2025 Kentucky Homebuyers Guide: Getting Approved for a Mortgage Loan in Kentucky

If you’re a Kentucky homebuyer, this blog post will guide will help you. It will help you navigate the mortgage approval process in 2025.

If you're looking to purchase your next home, this guide is for you too. Whether you're considering FHA, VA, USDA, or KHC loans with down payment assistance, we’ll cover everything you need to know.

This includes credit score requirements and debt-to-income ratios. We will also discuss appraisals, inspections, bankruptcy, and foreclosure guidelines.

Zero Down Payment Options for Kentucky Homebuyers in 2025

Kentucky offers several programs that allow eligible home-buyers to buy a home with little to no down payment:

Kentucky Housing Corporation (KHC) Loans

FHA Loans with down payment assistance

VA Loans for veterans and active-duty personnel

USDA Rural Housing Loans

Special grants, like the $25,000 Kentucky Welcome Home Grant

Each program has its own qualifying criteria. Let’s dive into the specifics.

Kentucky FHA loan with Down Payment Assistance

Kentucky FHA loan

KHC offers affordable loans paired with down payment assistance (DPA) to help Kentucky homebuyers.

Credit Score: Minimum 620 for government loans and 660 for conventional loans

Down Payment: 3.5% (may be offset by DPA programs)

Income Limits: Varies by county and household size click yellow link>---See income limits and purchase price limits here <

Debt-to-Income Ratio (DTI): 50% for housing costs; 50% for all debts

Work History: Minimum two years of stable employment

KHC Down Payment Assistance (DPA) Options:

Up to $10,000, repayable over 10 years at 3.75% interest. It can be used for down payment and closing costs and prepaids (property taxes, home insurance and odd days interest)

FHA Loans in Kentucky

Kentucky FHA loans are government-backed mortgages requiring low down payments, making them ideal for Kentucky first-time homebuyers with lower credit scores, scores under 620 and higher debt to income ratios over 45% on the backend.

Credit Score:

580+ with 3.5% down payment

500-579 with 10% down payment

Debt-to-Income Ratio: Generally up to 45.99% on front end ratio or housing ratio and up to 56.99% on the back-end ratio, meaning new house payment plus monthly payments on the credit report.

Work History: Two years of consistent income. Does not have to be the same job. If off work more than 6 months in the past 2 years, may require you to be on current job for 6 months, 

Bankruptcy/Foreclosure Requirements:

Two years after bankruptcy Chapter 7 and 1 year removed from A Chapter 13 with a perfect pay history can do a FHA loan while in Chapter 13 with 12 months paid on time and trustee approval form courts

Three years after foreclosure

Kentucky FHA Loan Limits for 2025 

The Federal Housing Administration (FHA) loan program is a popular choice for homebuyers due to its lower credit score requirements and modest down payment needs. Here are the updated FHA loan limits for Kentucky in 2025:

One-Unit Properties: $472,030

Two-Unit Properties: $604,400

Three-Unit Properties: $730,525

Four-Unit Properties: $907,800

Kentucky VA Loans for Active Duty and Veterans

Kentucky VA loans are a top choice for veterans and active-duty military members. They require no down payment. They also require no mortgage insurance monthly but does have upfront mortgage insurance. see link here for guidelines > 

Certified of Eligibility Certificate of Eligibility (COE) Is Required

To qualify for a Kentucky VA mortgage loan, borrowers must obtain a Certificate of Eligibility (COE) from the VA. This document proves you meet the eligibility criteria for a VA loan. Here’s what you’ll need to get your COE:

Veterans: DD Form 214 (showing character of service and reason for separation).

Active-duty service members: A statement of service signed by your commander or personnel officer.

Surviving spouses: VA Form 26-1817 and the veteran’s DD Form 214, if available.

You can apply for your COE online, via mail, or through your lender.

Credit Score: No official minimum, but most lenders require 580-620. The higher your score and lower your debt to income ratio and the higher your residual income your changes of approval is greater

Income: Must demonstrate stable and sufficient income.

Work History: Two years of consistent employment. If getting out of the military and using your VA COE to buy a house the job must line up with your MOS. Military Occupational Specialty

Bankruptcy/Foreclosure Requirements:

Two years after bankruptcy or foreclosure

Debt-to-Income Ratio: No set maximum, can go much higher on the debt to income ratio on VA loans due to they have a residual income requirements. I have see a backend ratio get an approval as high as 75% but they had a great credit score (740 or higher),  high residual income and a lot of assets in the bank as far as checking, savings, 401k or retirement. 

