How do collections and charge offs on the credit report affect a Kentucky VA Mortgage Loan Approval?

In order to get approved for a Kentucky VA loan with outstanding collections and charge offs listed on
the credit report, the VA underwriter will want to know the following about them:

Collections & Charge Offs are two different things.  Below is what VA saying about them:


Collection Accounts

Isolated collection accounts do not necessarily have to be paid off as a condition for loan approval. A credit report may show numerous satisfactory accounts and one or two unpaid medical (or other) collections. In such instances, while it would be preferable to have collections paid, it would not necessarily be a requirement for loan approval.

However, collection accounts must be considered part of the borrower's overall credit history and unpaid collection accounts should be considered open, recent credit.

Borrowers with a history of collection accounts should have re-established satisfactory credit in order to be considered a satisfactory credit risk.

While VA does not require that collection accounts be paid-off prior to closing if the borrower's overall credit is acceptable, an underwriter must address the existence of the collection account(s) with an explanation on VA Form 26-6393, Loan Analysis, for excluding the negative credit history they represent.

If the collection account is listed on the credit report with a minimum payment, then the debt should be recognized at the minimum payment amount.

Charged off Accounts

These accounts are typically collections in which the creditor is no longer pursuing collection of the account. The underwriter must address the circumstances regarding the negative credit history when reviewing the overall credit of the borrower(s).


2 different topics best if you can send me credit to review. 


·         Charged off accounts generally ignored

·         Collection accounts on Federal debt are a big issue so we careful there

·         Collections not required to be paid off unless they are extremely high

·         Manual Underwrite we do require an LOE from Veteran for collections

·         What happened, what they did to resolve, what are they doing in the future to either resolve or to prevent this from happening and finally if they are going to enter into a payment plan or not.  Ultimately on the resolution of the collection the UW does not care but VA requires that as part of LOE.


Hope this helps send me credit for full evaluation.


The VA underwriter will want to verify the Kentucky Mortgage Veteran has the ability to pay these items or will want to know how they were paid off before closing.

Any collection or charge off showing as a judgement or lien on the VA mortgage applicant's credit report, must be paid before closing. These affect the title and must be paid before the mortgage is recorded.

Joel Lobb (NMLS#57916)
Senior  Loan Officer
502-905-3708 cell

This website is not affiliated with any government agencies, including the VANMLS ID #57916 (

Kentucky Mortgage Guidelines for VA, FHA, USDA and Conventional Mortgage Loans

Kentucky Mortgage Guidelines for VA, FHA, USDA and Conventional Mortgage Loans

Kentucky VA Mortgage Loans


   • Minimum FICO 550 on full files OR true NO FICO

   • Manual underwrite to a 580 FICO

   • Cash out to 100% LTV

   • Manufactured homes allowed, double wide or bigger

   • VA IRRRL NO LTV cap

   • VA IRRRL, unlimited late payments (loan must be current and last 6 payments on time)

   • VA IRRRL, allow odd terms on fixed loans

   • VA purchase up to 100% LTV

   • VA escrow holdbacks allowed

Kentucky FHA Mortgage Loans

   • FHA streamlines NO FICO

   • Minimum FICO 550 on full files 

   • Manufactured homes allowed, double wide or bigger

   • FHA streamlines, NOO allowed. NO Appraisals or AVMs

   • FHA 203(k) & (h) allowed

   • FHA escrow holdbacks allowed

Kentucky USDA Mortgage Loans

   • USDA Streamlines NO FICO

   • Minimum FICO 580 on full files OR true NO FICO

   • Manufactured homes allowed, double wide or bigger

   •  Streamlined assist 

   •  USDA escrow holdbacks allowed

Kentucky Conventional Mortgage Loans

   • Minimum FICO 580

   • Manufactured homes allowed, double wide or bigger

   • Up to 97% LTV (allow for the 3% to be gifted)

   • LPMI up to 97% LTV

   • LPMI and Regular MI allowed on investment properties

   • Unlimited financed properties (follow Fannie Mae guidelines)

   • HARP DU Refi Plus (allow for MI to be transferred) Fannie

   • HARP Open Access Relief loan (allow for MI to be transferred) Freddie

   • Home One, HomeReady, Home Possible

   • 80/10/10 Program with HELOC 2nd

I hope this gives you some useful input to help guide your decision making. Give me a call if you have more specific questions! Thanks so much 

