Kentucky Credit Score Requirements for Mortgage Approval – FHA, VA, USDA, Fannie Mae & KHC

Thinking about buying or refinancing a home in Kentucky and wondering what credit score you need? Your credit score is one of the key factors lenders look at when deciding whether to approve your mortgage and what interest rate to offer.

As a Kentucky mortgage loan officer who has helped over 1,300 families across the state, I work every day with first-time homebuyers, repeat buyers and homeowners looking to refinance using programs like FHA, VA, USDA Rural Housing, Conventional (Fannie Mae) and Kentucky Housing Corporation (KHC) down payment assistance.

This guide breaks down typical credit score benchmarks for Kentucky mortgage approvals and explains what you can do if your scores are not quite where you want them yet.

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Why Your Credit Score Matters for a Kentucky Mortgage

When you apply for a mortgage in Kentucky, the lender pulls your credit from the three major bureaus and uses your middle score (or the lower middle score if there is more than one borrower).

Your credit score helps the lender evaluate:

• How likely you are to pay on time
• Your history of managing credit cards, auto loans and other accounts
• How much total debt you are carrying compared to your limits
• Past issues like collections, charge-offs, bankruptcies or foreclosures

Important: There is no single “magic number” that approves or denies every Kentucky mortgage. Each program has its own guidelines, and many lenders add their own internal rules, called “overlays.” Your income, debt-to-income ratio (DTI), job stability and property type all matter too.

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Typical Credit Score Minimums by Loan Type in Kentucky

Below are common credit score benchmarks used by many lenders for Kentucky borrowers. These are general guidelines and can change based on lender, market conditions and your overall profile.

Loan Type	Typical Minimum Credit Score	Notes for Kentucky Borrowers
FHA (Federal Housing Administration)	580+ for 3.5% down 500–579 possible with 10% down (lender approval required)	Very popular with first-time homebuyers and buyers with limited down payment or past credit issues.
VA (Department of Veterans Affairs)	No official VA minimum; many lenders look for 580–620+	For eligible Veterans, Active Duty, Reservists and some surviving spouses. No monthly PMI and flexible guidelines.
USDA (Rural Housing)	Often 620–640+ for automated approval	$0 down for eligible rural areas in Kentucky. Lower scores may require more documentation and manual underwriting.
Conventional (Fannie Mae/Freddie Mac)	Generally 620+ minimum	Stronger scores (680–740+) can mean better interest rates and easier approval, especially with lower down payments.
Kentucky Housing Corporation (KHC)	Varies by program; many options start around 620+	Often paired with FHA, VA, USDA or Conventional loans for down payment and closing cost assistance for Kentucky homebuyers.

Note: These are typical ranges only. Final approval depends on full underwriting and your complete financial profile.

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How Your “Qualifying” Mortgage Credit Score Is Calculated

When you apply, your lender orders a tri-merge mortgage credit report from:

• Experian
• Equifax
• TransUnion

For most Kentucky mortgages, the lender uses the middle score of the three bureaus as the “qualifying” score. If there are two borrowers, the lender usually uses the lower of the two middle scores.

Example:

• Borrower A: 598, 625, 604 → Qualifying score = 604
• Borrower B: 640, 659, 652 → Qualifying score = 652

If both apply together, the lender may qualify the file off the lower middle score, in this example 604.

Also keep in mind: mortgage lenders often use older FICO models (not the same as many “free” credit score apps), so your lender’s scores can look different from what you see on a credit monitoring website.

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FHA Credit Score Requirements in Kentucky

FHA loans are a go-to option for many Kentucky first-time home buyers because they allow for lower down payments and more flexible credit guidelines than many conventional loans.

• 580+ credit score: You may qualify for the minimum 3.5% down payment, subject to full underwriting.
• 500–579 credit score: FHA will technically allow financing with at least 10% down, but many lenders set higher internal minimums. Expect a case-by-case review and stricter conditions.
• Below 500: Usually not eligible for FHA financing. Work on credit repair first, then re-apply.

FHA also looks closely at your recent 12–24 month payment history, especially for any mortgage or rent, auto loans and major revolving accounts.

For more in-depth FHA information, you can also review my Louisville FHA guide here:
Louisville Kentucky First-Time Home Buyer FHA & KHC Programs

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VA Credit Score Guidelines for Kentucky Veterans

The VA itself does not publish a strict minimum credit score. Instead, lenders set their own tolerances based on risk, experience and market conditions.