VA loans also include a residual income requirement to ensure borrowers can afford living expenses after the mortgage payment, monthly payments on the credit report, child care expenses, maintenance, and utilities for the house. See the residual income chart below. This is very important for VA loan approval. If you are over this amount, you will not qualify, even with a great credit score, low debt ratio, and a lot of reserves in the bank.

Example: Residual Income for a VA Loan Approval in Kentucky

Example: Residual Income for a VA Loan Approval in Kentucky
Family Size: 5
Loan Amount: Over $80,000
Required Residual Income: $1,158 (for 4 family members) + $80 (for the 5th member) = $1,238
Actual Residual Income: $1,500
Outcome: The borrower qualifies for the VA loan, as their residual income of $1,500 exceeds the required $1,238.

Outcome: The borrower qualifies for the VA loan, as their residual income of $1,500 exceeds the required $1,238.

Residual income is a critical requirement for VA loan approvals, ensuring borrowers have enough to cover living expenses, including housing utilities, child care, and maintenance costs. If residual income falls below the threshold, loan approval may not be possible, regardless of credit score or debt-to-income ratio.

 The higher your score and lower your debt to income ratio and the higher your residual income your changes of approval is greater

USDA Rural Housing Loans in Kentucky

The USDA Rural Housing Loan Program is perfect for Kentucky homebuyers looking to purchase in eligible rural areas. It offers 100% financing with low mortgage insurance premiums.

Credit Score:

640 for automated approval

Manual underwriting is available for borrowers with credit scores below 640. If they decide to manually underwrite a loan, they will ask for more information about the borrower's credit history from the past year.

All loans are ran through GUS Automated Underwriting Engine, and your pre-approval is based off this

Property Restrictions:

Eligible Properties:
Must be located in a designated rural area.
Includes single-family primary residences, modular homes, and detached or attached planned unit developments (PUDs).
Thermal standards must meet or exceed the International Energy Conservation Code (IECC).

Ineligible Properties:
Cooperatives.
Income-producing properties.
Manufactured or mobile homes.
Non-rural designated properties.
Non-owner-occupied homes.

How to Determine Eligibility

You need to confirm if a property is located in a designated rural area. Visit the USDA Property Eligibility Map by clicking this link 

👇
Kentucky USDA Rural Housing Map for 2025 for Eligible Property Locations

Income Limits: Varies by county and household size

$112,450 for 1-4 person households

$148,450 for 5+ person households

To check income limits for your county, use the

➡️ USDA Income Eligibility Tool.

Work History: Two years of stable income required.

Debt-to-Income Ratio:

Front-end: 31%

Back-end: 45%

Key Advantage: USDA loans don’t need a down payment, and the upfront mortgage insurance can be rolled into the loan.

Kentucky Down Payment Assistance and Grants

$25,000 Kentucky Welcome Home Grant for 2025

This grant provides significant assistance for down payments and closing costs.

Eligibility:

Must complete a homebuyer counseling program.

Contribute at least $500 toward closing costs.

Grant Repayment: Prorated repayment required if the home is sold within five years.

Eligible Loans: Can be used with FHA, USDA, VA, and conventional loans.

5% Kentucky Homebuyer Grant

Offers up to 5% of the buying price for down payment or closing costs.

Fully forgivable or repayable options available.

$25,000 Kentucky Welcome Home Grant for 2025

How the 2025 Kentucky Welcome Grant Works

Offered through local banks and credit unions partnered with the Federal Home Loan Bank of Cincinnati.

The program becomes available annually on March 1st.

Funds are distributed on a first-come, first-serve basis and are typically depleted within 15 days due to high demand.

Application and Closing Timeline

The program requires an application for approval tied to a specific property.

Due to the nature of the grant, the closing process may take longer, so planning ahead is crucial.

Why Choose the Kentucky Welcome Home Grant?

This grant offers an unparalleled opportunity to reduce the financial burden of homebuying. With the Kentucky Welcome Home Grant of  $25,000 available for qualified applicants, it can significantly lower the amount you need upfront for your new home.

