I specialize in Kentucky First Time Homebuyers FHA, VA, USDA & Rural Housing, KHC and Fannie Mae mortgage loans. I have helped over 1300 Kentucky families buy their first home or refinance their current mortgage for a lower payment; Kentucky First time buyers we still how available down payment assistance with KHC. Free Mortgage applications/ same day approvals. Web site is not endorsed by the FHA, VA, USDA govt agency. Text/call 502-905-3708 kentuckyloan@gmail.com NMLS 57916 NMLS 1738461
Kentucky FHA appraisals can take home buyers by surprise. That’s why we've put together some good-to-know info about the process. Feel free to use this to help educate your clients.
Your Kentucky FHA Home Appraisal Checklist
If you’re using an Kentucky FHA loan to buy a home (or selling to FHA borrowers), the property must pass an FHA appraisal, which determines the current market value and makes sure the house meets certain safety standards. Here is a list of items an FHA appraiser may look for:
General Health and Safety
Foundation or structural defects
Whether the utilities (water, sewage, heat, and electricity) all work
Chipped or peeling paint in homes built before 1978
Incomplete renovations
Water damage
If the property is accessible to vehicles, especially emergency vehicles
Exposed wiring and uncovered junction boxes
Whether the house is too close to outside hazards, such as a leaking oil tank or a waste dump
Excessive noise, such as being close to an airport
Missing handrails
Exterior
Leaky or defective roof and holes in the siding
Leaning or broken fencing
Doors that don’t properly open or close
Condition of gutters, chimney, stairs, railings, and porches
If swimming pools are up to code
Every Room
Whether each room has electricity
Whether each room has a window or door to the exterior to be used as a fire escape
Kitchen
Missing or broken appliances usually sold with a home, including stove and refrigerator
Broken or leaking sink
Bathrooms
Broken or leaking toilet, sink, or tub/shower
No ventilation (either an exhaust fan or window)
Crawl space or basement
Basement moisture
Evidence of past or present standing water
Heating and Plumbing
Inoperable HVAC
Major plumbing issues and leaks
These are some common items an FHA appraiser looks for, but other issues that might make a house unsafe could keep it from passing. An FHA appraisal is not the same as an independent home inspection. It’s still a good idea to get a separate home inspection to make sure you’re making a wise investment!
Updated FHA Info Letter Sent July 12, 2022 for Kentucky FHA Appraisal Reports
✨Applies to case numbers assigned on or after June 1, 2022
✨Updates the initial appraisal validity period from 120 days to 180 days from the effective date of the appraisal report;
🙌🏼Extends the appraisal update validity period from 240 days to one year from the effective date of the initial appraisal report;
✨Allows the appraisal update to be ordered AFTER an appraisal expires; and
👊🏼Eliminates the optional 30-day extension.
✨This is big news for FHA ✨
The guideline change also puts FHA appraisal expirations on par with conventional loan expiration dates.🥊
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.
Your lender needs to know everything about you for the application, but actually, all the lender needs to know about is employment, finances, and information about the home you’re buying (but you can be pre-approved before you choose a home). You will, however, need to provide quite a few details about these topics. The goal is to arrive at a monthly payment you can afford without creating financial hardships. Here's an idea of what lenders consider when they are qualifying you for a loan:
Your household income and expenses
Lenders look at your income in ways other than the total amount; how you earn it is also important. For example, income from bonuses, commissions and overtime can vary from year to year. If these sources make up a large percentage of your income, your lender will want to know how reliable they are.Your lender will also consider the relationship between your income and expenses. Generally, your fixed housing expenses (mortgage payment, insurance, and property taxes, but not repairs or maintenance) should not be more than 28 percent of your gross monthly income, although this is not an absolute rule. Your lender will also consider other long-term debts, such as car loans or college loans. It is a good idea to bring the following when you meet with your lender:
Income
Employment, salary and bonuses, and any other source of income for the past two years (bring your most recent pay stub, previous year’s W-2 forms, and tax returns if possible) The most recent account statement showing the amount of any dividend and interest income you received during the past two years Official documentation to support the amount of any other regular income you may receive (alimony, child support, etc.)