Joel Lobb (NMLS#57916)
Senior  Loan Officer
American Mortgage Solutions, Inc.
10602 Timberwood Circle Suite 3
Louisville, KY 40223
Company ID #1364 | MB73346

Text/call 502-905-3708

If you are an individual with disabilities who needs accommodation, or you are having difficulty using our website to apply for a loan, please contact us at 502-905-3708.
Disclaimer: No statement on this site is a commitment to make a loan. Loans are subject to borrower qualifications, including income, property evaluation, sufficient equity in the home to meet Loan-to-Value requirements, and final credit approval. Approvals are subject to underwriting guidelines, interest rates, and program guidelines and are subject to change without notice based on applicant's eligibility and market conditions. Refinancing an existing loan may result in total finance charges being higher over the life of a loan. Reduction in payments may reflect a longer loan term. Terms of any loan may be subject to payment of points and fees by the applicant  Equal Opportunity Lender. NMLS#57916

Gift Funds & Gift of Equity for Kentucky FHA Mortgage Loan Approval Requirements

 Kentucky FHA Gift of Equity and Gift Funds for Down Payment Requirements

Kentucky FHA Gift of Equity and Gift Funds for Down Payment Requirements

Gifts may be provided by:

•  Borrower's family member*;
•  the borrower's employer or labor union;
•  a close friend with a clearly defined and documented interest in the borrower;
•  a charitable organization;
•  a governmental agency or public entity that has a program providing homeownership assistance to:
•      low or moderate income families; or
•      first-time homebuyers.

*Family member defined as:
•  child, foster child, parent, or grandparent; spouse or domestic partner;
•  legally adopted son or daughter, including a child who is placed with the borrower by an
authorized agency for legal adoption;
•  brother, stepbrother, sister, stepsister;
•  uncle or aunt
•  son-in-law, daughter-in­ law, father-in-law, mother­ in-law, brother-in-law, or sister-in-law of
the borrower.

Guidelines -  Personal Gift Funds

•      Primary residence 1-4 unit only
•     Funds may not be used to fulfill mandatory reserve requirements for manually underwritten
•      No borrower funds are required for down payment.
•      Cash on hand is not an acceptable source of donor funds.

Documentation  - Personal Gift Funds

•      Gift letter - See Requirements in "Notable Agency Differences" Above
•      If the gift funds have been verified in the borrower's account, obtain the donor's bank
statement showing the withdrawal and evidence of the deposit into the borrower's account.
•      If the gift funds are not verified in the borrower's account, obtain the certified check or
money order or cashier's check or wire transfer or other official check, and a bank statement
showing the withdrawal from the donor's account.
•      If the gift funds are paid directly to the settlement agent, verify that the settlement
agent received the funds from the donor for the amount of the gift, and that the funds were from an
acceptable source.
•      If the gift funds are being borrowed by the donor and documentation  from the bank or other
savings account is not available, have the donor provide written evidence that the funds were
borrowed from an acceptable source, not from a party to the transaction.
Regardless  of when gift funds are made available to a borrower, the lender must be able to make a
reasonable determination that the gift funds were not provided by an unacceptable source.  This
usually requires a copy of the donor's bank statement.

Guidelines -  Gift of Equity

•     Family member is ONLY eligible donor for gifts of equity
•      Limited to 85% LTV unless:
o      residence is currently selling-family member's primary residence or
purchasing family member has been renting residence 6 months prior to sales contract date.

Documentation -  Gift of Equity

Gift Letter -  See Requirements in "Notable Agency Differences" Above

Kentucky Mortgage Underwriting Guidelines For Deposits, Job Gaps, Credit Inquiries

