Joel Lobb Bankruptcy, Foreclosure & Short Sales, Collections, Student Loans & Debts, Credit Scores & Bad Credit, FHA Guidelines & Requirements

Kentucky FHA Credit Guidelines: Collections, Disputes, Judgments and Late Payments (2026)

Kentucky FHA Loan Guidelines for Credit, Down payment, income,

Updated October 2026 by Joel Lobb, Kentucky FHA mortgage broker (NMLS #57916).

If you are a Kentucky homebuyer with collections, disputed accounts, judgments, or late payments on your credit report, you can still qualify for an FHA loan. These are not brand-new 2026 rules; they are FHA’s standing guidelines in HUD Handbook 4000.1. What matters is understanding how each item is treated and what can push your loan from an automated approval into a manual underwrite.

How FHA Loans Are Approved: Automated vs. Manual

Most FHA loans are run through FHA’s TOTAL Mortgage Scorecard. Lenders access it through their automated underwriting system (such as Fannie Mae’s Desktop Underwriter or Freddie Mac’s Loan Product Advisor), but the decision comes from FHA’s scorecard, not Fannie Mae’s guidelines. An “Accept” gets the more flexible automated rules. A “Refer,” or certain credit issues, means a human underwriter reviews the file under stricter manual underwriting rules.

Collection Accounts: The $2,000 Rule

  • Under $2,000 in combined non-medical collections: no payoff required and nothing added to your debt-to-income ratio (DTI).
  • $2,000 or more: the lender must verify the collections are paid in full before or at closing, count your payment plan in your DTI, or count 5% of each collection’s balance as a monthly payment in your DTI.
  • Medical collections are excluded from the $2,000 total. Charge-offs do not have to be paid and are not counted in your DTI.

Kentucky note: in community property states, a non-borrowing spouse’s collections count toward the $2,000 total. Kentucky is not a community property state, so this rule does not apply to Kentucky purchases.

Full details and a worked example: Does FHA Require Collections to Be Paid Off? Kentucky FHA Collection Rules (2026).

Disputed Accounts

A disputed account is one you have formally challenged with the credit bureau. A disputed derogatory account can be a collection, a charge-off, or a late payment reported in the last 24 months. If your disputed derogatory accounts total $1,000 or more, an automated “Accept” must be downgraded to manual underwriting. These disputes do not count toward the $1,000:

  • Disputed medical accounts
  • Disputed accounts with a zero balance
  • Accounts disputed because of documented identity theft or unauthorized use

Tip: do not dispute accounts while you are trying to buy a home without talking to your loan officer first. A dispute can cause a manual underwrite even when the account would not otherwise hurt your approval.

Court-Ordered Judgments

Judgments are handled more strictly than collections. A judgment must be paid off before or at closing, or you need a written payment agreement with the creditor plus proof of at least three months of on-time payments. You cannot prepay the three months, and the monthly payment is included in your DTI.

What Sends an FHA Loan to Manual Underwriting?

Even with an automated “Accept,” the lender must downgrade the loan to manual underwriting in situations such as:

  • Disputed derogatory accounts totaling $1,000 or more (see above)
  • Self-employed business income that has declined by more than 20% over the period the lender is analyzing
  • A recent history of late mortgage payments that FHA’s mortgage payment history rules flag
  • Mortgage debt that shows up after approval and was not considered by the automated system

Manual underwriting takes longer and requires more documentation, but it is not a denial. Many Kentucky borrowers are approved this way. See Kentucky FHA Manual Underwriting Guidelines.

Payment History Standards for Manual Underwriting

When a loan is manually underwritten, the underwriter looks for “satisfactory credit.” In general that means:

  • All housing and installment payments made on time for the last 12 months
  • No more than two 30-day late payments on mortgage or installment debt in the last 24 months
  • No major derogatory credit on revolving accounts (credit cards) in the last 12 months

If your history falls short, the underwriter can still approve the loan when the late payments were caused by documented extenuating circumstances, along with a letter of explanation.

