Borrowers: If you’re married and in a community property state, collection accounts from your spouse are also counted toward this threshold—even if they’re a non-borrowing spouse.
Manual Underwriting Triggers
Certain credit situations require manual underwriting instead of automated approval. Your Kentucky FHA application will likely be manually reviewed if:
$1,000 or more in disputed derogatory credit accounts appears on your credit report
20% or greater decline in self-employed income
Mortgage lates within the last 12 months
While manual underwriting takes longer, it doesn’t mean you’ll be denied. Many Kentucky borrowers with credit challenges are successfully approved through manual underwriting because a trained loan officer can explain your circumstances and compensating factors.
Payment History Requirements for FHA Approval
FHA has strict (but achievable) payment history standards:
All mortgage and installment loan payments must be on time within the last 12 months
No more than two 30-day late payments within the last 24 months
No derogatory credit on revolving accounts (credit cards, lines of credit) in the last 12 months
Collection accounts must be addressed per the guidelines above
Additional 2026 FHA Updates
New Well Water Testing Requirements
If you’re purchasing a Kentucky home with a private well, be aware of updated FHA requirements for well water testing:
Well water tests must now be:
Performed by a disinterested third party (not you, the seller, or anyone with a financial interest in the transaction)
Conducted using a method acceptable to your local health authority
Documented before approval
Well water testing is now required for:
Newly constructed properties and/or new wells
Properties with deficiencies in the well or water quality identified by an appraiser
Areas where water safety issues have been reported or are known
Properties near dumps, landfills, industrial sites, farms, or hazardous waste areas
Properties where the well and septic system are less than 100 feet apart
Overtime, Bonus & Tip Income: Simplified Calculations
Good news for Kentucky borrowers with variable income: FHA has clarified how overtime, bonuses, and tips are calculated for loan qualification.
Your overtime, bonus, or tip income will be calculated as the LESSER of:
Average income earned over the previous 2 years (or the total time if earned less than 2 years), OR
Average income earned over the previous year
Commission & Business Expense Requirements Removed
FHA has completely eliminated previous requirements regarding unreimbursed business expenses and commission income or automobile allowances. This aligns FHA guidelines with current IRS tax law, making it easier for self-employed borrowers and those with commission-based income to qualify.
Interested Party Contribution (IPC) Limits
Under the 2026 guidelines, mortgagees and third-party originators are now explicitly included in IPC limits. This means:
Lenders cannot contribute toward your down payment to artificially lower your upfront costs
Exception: Premium pricing credits don’t count against IPC limits—unless the lender is also acting as the seller, agent, builder, or developer
DTI Requirements & Qualification
31% Front-End / 43% Back-End FHA
31% of your gross monthly income can go toward housing costs. 43% of your gross monthly income can go toward all monthly debts.
No compensating factors required to meet these ratios, making FHA one of the most accessible loan programs for Kentucky borrowers.
Documentation You’ll Need for Underwriting
If your Kentucky FHA application requires manual underwriting due to credit challenges, be prepared to provide:
Employment & Income Documentation
Verbal Verification of Employment (VOE)
Paystubs covering the most recent 30-day period
W2s for the past 2 years
2-year employment history
Housing & Credit History
Verification of Rent (VOR) or 12 months of cancelled checks if credit report doesn’t show last 12 months of housing payment history
Letter of Explanation (LOX) for any derogatory credit or late payments within the last 24 months
Cash Reserves
At least 1 month in reserves from your own funds (cannot be a gift)
3 months required if purchasing a 3-4 unit property
Ready to Get Approved for a Kentucky FHA Loan?
With over 20 years of experience helping Kentucky families overcome credit challenges to achieve homeownership, I specialize in FHA loans for borrowers with collections, disputes, judgements, late payments, and more.
I offer free FHA mortgage applications with same-day approvals. Let’s discuss your options today.
About Joel Lobb – Kentucky Mortgage Loan Officer
With over 20 years of mortgage industry experience, I’ve helped more than 1,300 Kentucky families secure homeownership through FHA, VA, USDA, KHC, and Fannie Mae programs.
Your Guide to Disputed Accounts & Collections 2026
💰
Collection Accounts: The $2,000 Threshold
Step 1: Check Total
Add up all collection accounts on your credit report
Step 2: Compare
$2,000?
Is your total more or less?
Step 3: Choose Path
Select your payment strategy
1
Pay in Full
Pay before or at closing
2
Payment Plan
Monthly payment included in DTI
3
5% Calculation
5% of balance added to DTI
❓
Disputed Accounts
What Triggers Manual Underwriting?
If you have $1,000 or more in disputed derogatory accounts, your application will be reviewed by a human underwriter instead of automated approval. This isn’t bad news—it means your circumstances can be explained!