In practice for Kentucky VA home loans:

• Many lenders look for 580–620+ as a baseline.
• Stronger income, solid recent payment history and low DTI can help offset borderline scores.
• Past credit events (bankruptcy, foreclosure, short sale) may require seasoning time and compensating factors.

VA loans can be extremely powerful tools for eligible buyers: no down payment in most cases, no monthly PMI, and flexible guidelines when structured properly.

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USDA Rural Housing Credit Score Expectations in Kentucky

USDA Rural Development (Rural Housing) loans offer true $0 down financing in many areas of Kentucky. Because there is no down payment, lenders pay close attention to credit history and income stability.

Typical USDA score expectations:

• 640+: Often qualifies for automated underwriting approval (GUS Accept), assuming the rest of the file is strong.
• 620–639: May still be possible, but more documentation or a manual underwrite could be required.
• Below 620: Case-by-case basis. Expect more scrutiny and a need for strong compensating factors like low DTI and reserves.

If you want to check whether a property might be USDA-eligible, you can start with my Kentucky USDA map and eligibility tools here:
Check if a Kentucky Property Is in a USDA Eligible Area

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Conventional (Fannie Mae/Freddie Mac) Credit Score Benchmarks

Conventional loans backed by Fannie Mae or Freddie Mac usually require a stronger credit profile than FHA, VA or USDA.

• 620+: Common minimum score for many lenders.
• 660–679: Often required for certain products, lower down payments or riskier profiles.
• 680–740+: Typically qualifies for more favorable pricing, especially with smaller down payments.

If you are trying to refinance out of FHA into a Conventional loan to remove mortgage insurance, or you want to pair a Conventional loan with KHC down payment assistance, your credit score can make a noticeable difference in interest rate and closing cost options.

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How KHC (Kentucky Housing Corporation) Looks at Credit

Kentucky Housing Corporation (KHC) does not lend money directly to consumers, but it partners with approved lenders (like us) to provide down payment assistance and special programs.

In general:

• Many KHC programs start around 620+ credit scores, depending on the specific product and loan type (FHA, VA, USDA, Conventional).
• KHC overlays may be stricter than the underlying FHA/VA/USDA/Conventional guidelines in some areas.
• Higher scores help with pricing, underwriting approval and access to more assistance options.

If you are a first-time homebuyer in Kentucky and need help with down payment or closing costs, we can review which KHC options fit your credit profile and income.

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Refinancing vs. Purchasing: Does the Credit Score Requirement Change?

For most programs, the credit score ranges are similar whether you are purchasing or refinancing. However, the purpose of the refinance can matter:

• Rate-and-term refinance: Often similar credit score and DTI guidelines as a purchase.
• Cash-out refinance: Usually requires higher scores and more equity, especially for Conventional and VA cash-out.
• Streamline refinances (FHA, VA IRRRL, etc.): May have more flexible credit documentation but still require a review of payment history and risk.

If you already own a home in Kentucky and want to lower your payment, shorten your term, or remove mortgage insurance, we can run side-by-side refinance scenarios based on your current scores.

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5 Practical Ways to Improve Your Credit Before Applying

If your credit score is close to the cutoff, even a small improvement can open up better loan options and interest rates. Here are five practical steps:

1. Pull and review your credit reports. Check Experian, Equifax and TransUnion for errors, duplicates or old derogatory items that should have fallen off.
2. Lower your credit card balances. Try to keep utilization under 30% of your limits on each revolving account – lower is better.
3. Avoid new loans or major purchases. Hold off on buying vehicles, furniture or opening new credit cards right before applying for a mortgage.
4. Make every payment on time. A single 30-day late payment can drop scores and trigger underwriting issues.
5. Talk to a Kentucky loan officer early. A customized credit review can show you which actions will give you the biggest boost toward mortgage approval.

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Next Steps: Talk Through Your Kentucky Mortgage Credit Plan

Every borrower’s story is different. Two people can have the same credit score but very different credit histories and approval paths.

If you are:

• A first-time homebuyer in Kentucky
• Looking to refinance your current home loan
• A Veteran or active-duty service member considering a VA loan
• Buying in a rural area and exploring USDA Rural Housing
• Interested in KHC down payment assistance

…I can help you review your credit, run loan scenarios and design a practical plan to get you approved.

Call or text: 502-905-3708
Email: kentuckyloan@gmail.com

Serving homebuyers and homeowners across all 120 counties in Kentucky.

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Frequently Asked Questions About Kentucky Mortgage Credit Scores

What is the minimum credit score for an FHA loan in Kentucky?

Many lenders in Kentucky look for a 580+ credit score to qualify for the 3.5% minimum down payment on an FHA loan. Scores between 500 and 579 may be considered with at least 10% down, but approval is more difficult and not all lenders will allow it.

