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
Kentucky FHA loans guidelines for after a bankruptcy, foreclosure, short-sale below:
Foreclosures: 3 years from the foreclosure completion date and transferred back to the lender to the credit report date
Short Sale: 3 years from the title transfer date
Bankruptcy Chapter 7: 2 years from the discharge date. If a property is surrendered in chapter 7 bankruptcy, it is considered to be possible foreclosure which could increase waiting time
Bankruptcy Chapter 13: 1 year wait with a scheduled payment plan on liabilities factored into debt-to-income ratio and bankruptcy court approval for mortgage process or 2 years from discharge date
FHA recently released Mortgagee Letter 2013-14, requiring documentation that mortgagees must provide to demonstrate eligibility for FHA mortgage insurance of loans when a Federal, State, or local government, its agency or instrumentality, directly provides the borrower‘s required Minimum Cash Investment through secondary financing.
Acceptable forms of documentation include the following:
A cancelled check, evidence of wire transfer or other draw request showing that prior to or at the time of closing the Government Entity had authorized a draw of the funds on its account provided towards the borrower’s required Minimum Cash Investment from the Government Entity’s account; or
A letter from the Government Entity, signed by an authorized official, establishing that the funds provided towards the borrower’s required Minimum Cash Investment were funds legally belonging to the Government Entity at or before closing
Where a letter from the Government Entity is submitted, the precise language of the letter may vary because of differences in the funding and legal authority of each Government Entity. Examples of acceptable language, which would establish the funds were legally belonging to the Government Entity, would include the following:
A statement that the Government Entity has, at or before closing, incurred alegally enforceable liability as a result of its agreement to provide the funds towards the borrower’s required Minimum Cash Investment;
A statement that the Government Entity has, at or before closing, incurred alegally enforceable obligation to provide the funds towards the borrower’s required Minimum Cash Investment; or
A statement that the Government Entity has, at or before closing, authorized a draw on its account to provide the funds towards the borrower’s required Minimum Cash Investment.
The mortgagee is not required to document the actual transfer of funds in satisfaction of the obligation or liability, which resulted from the funding of the borrower’s required Minimum Cash Investment by the Government Entity, before closing, provided the mortgagee has obtained documentation that a legally enforceable liability or obligation was incurred at or before closing. Where such documentation is provided establishing that a legally enforceable liability or obligation was incurred at or before closing, the funds provided at closing for down payment assistance will be considered by HUD to be funds legally belonging to the Government Entity. However, failure of the Government Entity to satisfy the obligation or liability may result in a determination that the funds were provided by a prohibited source.
Note, it is still required that you provide a Gift Letter for the borrower’s Cash to close, including the required Minimum Cash Investment, as described in HUD Handbook 4155.1 5.B.5. – a Gift Letter Requirement
The FHA will raise its mortgage insurance premiums April 1, 2012. All FHA mortgage applicants — first-time buyers, repeat buyers, and users of the FHA Streamline Refinance program — will be subject to the new fees.
New FHA Mortgage Insurance Premium Schedules
The new FHA mortgage insurance premium schedule raises FHA loan costs significantly.
FHA mortgage insurance is paid in two parts.
The first part is the “Upfront Mortgage Insurance Premium”. Sometimes abbreviated as UFMIP, upfront mortgage insurance premiums will rise from 1.000% of your FHA loan size to 1.750% of your FHA loan size.
For example, if you live in Chicago, Illinois and you borrow up to the FHA’s local loan limit of $417,000, your upfront mortgage insurance premium will rise 75% from $4,170 to $7,298. This amount is added to your loan size. FHA upfront MIP is not paid via cash. You’ll pay interest on this amount for the life of your loan.
The changes in the FHA’s annual mortgage insurance premiums (MIP) are less extreme, rising only 10 basis points.
The new schedule, for loans with case numbers assigned on or after April 1, 2012:
15-year loan terms with loan-to-value over 90% : 0.60 percent annual MIP
15-year loan terms with loan-t0-value under 90% : 0.35 percent annual MIP
30-year loan terms with loan-to-value over 95% : 1.25 percent annual MIP
30-year loan terms with loan-to-value under 95% : 1.20 percent annual MIP
Furthermore, all FHA mortgages made for $625,500 or more will be subject to an additional 0.25 percent annual mortgage insurance fee.
Loans made prior to April 1, 2012 will use the old FHA mortgage insurance schedule:
15-year loan terms with loan-to-value over 90% : 0.50 percent annual MIP
15-year loan terms with loan-t0-value under 90% : 0.25 percent annual MIP
30-year loan terms with loan-to-value over 95% : 1.15 percent annual MIP
30-year loan terms with loan-to-value under 95% : 1.10 percent annual MIP
There is no “jumbo FHA mortgage premium” for loans made prior to April 1, 2012.
Special Cases: FHA Streamline Refinance MIPs
As part of the FHA’s announcement, there was also reference to the FHA’s benchmark refinance program, the FHA Streamline Refinance.
The FHA suggested that a subset of households using the streamline refi program will get access to lower mortgage insurance premiums after refinancing — not higher.
No official announcement has been made, but it’s believed that mortgage insurance premiums — both upfront and annual — will be dramatically lowered for FHA Streamline Refinances used to replace an existing FHA mortgages originated prior to June 1, 2009. New FHA Streamline Refinances that replace loans originally originated after June 1, 2009 will still pay the new, standard FHA mortgage insurance rates listed above.
The June 1, 2009 deadline should sound familiar — it’s the same deadline for Fannie Mae and Freddie Mac’s HARP 2.0 program.
The FHA is expected to confirm new FHA Streamline Refinance mortgage insurance premiums within a few weeks.
Lock Your FHA Rate Before The Price Hike
The FHA will make a formal announcement on its new FHA premiums in the coming days. Some of the exact numbers at top may change slightly. However, the FHA has confirmed the April 1, 2012 rollout date.
If you’re planning to use the FHA for your next home mortgage, get your loan application started today. If you wait, you’ll be subject to the FHA’s new premiums.
Source – Dan Green
Author’s note : This information is subject to final review by the FHA. It’s based on an initial FHA announcement made February 27, 2012. It’s unofficial until the FHA releases its mortgagee letter on the matter.
Kentucky FHA Mortgage Lender 