Are you a prospective homebuyer in Kentucky searching for the best mortgage lenders? Joel Lobb is a trusted mortgage broker. He has a proven track record of helping clients secure competitive mortgage rates. He also helps clients with financing options. With Joel Lobb by your side, you can access top-notch mortgage lenders in Kentucky. He will help you make your dream of homeownership a reality.
Joel Lobb has established strong relationships with a network of reputable mortgage lenders in Kentucky. These lenders offer a wide range of loan programs. These programs can suit your unique needs and financial goals. Whether you’re a first-time homebuyer, a seasoned investor, or looking to refinance your existing mortgage, Joel Lobb can connect you with the best mortgage lenders that offer:
Competitive Interest Rates: Access mortgage loans with competitive interest rates. These rates can save you money over the life of your loan.
Flexible Loan Programs: Choose from a variety of loan programs. These include FHA, VA, USDA, conventional, jumbo loans, and more. They are tailored to your specific requirements.
Personalized Guidance: Receive personalized guidance and support throughout the mortgage process. This includes steps from pre-qualification to closing. These efforts ensure a smooth and stress-free experience.
Quick and Efficient Approval: Benefit from efficient loan processing. Experience quick approval times, allowing you to close on your new home faster.
Transparent and Honest Service: Experience transparent and honest communication throughout your mortgage journey. We provide full transparency on loan terms, fees, and requirements.
When you are looking for the best mortgage lenders in Kentucky, Joel Lobb stands out. He is a trusted advisor and advocate for his clients’ best interests. With Joel Lobb’s expertise and industry knowledge, you can navigate the complex world of mortgage lending with confidence. You can achieve your homeownership goals.
Contact Joel Lobb today. Learn more about the best mortgage lenders in Kentucky. Start your journey towards owning the perfect home for you and your family.
Joel Lobb specializes in a wide array of mortgage loans, including: – **FHA Loans**: These loans are a great fit for buyers with lower credit scores or those who can afford only a minimal down payment. – **VA Loans**: Tailored for veterans and active military members, offering favorable terms with little to no down payment. – **USDA Loans**: Designed for rural home buyers, providing 100% financing options. – **KHC Loans**: In collaboration with the Kentucky Housing Corporation, these loans come with down payment assistance, making them ideal for first-time buyers.
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:
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%.
Down Payment:
The minimum down payment for an FHA loan in Kentucky is 3.5% of the home’s purchase price. This is advantageous for buyers who may not have substantial savings for a larger down payment, making homeownership more accessible.
Work History:
Lenders typically look for a steady 2 year employment history when considering FHA loan applications. A consistent work history 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.
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.
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.
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
Requirement
Details
Credit Score
– 580+: Eligible for a 3.5% down payment. – 500-579: Requires a 10% down payment.
Down Payment
Minimum 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 History
Must 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
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.
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.
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.
Flexible Loan Uses
With an FHA 203(k) loan, you can bundle home purchase and renovation costs into a single mortgage.
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.
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 FHA Loans: Kentucky FHA loans are known for their lenient credit score requirements, making them accessible to borrowers with lower credit scores. However, a minimum score of 500 to 580 is typically required, depending on the down payment.
Kentucky VA Loans: VA loans offer flexible credit score requirements, while on paper VA states they don’t require a minimum score to insure the mortgage loan, most lenders preferring a FICO score of 620 or higher. Veterans, active-duty service members, and eligible spouses can benefit from VA loan options.
Kentucky USDA Loans: USDA loans are designed for rural homebuyers and require no minimum FICO score , but most lenders will want a credit score of 640 or higher. These loans offer zero down payment options for eligible properties.
KHC Mortgage Loans: Kentucky Housing Corporation (KHC) mortgage loans may vary in credit score requirements depending on the lender. It’s essential to work with a knowledgeable mortgage broker like Joel Lobb to understand specific lender guidelines. KHC requires a minimum 620 credit score for FHA, VA, USDA and 660 for Conventional loan programs
What Credit Score Do You Need to Buy a House in Kentucky?
There is no single “magic number.” The credit score needed depends on the loan program (Conventional, USDA, FHA, VA, or Kentucky Housing Corporation down payment assistance). Here’s how it works in the real world for Kentucky buyers.
Quick guide: typical credit score ranges and key highlights by Kentucky mortgage program.
Conventional Loans in Kentucky
Minimum credit score generally starts at 620.
Most lenders prefer higher scores for 3%–5% down options.
Best pricing and easier approvals are typically with strong credit (often 700+).
Mortgage insurance (PMI) usually improves as scores increase.
USDA Rural Housing Loans in Kentucky
Many lenders target around 640 for automated approval through GUS (Guaranteed Underwriting System).
Manual underwriting may be possible when automated approval is not available.
0% down payment required (eligible rural/suburban areas).
Typical fees include a 1% upfront guarantee fee and 0.35% annual fee (paid monthly).