Can I get a Kentucky mortgage with a credit score below 580?

It can be possible, but options are limited. Some FHA and VA lenders may consider scores in the 500–579 range with stronger down payment, low debt-to-income ratio and clean recent payment history. In many cases, it is more effective to spend a few months improving your credit and then apply.

What credit score do I need for a VA loan in Kentucky?

The VA does not publish a hard minimum score, but many Kentucky lenders prefer 580–620+. Stronger scores can mean better terms, especially if you have prior credit challenges.

What credit score is required for a USDA Rural Housing loan in Kentucky?

USDA loans often work best with scores of 640 or higher for automated approval. Lower scores may still be considered, but expect more documentation, a manual underwrite and tighter qualification standards.

How can I improve my score quickly before applying for a Kentucky mortgage?

Common fast-impact steps include paying down credit card balances, bringing any past-due accounts current, avoiding new inquiries and disputing any obvious errors on your report. A targeted review with a Kentucky loan officer can help you focus on the items that will move your score the most.

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Disclaimer: This information is for educational purposes only and does not constitute a commitment to lend. Program guidelines, credit score requirements and underwriting standards are subject to change without notice. All loans are subject to credit approval, income verification, acceptable collateral and program availability.

NMLS #57916  |  Company NMLS #1738461  |  Equal Housing Lender

Kentucky FHA Mortgage Information

Louisville Kentucky Mortgage Lender for FHA, VA, KHC, USDA and Rural Housing Kentucky Mortgages: Kentucky FHA Mortgage Information: 

 How to Qualify For a Kentucky FHA Mortgage Loan 1. Low Down Payment   –  FHA Mortgage Loans only require a 3.5% down payment. And what m...

How Do Mortgage Companies Average the Score on All 3 Credit Reports?

How Mortgage Lenders Use All Three Credit Scores

Your credit score is a major driver in whether an automated underwriting system (AUS) such as Fannie Mae Desktop Underwriter or Freddie Mac Loan Product Advisor will approve your mortgage. Understanding how lenders interpret all three credit scores can help you prepare for FHA, VA, USDA, Conventional, or Kentucky Housing Corporation financing.

Why Mortgage Lenders Pull All Three Scores

Lenders use a tri-merge credit report that pulls information from the three national credit bureaus:

• Equifax
• Experian
• TransUnion

Each bureau uses a different scoring model, which is why your three numbers are rarely the same. These differences are normal and expected.

To learn more about how credit scores work, visit Credit Scores for Kentucky Mortgages.

Factors That Impact Your Mortgage Credit Score

Several behaviors influence how your scores are calculated:

• Payment history and recent late payments
• Credit card utilization levels
• Collections, charge-offs, judgments, and bankruptcy
• Length of credit history
• New credit and inquiries

For borrowers seeking FHA financing in Kentucky, these factors are critical because FHA scoring models weigh payment history heavily.

How to Improve Your Scores Before a Mortgage

Many people assume paying off every credit card boosts the score. In reality, mortgage scoring models reward active but responsible use of revolving credit.

• Lower your credit card balances to 30–45 percent of the limit
• Keep older accounts open to preserve credit age
• Avoid opening new accounts before applying
• Address any recent late payments or collections

For buyers preparing for a zero-down option such as a Kentucky USDA loan or Kentucky VA loan, maintaining strong and stable credit is essential for AUS approval.

How Lenders Select the Score Used for Approval

Mortgage lenders do not average your three scores. They use the middle score.

If your scores were 780, 776, and 790, the lender uses the middle score of 780.

For joint borrowers, lenders use the lowest middle score between both applicants.

Minimum Scores Required for Mortgage Programs

Different mortgage programs have different minimum credit score expectations:

• FHA: 580 for maximum financing
• VA: Lenders typically require 580–620
• USDA: 620 for automated approval
• Conventional (Fannie Mae/Freddie Mac): 620 minimum

Explore specific requirements for each program below:

• Kentucky FHA Loan Requirements
• Kentucky VA Loan Guide
• Kentucky USDA Zero-Down Program
• Mortgage Programs for Kentucky Homebuyers

External references for further reading:

• Consumer Financial Protection Bureau: Credit Scores
• MyFICO: How Credit Scores Work

KENTUCKY FHA LOAN CREDIT SCORE REQUIREMENTS

What credit score do I need to qualify for Kentucky FHA loan is one of the most common questions lenders hear. The short answer is you must have a minimum credit score of 500 to be eligible for an Kentucky FHA loan. Higher scores will get you better terms and a smaller down payment requirement. Anything lower than 500 disqualifies you from consideration for an Kentucky FHA loan.