Debt-to-Income Limits

With an automated “Accept,” FHA does not set a fixed DTI cap; approvals above 50% are possible when the rest of the file is strong. On a manual underwrite, the limits depend on your compensating factors (such as cash reserves, minimal payment increase, or significant additional income):

Manual underwritingHousing ratioTotal DTI
No compensating factors (or credit score 500–579)31%43%
One compensating factor37%47%
Two compensating factors40%50%

Documents to Expect on a Manual Underwrite

  • Income and employment: pay stubs covering the most recent 30 days, W-2s for the past two years, a two-year employment history, and a verbal verification of employment before closing
  • Housing history: a verification of rent or 12 months of canceled checks or bank statements if your credit report does not show your housing payments
  • Explanations: a signed letter of explanation for derogatory credit, collections, and late payments, with supporting documents
  • Cash reserves: at least one month of mortgage payments for a 1–2 unit home, or three months for a 3–4 unit home. Reserves must be your own money, not a gift.

Other FHA Rules Borrowers Ask About

  • Overtime, bonus, and tip income: since 2022, FHA uses the lesser of your average over the past two years or your average over the past year.
  • Seller and lender credits: interested-party contributions are capped at 6% of the sales price and cannot be used toward your minimum down payment. Since 2019, lenders and loan originators count as interested parties, though premium-pricing credits from the lender generally do not count against the 6% limit.
  • Private wells: FHA and local health rules may require a water test, especially when the appraiser notes a concern. See Kentucky FHA Appraisal Requirements.

Get Your Credit Reviewed Before You Apply

I have helped Kentucky families buy homes for more than 20 years, including many with collections, disputes, judgments, and late payments. Send me your situation and I’ll tell you what needs to be addressed before you apply.

Joel Lobb
Mortgage Broker – FHA, VA, USDA, KHC
EVO Mortgage
10602 Timberwood Circle, Suite 3, Louisville, KY 40223
Call/Text: (502) 905-3708
Email: kentuckyloan@gmail.com
NMLS #57916 | Company NMLS #1738461 | NMLS Consumer Access

Source: HUD Handbook 4000.1; FHA Mortgagee Letter 2022-09. This is not a commitment to lend. All loans are subject to credit approval, underwriting guidelines, and lender requirements, which may change. Equal Housing Lender. Licensed in Kentucky only. Not affiliated with HUD, FHA, or any government agency.

Joel Lobb Down Payment Assistance & KHC, FHA Guidelines & Requirements, HUD Homes & $100 Down, Kentucky First-Time Home Buyers

Kentucky HUD Homes for Sale with the FHA $100 Down Program

Buying A HUD Home in Kentucky $100 Down FHA loan

KENTUCKY HUD HOMES SALES INCENTIVES

For a limited time, FHA offers sales incentives on HUD homes that will make these homes more affordable for home buyers when purchasing a property using FHA-insured financing. The incentives VARY from State to State but may include low down payments; sales allowances that can be used to pay closing costs, make repairs, or pay down the mortgage amount; broker bonuses for owner-occupant sales. The benefits of FHA financing are low down payments; competitive interest rates; flexible credit qualifying. To find a HUD-Approved Lender, and for the latest sales incentives in your areas, visit HUDhomestore.com The program incentives are subject to change without prior notice.

Sales Incentives

(subject to change without prior notice)

Participating States

$100 Down Payment! Available to Owner Occupant Homebuyers when purchasing a property using FHA-insured financing.

Kentucky HUD Homes for Sale By FHA

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Joel Lobb
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Individual NMLS ID #57916

Text/call:      502-905-3708

email:          kentuckyloan@gmail.com

https://www.mylouisvillekentuckymortgage.com/

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

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

Joel Lobb Collections, Student Loans & Debts, FHA Guidelines & Requirements, Income, Employment & DTI

FHA Guideline Changes Since 2012: Collections, Disputes, Judgments and More (2026 Update)

Originally published May 2012. Updated October 2026 by Joel Lobb, Kentucky FHA mortgage broker (NMLS #57916).

In 2012, FHA released Mortgagee Letter 2012-3, which tightened the rules on self-employed income, disputed credit, collection accounts, judgments, and buying a home from a family member. Most of those rules have since been rewritten and are now in HUD’s single-family handbook, HUD 4000.1. If you are reading old advice online, it may be quoting the 2012 rules. Here is what changed and what applies to Kentucky FHA buyers today.