Other Mortgage Loan Requirements in Kentucky

Credit Score Requirements

Conventional Loans: Minimum 620 (higher scores preferred for better terms).

FHA Loans: 580+ (or 500-579 with 10% down).

VA Loans: 580-620 (varies by lender).

USDA Loans: 620-640 for most lenders.

KHC Down Payment Assistance. 620 for FHA, VA, USDA and 660 for Conventional Scores

Debt-to-Income Ratio

Conventional Loans: 45% max with mortgage insurance 50% max without mortgage insurance

FHA Loans: 40%-56% max

VA Loans: Flexible, no max debt to income but must meet residual income requirements

USDA Loans: 31% front-end; 45% back-end, much tighter dti restriction's when compared to FHA, VA, USDA and KHC ...

Work History and Income Verification

Lenders require at least two years of stable employment. Self-employed borrowers must provide two years of tax returns.

Appraisals and Inspections

Appraisals ensure the home’s value matches the purchase price.

Home appraisals are required by a lender. Home inspections aren’t.
You must set up an inspection yourself while the lender will order an appraisal for you.
An appraisal may impact your ability to get the loan amount you need. An inspection won’t.
Appraisers typically only spot things visible to the naked eye, whereas inspectors use special devices and training to spot deeper issues.

Home buyers are allowed and encouraged to walk through the home with the inspector during the inspection.

An inspector will explain and educate during the interactive process. An appraiser won’t tell you their findings until they complete their report.

A home inspection only examines the condition of the home when making the assessment. A home appraisal considers the condition of the home, comparable home prices, lot size, home features, area crime rates and school zones.

Typically, an appraiser will go through the appraisal process alone.
The inspector and appraiser have a different set of skills, are trained and certified in different processes and have different areas of expertise.

Bankruptcy and Foreclosure Requirements

FHA: Two years after bankruptcy; three years after foreclosure.

VA: Two years after bankruptcy or foreclosure.

USDA: Three years after bankruptcy or foreclosure.

Conventional: Four years after bankruptcy; seven years after foreclosure.

Time to Close

Most loans in Kentucky take 30-45 days to close, depending on the lender and loan program.

Here’s a blog post based on the text and flow chart steps provided in the image, tailored for Kentucky homebuyers:

Step-by-Step Guide to Getting Approved for a Mortgage Loan in Kentucky

Buying a home in Kentucky can feel overwhelming, especially for first-time homebuyers. Understanding the mortgage process, the timeline involved, and what is needed to close your loan will make the journey smoother and less stressful. Here’s a step-by-step guide to walk you through the process.

Step 1: Pre-Purchase Consultation

The first step is scheduling a pre-purchase consultation with a mortgage professional. During this meeting:

Discuss your financial goals and homeownership plans.

Review your credit score, income, and overall qualifications for a mortgage loan.

Understand the loan options available, including FHA, VA, USDA, and conventional loans.

Tip: Be prepared to ask questions and clarify your expectations during this phase.

Step 2: Pre-Qualification

Once your consultation is complete, gather the necessary documents (such as pay stubs, tax returns, and bank statements) to verify your financial situation. After reviewing these, your lender will issue a pre-qualification letter, which shows sellers that you are a serious buyer with financing in place.

Step 3: Find a Home and Negotiate the Contract

With your pre-qualification letter in hand, you can now:

Start searching for your dream home.

Work with a realtor to make an offer and negotiate the purchase contract.

Note: Ensure that the home you choose aligns with your loan requirements, such as USDA property eligibility for rural housing loans.

Step 4: Review Loan Terms and Sign Initial Disclosures

After your contract is accepted:

Your lender will provide initial disclosures outlining the loan terms, estimated costs, and required steps.

Carefully review the loan documents and sign them to proceed with the loan application.

Step 5: Order Inspection, Appraisal, and Title

At this stage, the following steps are initiated:

Home Inspection: Ensures the property is in good condition and identifies potential issues.

Appraisal: Confirms the home’s value matches the purchase price.

Title Work: Verifies there are no legal issues with property ownership.

Tip: Coordinate closely with your realtor and lender to ensure these steps are completed in a timely manner.

Step 6: Submit Loan Package to Underwriting

Once all initial documents are gathered, your lender will submit the complete loan package to underwriting. The underwriter reviews:

Credit score

Debt-to-income ratio

Employment history

Property appraisal

Title work

Expect the underwriter to request updated documents or clarification on certain details.