There are two sets of credit score requirements.

One important thing to understand is that the Federal Housing Administration (FHA) does not lend money directly to home buyers. You will fill out an application with a regular lender just as you would if you were applying for any other type of mortgage. What the FHA does is ensure your loan to help protect the lender in case you default. You will be required not only to meet the FHA guidelines to qualify for a loan but also meet any additional qualifications required by the lender. This means there are two sets of requirements you have to meet with your credit score.

1. The first set of requirements comes from the Department of Housing and Urban Development (HUD). HUD oversees the FHA and determines what a borrower’s minimum eligibility requirements will be to obtain an FHA loan.

2. The second set of requirements comes from the mortgage lender. The mortgage lender has the right to add its requirements to those mandated by HUD.

What HUD requires of borrowers to be eligible for an FHA loan

The HUD Handbook 4000.1 includes the official guidelines when it comes to the FHA mortgage insurance program.

It states that in 2020 the borrowers with credit scores of 580 or higher are eligible for a 96.5% loan with 3.5% down.

Borrowers with credit scores from 500 to 579 are eligible for a 90% loan with 10% down.

Individuals with credit scores below 500 are not eligible for the FHA program.

What lenders may require of borrowers to be eligible for an FHA loan


Lenders have the right to add requirements over and above the minimum requirements of HUD. These additional requirements are called overlays. Your lender may or may not require them. This is not something that should come as a surprise to you, however. Requiring a credit score of 580 to 620 is not unusual. In addition to your credit score, you must have a manageable debt level that lenders are comfortable with and enough income to repay your loan.

What credit score do I need to qualify for FHA loan?


These percentages show that the majority of borrowers who successfully qualify for FHA loans fall into the 600 to 799 range. While it is true that some successfully qualify in the low range of 500 to 599, you have a much better chance of being approved for a loan with good terms and a low down payment if you fall into the higher range.

Joel Lobb 

 Email - kentuckyloan@gmail.com 

 Call/Text - 502-905-3708

 www.mylouisvillekentuckymortgage.com
 911 Barret Ave., Louisville, KY 40204

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Evo Mortgage
Company NMLS# 1738461
Personal NMLS# 57916

Kentucky Mortgage Loan Expert For Kentucky FHA, VA, USDA, Fannie Mae and KHC Down payment Assistance Loans

Kentucky FHA Mortgage Guidelines for a Kentucky First Time Home Buyer

FHA Mortgage Manual Underwriting Video Guidelines

Did you know over 50% of our Kentucky  FHA loans are manual underwrites?

 

Kentucky FHA will consider the borrower’s entire story, including extenuating circumstances and compensating factors, to justify loan approvals. If your borrower falls under any of these conditions, they may benefit from manual underwriting:

• Non-traditional credit / lack of credit
• True extenuating circumstances affecting credit or income history
• Lack of seasoning on a Chapter 13
• Disputed accounts over $1,000
• Frequent job changes in the last 12 months

If you think your borrower could benefit from  manual underwriting call us to learn more about manual underwriting or submit your scenario today.

Lowest Minimum Decision Credit Score 

Maximum Qualifying Ratios (%)

 Acceptable Compensating Factors

All manual underwritten loans require a VOR.

If the borrower does not pay rent a letter of explanation from borrower stating where living rent free.

31/43
• No compensating factors required.
• Energy Efficient Homes may have stretch ratios of 33/45.

37/47
One of the following:
• Verified & documented cash reserves equal to at least three total monthly mortgage payments.
• New total monthly mortgage payment is not more than $100 or 5% higher than previous total monthly housing payment, whichever is less; and there is a documented twelve-month housing payment history with no more than one thirty-day late payment.
• Residual Income per VA chart.

40/40
• Borrower has established credit lines in his/her own name (open for at least six months) but carries no discretionary debt (monthly total housing payment is only open installment account and borrower can document that revolving credit has been paid off in full monthly for at least the past six months).

40/50
Two of the following:
• Verified & documented cash reserves equal to at least three total monthly mortgage payments.
• New total monthly mortgage payment is not more than $100 or 5% higher than previous total monthly housing payment, whichever is less; and there is a documented twelve-month housing payment history with no more than one thirty-day late payment.
• Verified and documented significant additional income that is not considered effective income and likely to continue (part-time or seasonal income verified for more than 1 year but less than 2 years). The income if it were included in gross effective income is sufficient to reduce the qualifying ratios to not more than 37/47.
• Residual Income per VA chart.