Job stability is a factor that a mortgage lender will look for, and two years at your current job helps, but this also is not an absolute requirement. If you change jobs but stay in the same line of work, you should not have a problem — especially if the job change is an advancement or increase in income.
Credit score
Your credit score also helps to predict how likely you are to repay the mortgage debt. Credit scores will determine if you qualify for the loan, what your rate is, and mortgage insurance payments each month.
Typical fico scores wanted for an automated approval run around 620 for an FHA loan and VA loan, 640 for a USDA, 640 for a KHC Loan with Down Payment Assistance, and 620 for an AU approval for Fannie Mae Loan.
It is very possible to get a mortgage loan with a lower credit score than 620 with a FHA loan or USDA loan. FHA will allow you to go down to a 500 credit score with 10% down payment and a 580 credit score or higher will allow for a 3.5% down payment.
Lenders will create overlays so some lenders will create a higher credit score threshold than what FHA or USDA says on paper in their official guidelines.
USDA loans and VA loans do not have a minimum credit score requirement, but most lenders will create overlays to filter out lower credit profile customers. The reason behind that is due to if the lender sends a lot of loans with lower credit scores to the government agency that insures the loan against default, they will get shut off from doing loans all together which would be detrimental to their business.
A lot of loan officers will work with you on your credit report to get your scores up with a rapid rescore, which is something we offer.
Personal assets
Current balances and recent statements for any bank accounts, including checking and savings Most recent account statement showing current market value of any investments you may have, such as stocks, bonds or certificates of deposit Documentation showing interest in retirement funds Face amount and cash value of life insurance policies Value of significant pieces of personal property, including automobiles Debt Information The balances and account numbers of your current loans and debts, including car loans, credit card balances and any other loans you may have
Underwriting
The lender does the best possible job of ensuring that a borrower qualifies for a loan. The final decision, however, rests with the lender's underwriter, who measures the total risk that the specific investor, who backs up the loan, is taking. Each investor (or investment company) has its own underwriting guidelines (often using statistical models), so while the underwriters evaluate many of the same factors as the lenders, they may look more closely at some areas than others, depending on the guidelines. For example, while the lender may have pre-approved you before you chose a home, by the time you get to underwriting, you will have chosen the property you want to buy, and the underwriter will review the property details closely.However, most of the information used is the same as that used by the lender, but it may be evaluated differently. The underwriter will evaluate the borrower's ability to pay (income), willingness to pay (credit history), and the collateral (property). As underwriters analyze each of these risks (although this is not a complete list), here are some possible guidelines they may use:
Income
Is the income sufficient to repay the loan? Ratio guidelines of 31 percent payment-to-income and 43 percent total debt-to-income are standard, but some programs allow for higher ratios. This is the typical manual underwrite for a score that does not fit the current Automated Underwriting Engines used for Fannie Mae (DO), FHA, VA, USDA and Rural Housing (GUS) Is the income stable from month to month and year to year? Has the borrower been on his/her current job and in the same industry for a sufficient amount of time? A minimum of two years is the standard guideline, but exceptions can be made.
Can the income be verified?
Credit
Does the borrower have a good credit score-Typically 740 or higher will yield the best rates and lowest mortgage insurance for a conventional loan?
FHA mortgage insurance and VA mortgage insurance is the same no matter what your credit score is.
Does the borrower have late payments, collections, or a bankruptcy?
If so, is there an explanation that can be provided for the late payments/collections/bankruptcy? FHA, VA requires 2 years removed from bankruptcy and USDA requires 3 years removed from bankruptcy.
Fannie Mae requires 4-7 years after a bankruptcy.
Does the borrower have excessive monthly debts to repay? Typical Debt to income ratios for a no money down loan are limited to 45% of your total gross monthly income for a USDA or KHC loan. Is the borrower maxed out on credit cards? Pay down your credit card balances to less than 25% of your credit limits before you apply for a mortgage loan.