At a Glance: 2012 Rules vs. Today

Topic2012 (Mortgagee Letter 2012-3)Today (HUD 4000.1)
Collection accounts$1,000 or more had to be paid or on a payment plan with 3 months of paymentsUnder $2,000 (non-medical): no action needed. $2,000 or more: pay off, payment plan in DTI, or 5% of the balance in DTI. Medical collections excluded.
Disputed accounts$1,000 or more had to be resolved or paid before closingDisputed derogatory accounts of $1,000 or more send the loan to manual underwriting. They do not automatically have to be paid.
Court-ordered judgmentsPay off, or a payment agreement with 3 months of verified paymentsEssentially the same: pay off, or a written agreement with at least 3 months of on-time payments, counted in DTI
Self-employed incomeP&L and balance sheet if more than a calendar quarter had passed since the last tax returnStill required when more than a calendar quarter has passed since the end of the last tax year. Declining income gets extra scrutiny.
Buying from family“Family member” definition expandedBroad family definition still applies. Family-member purchases of a principal residence can qualify for full FHA financing.

Collection Accounts: From $1,000 to $2,000

The 2012 letter required borrowers with $1,000 or more in collections to pay them off or set up a payment plan before closing. FHA later replaced that rule. Today, if your non-medical collections total less than $2,000, they do not have to be paid. At $2,000 or more, the lender pays them off, counts your payment plan in your DTI, or counts 5% of the balance as a monthly payment.

For the full breakdown with examples, read Does FHA Require Collections to Be Paid Off? Kentucky FHA Collection Rules (2026).

Disputed Accounts: Now a Manual Underwriting Trigger

Under the 2012 rule, disputed accounts of $1,000 or more had to be resolved or paid. Today, disputed derogatory accounts that total $1,000 or more mean an automated approval must be downgraded to a manual underwrite. These do not count toward the $1,000:

  • Disputed medical accounts
  • Accounts with a zero balance
  • Accounts with no activity in the last 24 months
  • Accounts disputed because of identity theft or unauthorized use, documented with a police report or creditor letter

Manual underwriting is not a denial, but it comes with tighter DTI limits and more documentation. If you are planning to buy, talk to your loan officer before disputing anything on your credit report. See Kentucky FHA Manual Underwriting Guidelines.

Court-Ordered Judgments

This rule has held up since 2012. A judgment must be paid off before or at closing, or you need a written agreement with the creditor and proof of at least three months of on-time payments. You cannot prepay the three months, and the payment is included in your DTI.

Self-Employed Borrowers

FHA still wants two years of personal and business tax returns from most self-employed borrowers. If more than a calendar quarter has passed since the end of your last tax year, the lender also needs a year-to-date profit and loss statement and balance sheet. If your self-employment income has dropped significantly, expect the underwriter to look harder at it, and a large decline can send the loan to manual underwriting. Read more in Kentucky FHA Work History and Income Requirements.

Buying a Home From a Family Member

An “identity of interest” sale is one between parties with a family or business relationship. For FHA purposes, a family member includes a child, parent, or grandparent; a spouse or domestic partner; a legally adopted son or daughter; a foster child; a brother, stepbrother, sister, or stepsister; an uncle or aunt; and in-laws.

Identity-of-interest purchases are generally limited to 85% loan-to-value, but there is an important exception: if you are buying a family member’s home as your principal residence, you can still use full FHA financing with 3.5% down. A family member can also give you gift equity toward your down payment.

Related Kentucky FHA Guides

Questions About Your Credit or Income?

FHA rules change, and lenders can add their own stricter requirements. If you have collections, disputes, a judgment, or self-employment income, send me a message and I’ll tell you where you stand before you apply.

Joel Lobb
Mortgage Broker – FHA, VA, USDA, KHC
EVO Mortgage
10602 Timberwood Circle, Suite 3, Louisville, KY 40223
Call/Text: (502) 905-3708
Email: kentuckyloan@gmail.com
NMLS #57916 | Company NMLS #1738461

Source: HUD Handbook 4000.1; FHA Mortgagee Letter 2012-3 (historical). This is not a commitment to lend. All loans are subject to credit approval, underwriting guidelines, and lender requirements, which may change. Equal Housing Lender. Licensed in Kentucky only. Not affiliated with HUD, FHA, or any government agency.