Residual Income

Calculating Residual Income

Residual income is calculated in accordance with the following:
• Calculate the total gross monthly income of all occupying borrowers
• Deduct from the gross monthly income the following items:
➢ State income taxes
➢ Federal income taxes
➢ Municipal or other income taxes
➢ Retirement or Social Security
➢ Proposed total monthly fixed mortgage payment
➢ All recurring monthly debt obligations
➢ Estimated maintenance and utilities ($0.14 x sq. ft.)
➢ Job related expenses (e.g., child care)

• The difference between the gross monthly income and the deductions above is the residual income

Compensating Factors

Using Residual Income as a Compensating Factor
Count all members of the household of the occupying borrowers without regard to the nature of their relationship and without regard to whether they are joining on title or the note.
Exception: As stated in the VA Guidelines, the mortgagee may omit any individuals from “family size” who are fully supported from a source of verified income which is not included in the effective income in the loan analysis. These Individuals must voluntarily provide sufficient documentation to verify their income to qualify for this exemption.

From the table below, select the applicable loan amount and household size. If residual income equals or exceeds the corresponding amount on the table, it may be cited as a compensating factor.

Accept Risk Class required downgrade to Manual Underwriting

The Mortgagee must downgrade and manually underwrite any mortgage that received an accept or approve/eligible recommendation if:
• The mortgage file contains information or documentation that cannot be evaluated by TOTAL.
• Additional information, not considered in the AUS recommendation affects the overall insurability of the mortgage.
• The borrower has $1,000 or more collectively in Disputed Derogatory Credit Accounts.
• The date of the borrower’s bankruptcy discharge as reflected on bankruptcy documents is within two years from the date of the case number assignment.
• The case number assignment date is within three years of the date of the transfer of title through a Pre-Foreclosure Sale (Short Sale).
• The case number assignment date is within three years of the date of the transfer of title through a foreclosure sale.
• The case number assignment date is within three years of the date of the transfer of title through a Deed-in-Lieu (DIL) of foreclosure.
• The Mortgage Payment history, for any mortgage trade line reported on the credit report used to score the application, requires a downgrade as defined in Housing Obligations/Mortgage Payment History.
• The Borrower has undisclosed mortgage debt that requires a downgrade.
• Business income shows a greater than 20 percent decline over the analysis period.

https://www.hud.gov/sites/documents/fy16_sfhb_mod4_under.pdf

How Do I Qualify for An FHA Loan in Kentucky based on score, income, work history and credit?

How to Get a Kentucky FHA Mortgage Loan

If you’re a first-time homebuyer in Kentucky or simply looking for an accessible loan option, an FHA mortgage loan is worth exploring. With low down payments, flexible credit requirements, and potential for down payment assistance, FHA loans provide a pathway to homeownership for many Kentucky residents. Here’s everything you need to know about qualifying for and securing an FHA loan in Kentucky.

Kentucky FHA Mortgage Loan Options to consider

1. Low Down Payment

–  FHA Mortgage Loans only require a 3.5% down payment. And what makes that even more attractive is that it can be a gift from a relative. Do you have a parent or sibling who would “Gift” you some money for a down payment? If so, it could be time to apply for an  FHA Mortgage Loan.

2.Flexible Credit Qualifying

– HUD did NOT set a credit score requirement for qualifying for an  FHA Mortgage Loan. However many lenders in the market today have drafted “Overlays” that set minimum credit score requirements. Most lenders like to see a minimum 580 to 620  credit score, but don’t get discouraged if you are not there yet. If you are close to 620, it is often just as simple as reviewing your credit to determine how to quickly raise it. If you are not close to 620, ask your FHA Mortgage Loan Originator if they have a program for you. Chances are, there is! Bankruptcies and prior foreclosures do not automatically disqualify you either.

3.The Seller Can Pay Your Closing Costs

– That’s right. You need to have a quality Realtor who will help you negotiate not only the best price for the home, but also that the seller will pay your closing costs. HUD allows FHA Mortgage Loans to have the seller pay up to 6% of the purchase price. Sounds good so far, a down payment gift and seller paying closing costs!

4.Flexible Income Qualifying

– The standard for income qualifying ratios is 31/43 which means that up to 31% of your monthly income can be used to pay your monthly household mortgage payment; and up to 43% of your monthly income can be used to qualify for ALL monthly expenses. Those ratios can go up to 55% if you have good credit and a good income history allowing you to qualify when others might not.