Step 7: Clear Underwriting Conditions

After the underwriter reviews your loan file, they may issue conditional approval. This means you need to provide additional documentation, such as:

Updated bank statements

Proof of funds for closing

Explanations for any credit inquiries

Once all conditions are met, the underwriter will issue final approval.

Step 8: Closing Disclosure and Waiting Period

Before closing, you’ll receive a Closing Disclosure (CD), which outlines the final terms and costs of your mortgage. By law, you must review this document during a 3-day waiting period before the closing.

Step 9: Closing Day

Congratulations, it’s time to finalize your loan! On closing day:

Sign the final loan documents.

Pay any remaining closing costs (if applicable).

Receive the keys to your new home.

What to Expect Throughout the Process

Timeline: The mortgage process typically takes 30-45 days from pre-qualification to closing, though this can vary depending on the loan type and how quickly documents are provided.

Communication: Stay in close contact with your lender, realtor, and title company to avoid delays.

Updated Documents: Be prepared to provide updated pay stubs, bank statements, or other documentation throughout the process.

Tips for a Smooth Closing

Stay Organized: Keep all required documents in one place for easy access.

Respond Quickly: Promptly address any requests from your lender or underwriter.

Ask Questions: Don’t hesitate to clarify terms or processes you don’t understand.

Be Financially Stable: Avoid making major purchases or changes to your financial situation during the process.

Ready to Get Started?

If you’re ready to purchase a home in Kentucky, partnering with an experienced loan officer will make the process seamless. Whether you're a first-time homebuyer or upgrading, programs like FHA, VA, USDA, and KHC down payment assistance are designed to help you achieve your dream of homeownership.

For personalized guidance and support, contact:

1 -  Email - kentuckyloan@gmail.com 

2.   Call/Text - 502-905-3708

Joel Lobb
Mortgage Loan Officer - Expert on Kentucky Mortgage Loans

 Website: www.mylouisvillekentuckymortgage.com
 Address: 911 Barret Ave., Louisville, KY 40204

---

Evo Mortgage
Company NMLS# 1738461
Personal NMLS# 57916

For assistance with Kentucky mortgage loans, reach out via email, call, or text Joel Lobb directly.

Untitled (Website) by joel lobb

Can you buy a house in Kentucky with Bad Credit?

Buying A House with Bad Credit in Kentucky

When in comes to buying a house in Kentucky and getting approved for a mortgage loan a lot of buyers will have to confront their past credit issues. Credit, along with income, work history, and assets determine if you qualify for a mortgage loan. 

Below I will address the main issues you have to address when it comes to getting approved for a mortgage with past credit problems. 

 Mortgage late payments: One late payment in the last 12 months is permitted so long as it can be explained and fully documented if necessary.

• Foreclosure: Thirty-six months from the date of the foreclosure until eligibility to repurchase using the 3.5 percent down payment FHA Loan, 48 months for VA Loans (no money down required), seven years no matter the down payment on a conventional type.

• Short sale: Thirty-six months from the date of the short sale until eligibility to repurchase using the 3.5 percent down payment FHA Loan, 24 months with the VA, 24 months on a conventional money loan with a minimum down payment of 20 percent.

Bankruptcy: Chapter 7 (Chapter 13 is less common), 24 months from the date of discharge until eligibility to repurchase using the 3.5 percent down FHA Loan, 48 months on VA Loans (still no money down required),  48 months on conventional no matter the down payment. All mortgage companies have different thresholds of risk appetite. For example, the FHA (Federal Housing Administration) has no credit score requirement. Why, then, do lenders have a minimum credit score requirement of 620 for an FHA Loan? Unbeknownst to the majority of home buyers, many mortgage companies have a secret ominous business strategy.

Enter “investor overlays.” 
Investor overlays are adjustments to guidelines and/or pricing created in favor of the mortgage company. This is exactly why one lender can do the loan, and another lender cannot do the loan in some instances.
Tip: every mortgage lender has investor overlays, it’s the nature of how mortgage companies operate, key is work with the lender whose overlays are minimal.

Timing

Typically speaking, if you want to get a mortgage after bankruptcy you’ll need to allow time to pass. For conventional mortgages you’ll need to wait four years after Chapter 7 bankruptcy or two years after Chapter 13 bankruptcy. But there are some other mortgage options that require a shorter waits.