USDA can be one of the best value options for Kentucky buyers with limited cash, provided the property is in an eligible area and the file meets income and underwriting requirements.
Kentucky FHA Loans
As low as 580 credit score with 3.5% down (typical baseline).
Gift funds, grants, and down payment assistance may be allowed.
Mortgage insurance is generally higher than USDA or VA, but rates can still be competitive.
Common waiting periods: 2 years after bankruptcy and 3 years after foreclosure (standard guideline).
Kentucky VA Loans
VA does not set a minimum credit score in its guidelines, but most lenders do.
Many VA lenders target around 580+ (lender overlay varies).
0% down and no monthly mortgage insurance.
Clear CAIVRS is required (for federal delinquency screening).
Kentucky Down Payment Assistance (KHC)
Kentucky Housing Corporation (KHC) often offers up to $12,500 down payment assistance (program terms and funding can change).
Typically structured as a second mortgage paid back over 15 years.
Minimum credit score is commonly 620 across many KHC options; KHC conventional often requires 660.
Maximum debt-to-income ratios are commonly around 50/50 (program and investor rules apply).
Next step: get a clear pre-approval target
If you share your approximate credit score range, income type, and whether you’re looking in Louisville, Lexington, or rural Kentucky, I can point you to the most realistic program and the exact score threshold that will matter for approval.
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What Credit Score Do You Need to Buy a House in Kentucky?
FHA vs. Conventional Loans: Which Is Better for Kentucky Homebuyers?
Compare FHA and conventional loans for Kentucky homebuyers. Learn credit requirements, down payments, mortgage insurance, and which loan fits your situation.
When comparing FHA loans vs conventional loans in Kentucky, the decision comes down to four core factors: credit score, down payment, debt-to-income ratio, and mortgage insurance. Both loan programs are widely used across Louisville, Lexington, Northern Kentucky, and rural areas, but they serve very different borrower profiles.
FHA Loans: Built for Flexibility
Kentucky FHA loans are designed for buyers who need more flexibility. FHA financing is often a strong option for borrowers with credit scores under 680, limited savings, or little to no cash reserves after closing. FHA also allows buyers to qualify sooner after major credit events, including foreclosures that are three to seven years old and short sales that occurred two to four years ago.
Another major advantage of FHA loans in Kentucky is gifting. The entire down payment and most closing costs can be covered with gift funds from approved sources. This makes FHA especially popular with first-time homebuyers and buyers using down payment assistance programs.
FHA Mortgage Insurance (MIP) Breakdown:
Upfront mortgage insurance premium: 1.75% of loan amount (rolled into the loan)
30-year loans with less than 5% down: 0.85% annually
30-year loans with 5%+ down: 0.80% annually
15-year loans: 0.45% to 0.70% annually (depending on down payment)
Conventional Loans: For Stronger Credit
Kentucky conventional loans are best suited for borrowers with stronger credit and more money saved. Conventional financing generally favors buyers with credit scores above 680, at least five percent down, and reserves remaining after closing. Borrowers with foreclosures over seven years old or short sales that occurred five to seven years ago typically fit conventional guidelines more easily.
One of the biggest advantages of conventional loans is mortgage insurance flexibility. Unlike FHA, there is no upfront mortgage insurance premium. Monthly private mortgage insurance can be lower for borrowers with strong credit, and PMI automatically drops off once the loan reaches roughly 80 percent loan-to-value. FHA mortgage insurance, by contrast, usually lasts for the life of the loan when the down payment is less than ten percent.
Quick Comparison Table
Factor
FHA Loans
Conventional Loans
Credit Score Required
580+ 3.5% down payment (some lenders 500+ 10% down payment)
720+ typically
Down Payment
3.5% (with 580+ score)
3-5% minimum, typically 5%
Mortgage Insurance
Required on all loans (lifetime with <10% down)
Only if less than 20% down; drops at 80% LTV
Upfront Insurance Premium
1.75%
None
Gift Funds
100% of down payment allowed
Limited or restricted
Max Debt-to-Income
Up to 56.99% (with compensating factors)
Typically 45%
Property Types
Owner-occupied only
Owner-occupied and investment
Appraisal Standards
Stricter
More flexible
The Bottom Line
FHA loans are ideal for Kentucky buyers rebuilding credit, using gift funds, or purchasing with limited savings. Conventional loans reward borrowers with stronger credit, larger down payments, and long-term equity goals.
Most homeowners do not keep a mortgage for 30 years. Because many refinance or sell within five to seven years, FHA’s lifetime mortgage insurance is often less of a concern than it appears on paper. In many cases, the lower interest rate and easier approval standards outweigh the insurance cost.
Joel Lobb
Mortgage Broker – FHA, VA, USDA, KHC, Fannie Mae
EVO Mortgage • Helping Kentucky Homebuyers Since 2001
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