5.Qualify Without Your Spouse’s BAD Credit –

This is a tricky one but it is also not well known. You can effectively qualify for an FHA Mortgage Loan without your spouse’s Bad Credit. FHA will look at your spouse’s credit but cannot decline your loan due to your spouse’s debt or credit score. So if you have a spouse with a crummy credit profile, you should take a look at  FHA Mortgage Loans to see if it will work for you.

Kentucky FHA Mortgage Requirements 

An FHA loan is a mortgage issued by federally qualified lenders and insured by the Federal Housing Administration (FHA). FHA loans are designed for low-to-moderate income borrowers who are unable to make a large down payment.

Minimum Credit Score is 500 with at least 10% down
Minimum Credit Score is 580 if you put less than 10% down
The FHA Kentucky Maximum loan for 2023 is $472,030
Upfront and Monthly Mortgage Insurance is required regardless of the Loan to Value
FHA Loans are only available for financing primary residences
Maximum Debt to Income Ratio of 50% (unless mitigating factors justify allowing a higher DTI)


Borrowers must have a steady employment history of the last two years within the same industry or line of work. Recent college graduates can use their transcripts to supplant the 2-year work history rule as long as it makes sense
Self-Employed will need a 2-year history of tax returns filed with IRS. They will take a 2-year average.

FHA requires a 3.5% down payment. Can be gifted from family member or from retirement savings plan, or money saved-up. Any type of cash deposits is not allowed for down payments. No exceptions to this rule!! This is one of the biggest issues I see in FHA underwriting nowadays.

 FHA loans are for primary residence occupancy. Not rental houses.

Borrowers must have a property appraisal from a FHA-approved appraiser.

Borrowers’ front-end ratio (mortgage payment plus HOA fees, property taxes, mortgage insurance, homeowners’ insurance) needs to be less than 31 percent of their gross income, typically. You may be able to get approved with as high a percentage as 43 percent. If the Automated Underwriting System gives you an Approved Eligible you can go higher on the debt ratios
Borrowers must have a minimum credit score of 580 for maximum financing with a 3.5% down payment

Borrowers must have a minimum credit score of 500-579 for maximum LTV of 90 percent with a minimum down payment of 10 percent. Most lenders will not go below 580 to 620 score, and very few lenders will go to 580 score. It’s best to work on getting your scores up before you apply or work with a loan officer to improve them.
2 years removed from Chapter 7 is required with good pay history after bankruptcy

1 year removed from Chapter 13 is okay with an excellent pay history with the Chapter 13 plan and permission from trustee. You will need to qualify with the Chapter 13 payment along with new house payment. Again, scores will play into your loan pre-approval.

Typically, borrowers must be three years out of foreclosure and have re-established good credit. Exceptions can be made if there were extenuating circumstances and you’ve improved your credit. If you were unable to sell your home because you had to move to a new area, this does not qualify as an exception to the three-year foreclosure guideline.

Pros and cons of Kentucky FHA loans

Pros

• You can have a lower credit score: If you haven’t established much of a credit history or you’ve encountered some issues in the past with making on-time payments, a 620 credit score — the typical magic number for consideration of a conventional mortgage — might seem out of reach. If your credit score is 580, you’re in good standing with most FHA-approved lenders.

• You can make a lower down payment: FHA loans also give the option for a smaller down payment. With a credit score of at least 580, you can make a down payment of as little as 3.5 percent. If your credit score is between 500 and 579, you may still be able to qualify for an FHA-backed loan, but you will need to make a 10 percent down payment.

• You can stop renting earlier: Since FHA loans make buying a home easier, you can start building equity sooner. Instead of continuing to rent while trying to save more money or improve your credit score, FHA loans make the dream of being a homeowner possible sooner.

Cons

• You won’t be able to avoid mortgage insurance: Since your credit score is lower, you’re a bigger risk of default. To protect the lender, you have to pay mortgage insurance. You can roll the upfront insurance premium into your closing costs, but your annual premiums will be divided into 12 installments and show up on every mortgage bill. If you put down less than 10 percent, you have to pay those annual premiums for the entire life of the loan. There’s no escaping them. That’s a big difference from conventional loans: Once you build up 20 percent equity, you no longer have to pay for private mortgage insurance.

• You’ll have to meet property requirements: If you’re applying for an FHA loan, the property has to meet some eligibility requirements. The most important is the price: FHA-backed mortgages are not allowed to exceed certain amounts, which vary based on location. You have to live in the property, too. FHA loans for new purchases are not designed for second homes or investment properties.