Collateral
Is the property worth what the borrower is paying for it? If not, the lender will not loan an amount in excess of the value. If the appraisal comes back less than the offer on the house, sometimes you can renegotiate the terms of the purchase contract with the seller and his/her real estate, agent.Some borrowers agree to purchase the home at the price they originally offer and pay the difference between the loan and the sales price. You need to have the disposable cash to do this, and you should assess whether the property is likely to hold its value. You also need to consider the type of loan for which you have qualified.
If you need to move suddenly and have a large loan relative to the original value, and the property has not held its value, you could face a difficult cash shortfall when you go to pay off your loan.Is the property an acceptable type of property, and does it meet coding requirements and zoning restrictions? Is the property comparable to other properties in the area? Surveys are common and are used to get an accurate measurement of the land that goes with the property you are purchasing. The person who prepares the survey should be a licensed land surveyor. The survey shows the location of the land, dimensions of the land and any improvements.Encroachments are improvements to the property that illegally violate another's property or their right to use the property, such as building a fence that is actually on your neighbor's property instead of yours, or constructing a building that crosses from your property to another’s property without their permission. Evidence of encroachments can slow the final approval process.
The down payment
A downpayment is a percentage of your home's value. The type of mortgage you choose determines the down payment you will need. It can range from zero to 20 percent, or more if you wish.A number of loans are available that do not require high down payments, particularly for first-time home buyers. FHA loans, for example, may require less than 5 percent down, and veterans or those on active duty in the military can obtain loans with no down payment at all. USDA loans are offered to rural home buyers with a no down payment option just like VA loans.In addition to down payment assistance offered through Kentucky Housing where you don't have to put a down payment down with income caps for both KHC and USDA loans.These programs may have less strict guidelines for loan approval, such as allowing a higher ratio of payment to income or debt to income. They also may accept alternative forms of credit history if you have not established credit through traditional means — credit cards and car loans. For example, a lender could look at the history of utility payments and rent payments to determine credit worthiness.
Kentucky Home Buyers: What Credit Score Do You Need?
Buying a home in Kentucky? Your credit score plays a crucial role in determining which mortgage loans you qualify for and how much you’ll pay in interest rates. Understanding the minimum credit score requirements for FHA, VA, USDA, and Conventional loans can help you prepare for homeownership and secure the best loan options.
While there's no single, simple answer, this guide will break down the minimum credit score requirements for various Kentucky mortgage options, empowering you to understand where you stand and how to achieve your homeownership goals. We'll cut through the confusion and give you the straight facts!
Why Your Credit Score Matters: More Than Just a Number
Think of your credit score as your financial reputation. Lenders use it to assess the risk of lending you money. A higher score signals lower risk, translating to better interest rates, more favorable loan terms, and potentially lower down payment requirements.
Here's the credit score impact on interest rates and your wallet (in general terms):
760-850: The Gold Standard! Expect the lowest interest rates and the most attractive loan options.
700-759: Excellent! You'll still qualify for very competitive rates and favorable terms.
640-699: Good. You'll likely be approved, but interest rates will be slightly higher.
620-639: Acceptable. This range is often the minimum for conventional loans, but be prepared for less favorable rates.
As the guide shows, aiming for a 740+ score can lead to best rates and closing costs on mortgage loans, especially Conventional Mortgage Loans,.
Let's explore the minimum credit score requirements for different Kentucky mortgage types:
Conventional Loan
• At least 3%-5% down• Closing costs will vary on which rate you choose and the lender. Typically, the higher the rate, the lesser closing costs due to the lender giving you a lender credit back at closing for over par pricing. Also, called a no-closing costs option. You have to weigh the pros and cons to see if it makes sense to forgo the lower rate and lower monthly payment for the higher rate and less closing costs.
Fico scores needed start at 620, but most conventional lenders will want a higher score to qualify for the 3-5% minimum down payment requirements Most buyers using this loan have high credit scores (over 720) and at least 5% down.