Kentucky Mortgage Underwriting Guidelines 

Applying for a Kentucky Mortgage

 Most Kentucky home buyers will need to gather and document the information upfront so you will have minimal problems once the underwriter issues your final mortgage loan approval .  Let’s look at some common underwriting issues that arises on the final mortgage approval.
Job Gap—The application will call for you to document your last two years of employment history. If you have had several jobs, or job gaps of more than 6 months, you will need to document why you were off work and why you made the changes in your job. The underwriter is looking for stability in your pay and job. If you were in school recently, then the underwrite may want to see transcripts to verify this.
Credit Inquiries- Are there credit inquiries producing a red flag? • Does the applicant have excessive verified assets that could cover the dollar amount of the large deposit to, in essence, negate the effect of the large deposit?
The asset documentation must present sufficient funds of an acceptable source for down payment, closing costs and reserves. If you have had a lot of recent inquiries on your credit report, the underwriter will want an explanation on why the inquiries were made and see if any new debts has opened since the credit report has been issued.
Large Deposits in Checking and Savings Accounts–  this is a biggie for most people  what constitutes a large deposit requiring additional explanation and documentation. For Kentucky Mortgage Conforming loans:  considers a large deposit to be any deposit greater than 25% of the borrower’s qualified monthly income. A letter of explanation and sufficient documentation to support the source of the funds will be required.  For FHA/VA loans:  will require a letter of explanation on any large deposit, as determined by the underwriter. Additionally, any deposit of an amount equivalent to 2% or greater of the loan sales price must have its source of funds documented and verified.
Most Kentucky Mortgage underwriters now days  considers a large deposit to be any deposit greater than 25% of the borrower’s qualified monthly income. Any such deposit not consistent with the borrower’s employment, earnings and/or savings profile must be fully explained and sourced with acceptable documentation in order to be eligible for down payment, closing costs, earnest money deposit and reserves. All funds used for down payment, closing costs, earnest money deposit and reserves must be from an acceptable source and clearly not be a result of undisclosed borrowed funds or incentive from an interested party such as a seller, real estate agent or developer.

A large deposit could be a single deposit or multiple deposits over a period of time that in aggregate, result in a large deposit. A review of the borrower’s financial profile must be conducted in order to draw a conclusion that a deposit must be sourced. Items to take into consideration when identifying deposits to be sourced are as follows: • Are the deposits within the normal deposit pattern from an identifiable
income source?

• Are total monthly deposits consistent with income?
 • Is the ratio of deposits to income reasonable?
• Is the borrower’s income direct deposited?
• Are there multiple deposits over a period of time that in aggregate, result in a large deposit?
• Was the account recently opened?

All large deposits must be addressed. Regardless of how long ago the earnest money was deposited, it must be verified. A signed letter of explanation from the borrower is required in all circumstances. If the borrower is able to provide a reasonable explanation and sufficient documentation to support the deposit is of an acceptable source, the large deposit may be included in the funds to close.

There may be an occasion, when the borrower is able to provide a reasonable explanation, but unable or unwilling to sufficiently document the source of a large deposit and has assets exclusive of the large deposit that are sufficient for closing and reserves. An underwriter, after exercising due diligence to ensure funds are not from an unacceptable source, may deduct the large deposit from the balance of the account, and allow the remaining balance in the account to be used as funds to qualify. In the course of due diligence, the underwriter must be confident the deposit was not as a result of an undisclosed debt or as a result of incentives from a seller, real estate agent or developer. In the event that an asset balance is reduced by the amount of a deposit, the system must be corrected, the reason for the change in the asset amount documented and the AUS decision must be updated.

Any deposit that cannot be adequately explained could potentially raise a red flag and result in a declination. Items for consideration when excluding a deposit from the asset balance:
• Do the overall assets seem reasonable given the borrower’s financial profile?
• Is there other documentation in the file (such as tax returns) that may support additional income or asset sources?
• Is the deposit possibly a loan?
GIFT FUNDS —- Gift funds are acceptable from a close relative, a close friend with a clearly defined interest in the borrower, the borrower’s employer or a non-profit organization.  Entire cash investment can be gifted by relative, church municipality, non-profit agency.  Transfer of funds must be documented (no exceptions).  Underwriters  will require the donor’s account statement and proof of withdrawal.   Provide copy of fully executed gift letter (FHA applicant must also sign).  Provide copy of cancelled check from donor or copy of donor’s withdrawal slip and matching deposit into applicant’s bank account or deposit slip; or  Provide copy of cashier/treasurer/certified check to be given to closing agent.  Amount must be denoted on HUD-1.  If funds wired at closing, provide copy of wire transfer or copy of the check.  This will need to take place prior to the funding of the loan.  Only family members may provide a gift of equity.
CASH ON HAND—Money must be deposited and verified either through VOD or title company escrow letter AND the applicant must provide satisfactory evidence of the ability to have saved this money. If a VOD is used, a 1 month bank statement supporting the VOD is required. (The applicant must also provide a letter explaining how the money was saved and the length of time it took to save it.) May not be used as a source of assets for gift transactions.
Note: All other factors being equal, those individuals with checking and/or savings accounts are less likely to save money at home than an individual with no history of such accounts.
If you would like more information or just have questions about qualifying for a Kentucky Mortgage in 2013, be it FHA, VA, Fannie Mae, USDA,  just contact me below for your mortgage needs.