• You could pay more: When you compare mortgage rates between FHA and conventional loans, you might notice the interest rates on FHA loans are lower. The APR, though, is the better comparison point because it represents the total cost of borrowing. On FHA loans, the APR can sometimes be higher than conventional loans.

• Some sellers might shy away: In the ultra-competitive pandemic housing market, sellers weighing multiple offers often viewed FHA borrowers less favorably.

Joel Lobb
Mortgage Loan Officer
Individual NMLS ID #57916



Text/call: 502-905-3708

email: kentuckyloan@gmail.com

http://www.mylouisvillekentuckymortgage.com/

The view and opinions stated on this website belong solely to the authors, and are intended for informational purposes only. The posted information does not guarantee approval, nor does it comprise full underwriting guidelines. This does not represent being part of a government agency. The views expressed on this post are mine and do not necessarily reflect the view of my employer. Not all products or services mentioned on this site may fit all people.
NMLS ID# 57916, (www.nmlsconsumeraccess.org).

What is an FHA Loan and Is It Right for You?

What is an FHA Loan and Is It Right for You?

The Federal Housing Administration insures what are called FHA loans. These mortgage loans provide opportunities for buyers with less-than-perfect credit or limited down payments to purchase homes, but they aren’t without potential pitfalls.

FHA loans are available to borrowers with a credit score of at least 580, and you have to make a minimum 3.5% down payment. They’re a popular option for first-time home buyers.

Lenders such as banks and credit unions issue the mortgages, which are insured by the FHA. That protects the lender if the borrower defaults, which is why the terms are more favorable than a traditional mortgage.

Around eight million single-family homes have loans insured by the FHA.

What Can an FHA Loan be Used For?

You can use an FHA loan to refinance single-family houses, to buy a single-family home, to buy some multifamily homes and condos and certain mobile and manufactured homes. There are particular types of FHA loans that can be used to renovate an existing property or for new construction.

How is an FHA Loan Different from a Conventional Mortgage Loan?

The biggest differentiator between an FHA loan and a conventional mortgage is that it’s easier to qualify for an FHA loan. You may get a loan with a lower credit score than you would otherwise, and your mortgage insurance payments may be lower too.

There are also fewer restrictions as far as using gifts from family or donations for your down payment.

If you have a FICO score of at least 580, you have to make a 3.5% down payment. With a FICO score between 500 and 579, you’re required to make a 10% down payment, and mortgage insurance is required. Your debt-to-income ratio needs to be less than 56.99% whereas with a conventional loan it’s usually 45%. You do need to have proof of income and steady employment, as you would need with a conventional loan.

Are There FHA Loan Limits?

There are limits on the mortgage amount you can get with an FHA-guaranteed loan. The limits vary based on your county, Yes, FHA loans have limits based on your county's median home prices. 

 In 202​5, Max FHA loan in Kentucky for Kentucky FHA Loan Limits by County are: $524,225 1 unit $671,200 2 unit $811,275 3 unit $1,008,300 4 unit– This changes every year 

The limit amounts are updated by the FHA each year based on fluctuations in home prices.

The Benefits of the FHA Loan

The primary benefits of an FHA loan are that buyers who wouldn’t otherwise qualify may be able to own a home and for a lower down payment. Sometimes the FHA will help facilitate coverage of closing costs. If you have problems making payments on an FHA loan you may be eligible for a forbearance period if you qualify.

What Are the Downsides of an FHA Loan?

You will have to pay an upfront mortgage insurance premium with an FHA loan to protect the lender. The fee is due when you close and it’s 1.75% of your loan. You will also have to pay an annual mortgage insurance premium for the life of your loan. The amount can range between 0.45% and 1.05%.

When you buy a home with an FHA loan, it has to meet strict standards in terms of health and safety.

Also, while there are set standards from the FHA, approved lenders can create their own requirements.

Applying for an FHA Loan

You’ll have to first find an FHA-approved lender to get one of these home loans. You’ll need some documents, including proof of U.S. citizenship, legal permanent residency, or eligibility to work in America. You’ll need bank statements for at least the past 30 days, and you’ll probably need to show pay stubs.

Some of the information your lender may be able to obtain on your behalf, such as your credit reports, tax returns and employment records.

There are advantages to an FHA loan because it expands homeownership to more people than conventional loans. It’s just important that if you’re considering this loan you understand the costs and that you’re not taking on more than you’re financially prepared for because of the less stringent approval requirements.

Written by Ashley Sutphin for www.RealtyTimes.com Copyright © 2020 Realty Times All Rights Reserved.