Joel Lobb FHA Mortgage Insurance (MIP), FHA Refinance (Streamline & Cash-Out)

April 2012: The New (& Expensive) FHA Mortgage Insurance Premium (MIP) Schedule

April 2012: The New (& Expensive) FHA Mortgage Insurance Premium (MIP) Schedule.

via April 2012: The New (& Expensive) FHA Mortgage Insurance Premium (MIP) Schedule.

 

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. 

Joel Lobb Down Payment Assistance & KHC, Kentucky Mortgage Rates

Louisville Home Sales | All good news in August | Derby City Cents

Louisville Home Sales | All good news in August | Derby City Cents.

Louisville Home Sales | All good news in August

Posted on September 19, 2011 by Chris Otts

While it’s still far from a balanced market, today’s monthly sales report from the Greater Louisville Association of Realtors shows nearly all numbers moving in the right direction.

 

Sales were up 21 percent from a year earlier. Inventory is still high, but coming down. Sales are still off from last year’s pace, but the gap is closing. And the number of sales in the pipeline is up.

Keeping things in perspective, last month’s 1,133 sales is nowhere close to 1,521 in August 2007, before the recession hit, but it was the strongest August since that time, even surpassing the tax-credit infused market of 2009.

Here’s the Realtors full press release, including information specific to Jefferson, Oldham and Bullitt counties:

Overall Market Comment:

Members of the Greater Louisville Association of Realtors® replaced July as the year’s second most productive month by boosting sales 8% to end August 2011. August replaced July as the second most productive month of 2011 with 1,133 sold units, compared to 1,048 units in July.  For the year, July was moved to 3rd place, behind August (1133 units) and June which recorded 1,137 closed units. The August sales figures also continued a trend noted in July, a trend of outpacing same month figures from 2010. The August 2011 sales were a whopping 21% stronger than August 2010, providing more evidence that Realtors® are steadily surviving in a post Home Buyer Tax Credit market.   The average selling price for August 2011 slipped to $169,023, from $179,758 in July 2011, but was nearly even with August 2010’s average sales price of $172,949. Inventory, or the number of homes for sale, declined 2% in August to 9046 from 9,295 in July and 9,213 in June. Inventory remains near a 10 month supply; inventory levels near a 6 month supply are often associated with an in-balance market. Year-to-date sales remain nearly 10% behind last year’s pace, but the upward trend in July and August has closed the gap somewhat.

Overall, GLAR members are encouraged by the summer sales period (June-July-August) and continue to steadily move forward in a post- HBTC market.  While economic factors remain weak, predictions are that a low interest rate climate will likely remain in the 4th quarter, a tool Realtors® welcome.

Jefferson County Market Comment:

Realtors® posted 782 closed sales in Jefferson County in August 2011, up nearly 23% from August 2010. The average selling price in the county fell to $168,859, from $173,186 for July 2011, and $171,154 for June 2011.  Jefferson County inventory remains near a 9 month supply with 5,723 active units, down slightly from last month, but up 27% from August 2010. Year-to-date sales, in the county, stand at 5,108 units, down 11% from a similar period last year.  In summary, the Jefferson County market followed the broader GLAR analysis by breaking the year-to-date trend of lagging behind 2010 and posting an increase in sales volume when matched against the same period last year.

Oldham County Market Comment:

The number of closed sales in August jumped 38% compared to Aug 2010 (when the buyer tax credits were ending), bringing the YTD total up 7% compared to the same time last year. The average and median prices in Aug 2011 vs 2010 were up 12% and 6% respectively, reflecting the sale of some higher priced homes that had not sold in the Spring market. The YTD average and median figures were up a more modest 9% and 4% respectively, and are less volatile than single month data points. The number of sales going under contract was up 5% and the inventory of unsold homes remained slightly higher than last year by 6%. However, this was a 5% decrease in inventory compared to last month. Continued low mortgage rates will be the key factor in the resumption of a balanced market in Oldham County, as it will be with the broader Louisville market.

Bullitt County Market Comment:

Realtors® posted 73 closed sales in Bullitt County in August 2011, down from 80 sales in July 2011, but up nearly 24% from August 2010. The average selling price in the county, for August, was $138,439, a decline of 9% from July 2011, but up 1% from August 2010. Year-to-date sales, in the county, stand at 495 units, down 11% from a similar period in 2010. Supply, or the number of homes on the market, has fallen to 584 units, down 32 units from July 2011, but up nearly 13% from a similar period in 2010.