Credit Scores 

580 to 620 is the bottom score (again with few exceptions) that lenders will permit. Below a 620, then you have to look at doing a FHA loan or VA loan if you are a veteran. Even at 620, people consider you a higher risk that other folks and are going to penalize you or your borrower with a more expensive loan. 720 is when you really start to get in the “as a lender we love you” credit score. 760 is even better.

 Watch your credit scores carefully. You have three credit scores, and the lender will take your middle score. For example, let's say you have a 590 on Transunion, 679 on Experian, and a 618 on Equifax. Then your middle qualifying credit score will be 618 credits score.

If you absolutely cannot get your credit scores up to 620, then FHA will be a good option for you. FHA states that if your fico credit score is 580 or above, they will allow for a 3.5% down payment, and if below 580, you will need 10% down payment.

There are a lot of mortgage lenders that will not go below 580 to 620 range, so keep that in mind when you are shopping for a mortgage lender, because they create credit overlays.

FHA Mortgage

Two years after your Chapter 7 bankruptcy discharge you may apply for an FHA loan. If you filed Chapter 13 bankruptcy, then you’ll only need to wait until you’ve made twelve months of satisfactory payments, and you’ll need to get the approval of the bankruptcy trustee. But if you want to be given serious consideration, you’ll need to provide a clear explanation for why you filed bankruptcy. For example, maybe you filed Chapter 13 bankruptcy because you had a medical emergency and was unable to pay your medical bills.

VA Mortgage

If you’re a veteran, you can get a VA mortgage two years after your bankruptcy discharge. This VA application process can be challenging, but in some ways it’s more lenient since post-bankruptcy credit issues such as a foreclosure won’t restart the 2-year waiting period. However, credit issues after bankruptcy might affect your interest rate, so take care to keep your credit as clean as possible.

USDA Mortgage

If you live in a rural area, you may qualify for a USDA mortgage three years after your bankruptcy discharge. It’s important to note that while the USDA provides loans to rural residents it’s only for property that will serve as the borrower’s primary residence. The USDA will not finance the purchase of income property or a vacation home.

As you prepare to apply for a mortgage after bankruptcy, keep in mind that the mortgage lender will take into account the totality of your financial situation—your finances, credit history, credit score, and any extenuating circumstances

Joel Lobb  Mortgage Loan Officer

EVO Mortgage
911 Barret Ave, Louisville, KY 40204

1 -  Email - kentuckyloan@gmail.com 

2.   Call/Text - 502-905-3708

https://www.mylouisvillekentuckymortgage.com/2010/10/get-approved-for-mortgage-or-home-loan.html

NMLS 57916  | Company NMLS#173846

FHA loans in Kentucky After A Bankruptcy

Kentucky FHA Loan Guidelines for Bankruptcy and Foreclosure

Chapter 7

Chapter 7 bankruptcy discharged more than 24 months prior to the application date may be allowed.

Chapter 7 bankruptcy discharged between 12 and 24 months prior to the application date requires satisfactorily established credit and documentation showing the circumstances which caused the bankruptcy were beyond the borrower's control (i.e. unemployment, medical bills not covered by insurance). In these instances, the file must be manually downgraded to a refer and manually underwritten. It falls upon the underwriter to make a final determination as to the overall quality of the file.

Chapter 7 bankruptcy discharged less than 12 months prior to the application date is not allowed.

Chapter 13

Loans where the borrower is currently in a Chapter 13 bankruptcy or had a Chapter 13 bankruptcy which was discharged within the previous 2 years require manual downgrade and must be underwritten manually. Note that manual underwrites require Underwriting Management approval.


A borrower who is currently in a Chapter 13 bankruptcy may be eligible for FHA financing provided all of the following conditions are met in addition to standard manual underwriting requirements:

Foreclosure / Short Sale

A foreclosure less than 3 years ago is not allowed.

In all instances, the “date of foreclosure” is considered the date of the foreclosure deed. The end date of the time frame is determined by the application date.

You can obtain a copy of your bankruptcy paperwork from the website below:


Bankruptcy Courts 👉    http://www.pacer.psc.uscourts.gov/

Why Kentucky Mortgage Loans Are Denied

When applying for a Kentucky mortgage loan, several factors play a crucial role in the approval and denial process. 