If you’re planning to buy your first home in Kentucky, FHA loans in Kentucky may be the ideal solution. They may help if you have faced challenges qualifying for a conventional mortgage. FHA loans in Kentucky may be the ideal solution. These loans are backed by the Federal Housing Administration (FHA). They offer flexibility and affordability. Lower barriers to entry make homeownership a reality for many borrowers.

Joel Lobb

Mortgage Loan Officer

Individual NMLS ID #57916

 

click here for directions to our office

 

Text/call:      502-905-3708

fax:            502-327-9119
email:          kentuckyloan@gmail.com

 

https://www.mylouisvillekentuckymortgage.com/

 

Kentucky FHA Loans with Bad Credit in 2023.

How to get approved for a Kentucky FHA Mortgage Loan with Bad Credit in 2023.

Below details the DTI requirements The maximum Front and Back ratios applicable to manually underwritten Kentucky FHA Mortgages are detailed below. 

Maximum DTI allowed for Manual UW is 40/50 

**IMPORTANT – any loan where ALL borrowers have No Fico Score, the Maximum DTI is 31/43 per HUD DTI and Compensating Factor Requirements: 

560 FICO and Above – DTI up to 31/43.Comp Factors Required - NONE. 

560 FICO and Above - DTI up to 37/47Comp Factors Required– 1 Required 

560 FICO and Above – DTI up to 40/50Comp Factors Required– 2 Required

ACCEPTABLE COMPENSATING FACTORS:

RESERVES – 3 mo (1-2 Unit) 6 Mo (3-4 Unit)

HOUSING DECREASE – new PITI is no more than $100 or 5%, the lesser of the two

RESIDUAL – Meet VA residual requirements

ADDITIONAL INCOME – Income not reflected in DTI (this comp factor is only permitted when DTI is over 37/47 and if income were used, it would decrease DTI under 37/47)

MANUAL UNDERWRITE REQUIREMENTS ON ALL LOANS

12 Months verified housing history OR rent free letter,

Reserves, AND

1 month reserves for 1-2 Unit

3 month reserves for 3-4 Unit

NOTE: If you use reserves as a compensating factor, then you do not need these reserves in addition

Letter of explanation for all derogatory credit, including any NSFs and/or overdrafts in bank accountIf applicable, 2 months for all bank statements in the file (60 days activity)

Maximum DTI 40/50 (HUD guideline, no exceptions

Instructions for Residual Income as Compensating Factor

Residual income may be used as compensating factor when it meets or exceeds the stated amounts in

the table below. Note that all household members must be counted for ‘family size’ except for individuals

who are fully supported from a verified source of income not included in the effective income of the loan.

Residual Income Calculation When Needed as a Compensating Factor

Gross Monthly Income1 2

- (State income taxes3)

- (Federal income taxes3)

- (Municipal or other taxes3)

- (Retirement deductions and/or Social Security deductions)

- (Total monthly housing payment)

- (Estimated maintenance and utilities4)

- (Job related expenses (e.g., childcare)5)

= Monthly Residual Income for Family Support.

[When using Residual Income as a compensating factor, the “Monthly Residual Income for Family Support” must

meet or exceed the dollar amount in the “Residual Income Table” above.

1 Income from occupying borrowers only

2 Non-taxable income may not be grossed up

3 Federal and state taxes must be used to determine appropriate deductions or paystub if taxes are not available

4 Multiply total living area (sq ft) x 14

5 Childcare letter is not required (as it is for VA) and should not be requested

Exceptions to the Required Residual Income

You may reduce the residual income figure from the above tables by 5% if:

1. The borrower(s) is an active duty or retired serviceperson, OR

2. There is a clear indication that a borrower will receive the benefits resulting from use of military-based

facilities located near the property.

Examples of military service for reduced residual income are:

Guard and Reserve military retirees, 100% disabled Veterans and their family members, or Medal of Honor

recipient.

Joel Lobb
Mortgage Loan Officer
Individual NMLS ID #57916


American Mortgage Solutions, Inc.
10602 Timberwood Circle
Louisville, KY 40223
Company NMLS ID #1364



Text/call: 502-905-3708
fax: 502-327-9119
email: kentuckyloan@gmail.com

http://www.mylouisvillekentuckymortgage.com/

The view and opinions stated on this website belong solely to the authors, and are intended for informational purposes only. The posted information does not guarantee approval, nor does it comprise full underwriting guidelines. This does not represent being part of a government agency. The views expressed on this post are mine and do not necessarily reflect the view of my employer. Not all products or services mentioned on this site may fit all people.
NMLS ID# 57916, (www.nmlsconsumeraccess.org).