The rates are a little higher compared to FHA, VA, or USDA loan but the mortgage insurance is not for life of loan and can be rolled off when you reach 80% equity position in home. Conventional loans require 4-7 years removed from Bankruptcy and foreclosure. Kentucky USDA Rural Housing Program If you meet income eligibility requirements and are looking to settle in a rural area, you might qualify for the KY USDA Rural Housing program. The program guarantees qualifying loans, reducing lenders’ risk and encouraging them to offer buyers 100% loans. That means Kentucky home buyers don’t have to put any money down, and even the “upfront fee” (a closing cost for this type of loan) can be rolled into the financing.
Fico scores usually wanted for this program center around 620 range, with most lenders wanting a 640 score so they can obtain an automated approval through GUS. GUS stands for the Guaranteed Underwriting system, and it will dictate your max loan pre-approval based on your income, credit scores, debt to income ratio and assets.
They also allow for a manual underwrite, which states that the max house payment ratios are set at 29% and 41% respectively of your income.
They loan requires no down payment, and the current mortgage insurance is 1% upfront, called a funding fee, and .35% annually for the monthly mi payment. Since they recently reduced their mi requirements, USDA is one of the best options out there for home buyers looking to buy in a rural area
A rural area typically will be any area outside the major cities of Louisville, Lexington, Paducah, Bowling Green, Richmond, Frankfort, and parts of Northern Kentucky. There is a map link below to see the qualifying areas.
There is also a max household income limits with most cutoff starting at 109,500 for a family of four, and up to $136,000 for a family of five or more.
The income limits change every spring, so make sure and check to see what updated income limits are. USDA requires 3 years removed from bankruptcy and foreclosure There is no max USDA loan limit.
Kentucky FHA Loan
FHA loans are good for home buyers with lower credit scores and no much down, or with down payment assistance grants. FHA will allow for grants, gifts, for their 3.5% minimum investment and will go down to a 580-credit score.
The current mortgage insurance requirements are kind of steep when compared to USDA, VA, but the rates are usually good so it can counteract the high mi premiums. As I tell borrowers, you will not have the loan for 30 years, so don’t worry too much about the mi premiums.
The mi premiums are for life of loan like USDA.
FHA requires 2 years removed from bankruptcy and 3 years removed from foreclosure.
Kentucky VA Loan
VA loans are for veterans and active-duty military personnel. The loan requires no down payment and no monthly mi premiums, saving you on the monthly payment. It does have an funding fee like USDA, but it is higher starting at 2% for first time use, and 3% for second time use. The funding fee is financed into the loan, so it is not something you have to pay upfront out of pocket.
VA loans can be made anywhere, unlike the USDA restrictions, and there is no income household limit and no max loan limits in Kentucky
Most VA lenders I work with will want a 580-credit score, even though VA says in their guidelines there is no minimum score, good luck finding a lender VA requires 2 years removed from bankruptcy or foreclosure Clear Caviars needed to for a VA loan.
Kentucky Down Payment Assistance
This type of loan is administered by KHC in the state of Kentucky. They typically have $10,000 down payment assistance year around, that is in the form of a second mortgage that you pay back over 10 years. Current terms are $10,000 over 10 years at 3.75%
Sometimes they will come to market with other down payment assistance and lower market rates to benefit lower income households with not a lot of money for down payment.
KHC offers FHA, VA, USDA, and Conventional loans with their minimum credit scores being set at 620 for all programs. The conventional loan requirements at KHC requires 660 credit score. The max debt to income ratios is set at 50% and 50% respectively.