Earnest Money Deposit (EMD)
A deposit made by the buyer when the purchase offer is accepted. The funds are held by the escrow company and credited towards the cost of down payment and closing costs.

Earnest Money Deposit– If you put down a deposit on the home you are buying, you will need to get a copy of the bank statement or cancelled check to show the check has cleared your bank account and it will need to show your updated balance after the cancelled check has cleared.

earnest money deposit for a Kentucky mortgage loan

Joel Lobb
Mortgage Loan Officer
Individual NMLS ID #57916

American Mortgage Solutions, Inc.

Text/call:      502-905-3708
fax:            502-327-9119


Mortgage Overlays Explained

Overlays Explained

Kentucky Mortgage Overlays

What’s an Overlay? An Overlay is a mortgage industry term that highlights an additional qualifying requirement(s) beyond what the guidelines issued by Fannie Mae and Freddie Mac. FHA, VA and USDA loans can also have overlays. These guidelines are set forth for several reasons, but one is to provide lenders with mortgage program stability as well as allowing lenders to sell loans, either individually or ‘in bulk.

Think about that for a moment. If there were no secondary market at some point the mortgage company would run out of money to lend. When a lender makes a loan, it draws down some money from its credit line and replenishes that credit line once the loan(s) is sold. This process occurs over and over again.

Overlays can also be used to target a specific type or class of borrower. To reduce risk, a lender might ask for a greater down payment than is originally required. Let’s look at credit scores as an example. While Fannie might ask for a minimum credit score to be 680 a lender might decide to up the ante a bit and set the minimum score at 700.

Catering to different groups means catering to a particular market or class of borrower. One lender may continue to stand firm with a 680 score while another decides 700 is better. Many borrowers may not know about this dynamic. This can mean applying for a mortgage at a mortgage company, getting declined and thinking that all lenders are the same and stop their search for a new home. All they really needed to do was to continue shopping for a lender who would approve the very same loan, just without the harsher overlays.

If a lender asks for a 680 score your loan officer will know where to send a loan with a sub-700 FICO. These overlays can be placed on both conventional as well as government-backed mortgages. The government-backed mortgages are those underwritten to FHA, VA and USDA program guidelines.

Overlays can come and go over time. A lender might set forth a new overlay and then a year later remove it or even enhance it. It’s completely up to the individual lender as long as the loan is approved using established guidelines. What lenders can’t do is weaken guidelines. There are no overlays to drop the minimum score requirement from 680 to 650, for example. Doing so would mean the mortgage didn’t meet program guidelines and the loan could no longer be sold. Overlays help protect the lender while at the same time providing borrowers with additional choices.

Finally, lenders can’t dilute loan program requirements. In other words, lenders can’t apply an overlay to lessen the requirements. Reducing approval requirements means the loan won’t have the minimum features that secondary markets require. If a lender does in fact reduce the requirements the loan can still be made, it’s just that the lender can expect to keep the loan in its own possession for the life of the loan.

One important concept you should familiarize yourself with is the “lender overlay,” which is essentially an expanded guideline (or set of guidelines) on top of what Fannie Mae, Freddie Mac, or the FHA/VA will allow.

Think of it as a second coat of paint, applied after the primer. The primer is the bare minimum necessary, but you don’t see people driving around too often without that second coat.

The same goes for mortgages. Fannie Mae, Freddie Mac, and the FHA/VA all set underwriting guidelines for residential mortgages, but they don’t actually lend directly to consumers.

Their job is to purchase and/or securitize the home loans that fit their guidelines, which is why they exist to begin with. Essentially, to keep the mortgage market liquid.

By doing so, lenders are able to sell their loans more easily, knowing they fit certain pre-determined criteria, which allows them to originate more loans via that increased liquidity.

Written by David Reed for Copyright © 2022 Realty Times All Rights Reserved. Reed is from Austin, Texas and is the author of The Real Estate Investor’s Guide to Financing, Your Guide to VA Loans and Decoding the New Mortgage Market. A Senior Loan Officer and Mortgage Executive for more than 20 years, he has also appeared on CNN, CNBC, Fox Business, Fox and Friends and the Today In New York show.


In most cases, it's ok with lenders to use gift money from a family member to make a down payment. The FHA allows down payments of as little as 3.5 percent, 

Joel Lobb
Mortgage Loan Officer
Individual NMLS ID #57916

American Mortgage Solutions, Inc.

Text/call:      502-905-3708
fax:            502-327-9119