FHA Loans – Best for First-Time Homebuyers with Low Credit
500-579 Credit Score – Requires 10% down payment 580+ Credit Score – Requires 3.5% down payment Flexible credit guidelines & lower down payments Easier approval for first-time buyers & those with past credit issues
VA Loans – Best for Veterans and Active Military
No official minimum credit score Most lenders require 580-620+ 0% down payment – No mortgage insurance required Best for veterans, active-duty military & eligible spouses
USDA Loans – Best for Rural & Suburban Homebuyers
Minimum 620 to 640+ Credit Score (for automatic approval through GUS ) Some lenders may approve below 640 with manual underwriting with a minimum score of 581 and above 0% down payment required Best for low-to-moderate-income homebuyers in rural areas Income limits and property locations restrictions
Conventional Loans – Best for Borrowers with Good Credit
Minimum 620+ Credit Score-Truthfully, if scores are 620 and less than 20% down payment look at going to the government loan programs like FHA, USDA and VA Higher scores (760+) qualify for better interest rates Down payment: 3%-5% or more Best for buyers with strong credit & stable income
Minimum 620+ Credit Score, Income limits and max dti is 50% usually used for the down payment and closing costs on a FHA, VA, USDA or Conventional loan with the $10k DAP assistance Offers down payment assistance for eligible buyers Best for first-time homebuyers needing financial help
Non-QM Loans – Alternative Financing for Unique Situations
Minimum 500-620 Credit Score (Varies by lender) Includes Bank Statement Loans, DSCR Loans, Asset-Based Loans Best for self-employed borrowers, real estate investors & those with non-traditional income sources
Why Choose Non-QM? These non-traditional loans are great for borrowers who don’t qualify for conventional or government-backed loans due to income verification challenges.
How Credit Scores Affect Mortgage Interest Rates
Your credit score doesn’t just determine loan eligibility—it also affects the interest rate you receive.
Here’s how credit scores impact mortgage rates (examples based on typical loan rates):
Credit Score
Estimated Interest Rate
Kentucky Mortgage Loan Options Available
760-850
Best Rate (Lowest Cost)
Kentucky Conventional, FHA, VA, USDA
700-759
Good Rate
Kentucky Conventional, FHA, VA, USDA
640-699
Higher Rate
Kentucky FHA, VA, USDA, Some Conventional
620-639
Even Higher Rate
Kentucky FHA, VA, USDA, Some Conventional
Below 620
Limited Options, Highest Rates
FHA, VA, USDA and (with higher down payment), Non-QM
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
On a KY FHA loan , you typically have to pay both an upfront and an annual mortgage insurance premium (MIP):
Upfront MIP on A Kentucky FHA Loan
Kentucky FHA loans now collect upfront MIP cost 1.75% of the home loan. For instance, if you borrow $100,000, you must pay $1,750 ($100,000 x 1.75%). It can be paid in full upfront, or added to your mortgage balance. This MIP applies no matter your loan amount or term. Most FHA buyers in Kentucky choose to finance the MIP into the loan. If you decide to pay the upfront MI out of your own funds, then you must pay all the mi premium, not just a part of it. The FHA upfront mi fee is not refundable now. This is a change whereas you use to be able to get e refund if the loan was refinanced or paid off in the first 5 years.
Annual MIP on a Kentucky FHA loan
The annual MIP or monthly mortgage insurance is divided by 12 and added to your monthly mortgage payment. The current maximum of 1.35% of the loan amount. How much and how long you have to pay the annual MIP depends on the originating date of your loan, the amount, and your loan-to-value ratio. For example, if you borrow $100,000 on a 30 year FHA loan, the monthly mortgage insurance would be
$112.00 ($100,00 x 1.35=$1350/12=$112.00 monthly mi) The monthly mi payable to FHA is now for life of loan. This is a big change to keep in mind because FHA use to drop the monthly mi once you reached to 78% ltv of the original balance.
For Kentucky FHA loans with less than 15 year terms the monthly mortgage insurance (Annual MIP) much cheaper.
FHA is changing the duration for the collection of MIP:
o For all mortgages with an original principal LTV of 90% or less, regardless of loan term, the annual MIP will be assessed for 11 years.
o For all mortgages with an original principal LTV greater than 90%, regardless of loan term, the annual MIP will be assessed for the entire life of the loan.
Loans of 15 year terms or less with LTV 78% or less will pay an MIP amount of 45 bps.
FHA
.jpg "Applies to case numbers assigned on or after June 1, 2022 Updates the initial appraisal validity period from 120 days to 180 days from the effective date of the appraisal report; Extends the appraisal update validity period from 240 days to one year from the effective date of the initial appraisal report; Allows the appraisal update to be ordered AFTER an appraisal expires; and Eliminates the optional 30-day extension. ✨This is big news for FHA ✨ The guideline change also puts FHA appraisal expirations on par with conventional loan expiration dates.")
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