Understanding why Kentucky mortgage loans may not get approved due to credit score, bankruptcy, income ratio, work history, and foreclosure is essential for prospective homebuyers. 

Credit Score of 620 or below:

A credit score reflects an individual's creditworthiness. Lenders use this score to assess the risk of lending money. A lower credit score, typically below 620, can raise concerns for lenders. It may indicate past financial challenges, missed payments, or high levels of debt. To improve mortgage approval chances, borrowers should aim for a higher credit score by paying bills on time, reducing debt, and fixing any errors on their credit report.

Bankruptcy less than 2 years or foreclosure less than 3 years:


Bankruptcy can significantly impact mortgage approval. Depending on the type of bankruptcy (Chapter 7 or Chapter 13) and how long ago it occurred, lenders may view it as a red flag. 

Bankruptcies stay on credit reports for 10 years, affecting credit scores and indicating financial instability. Lenders may require a waiting period after bankruptcy before considering a mortgage application.

 
Chapter 7

If you have filed a Chapter 7  Bankruptcy, the mortgage waiting periods begin after the discharge date:

Fannie Mae (conventional) loan – 4 years from discharge date
FHA loan – 2 years from discharge date
VA loan – 2 years from discharge date
USDA loan – 3 years from discharge date

Chapter 13 Bankruptcy

On the other hand, if you have filed a Chapter 13 Bankruptcy, the mortgage waiting periods are shorter:

Fannie Mae (conventional) loan – 2 years from discharge date, and also 4 years from the dismissal date.
FHA loan – 1 year from the payout period. However, you also need court permission, and proof of satisfactory bankruptcy payment and performance.
VA loan – 1 year from the payout period. Also, court permission, and proof of satisfactory bankruptcy payment and performance.
USDA loan – 1 year of the payout must elapse and payment performance must be satisfactory. In addition, you need court permission to borrow again.

After Short Sale/Deed-in-Lieu of Foreclosure

The mortgage waiting periods after a short sale begin after the completion date:Fannie Mae (conventional) loan – 4 years
FHA loan – 3 years
VA loan – 2 years
USDA loan – 3 years



Debt to Income Ratio over 50% 

Lenders assess income ratios to determine if borrowers can afford mortgage payments. The debt-to-income ratio (DTI) compares monthly debt payments to gross monthly income. A high DTI suggests financial strain and may lead to loan denial. Lenders typically prefer a DTI below 50% for conventional loans. Increasing income or reducing debt can help improve this ratio and enhance loan approval chances.


Work History less than 2 years with job gaps: 

2 year Stable employment and consistent income are vital for mortgage approval. Lenders evaluate work history to ensure borrowers have a reliable source of income to repay the loan. Job changes, gaps in employment, or irregular income can raise concerns. Ideally, borrowers should demonstrate a steady work history with consistent or increasing income over time.











Joel Lobb Mortgage Loan Officer

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 THE MINIMUM CREDIT SCORE FOR A KENTUCKY FHA MORTGAGE HOME LOAN APPROVAL?

Kentucky FHA Mortgage Credit Score Requirements

FHA is introducing new guidelines on loan to value ratios and the minimum credit score required for FHA borrowers in Kentucky. As detailed in a Mortgagee Letter from the Department of Housing and Urban Development (HUD), the following credit requirements will apply for FHA borrowers, effective October 4, 2010.

To be eligible for maximum financing, borrowers will need a minimum credit score of 500 or higher.

Kentucky FHA Borrowers with a credit score between 500 and 579 will be limited to a loan to value of 90%. A sub 580 FICO credit score borrower will henceforth need to make a 10% minimum down payment on a purchase transaction.


All Kentucky FHA borrowers with a credit score below 500 will not be eligible for FHA-insured mortgage financing in Kentucky.


The new credit requirements are not expected to dramatically change the number of Kentucky FHA mortgage approvals.


Get used to the term credit overlays. You may call several FHA lenders and a lot of them will tell you that even though FHA will insure lower credit scores, most lenders had already imposed a minimum credit score requirement of 580 to 620 or higher for Kentucky FHA borrowers.


In limited cases, borrowers with scores between 580 and 639 could still obtain mortgage approval with compensating factors such as large down payment (more than 3.5% minimum), low debt to income ratios, and substantial reserves in the bank with a verifiable pay history of no late payments in the last 12 months of rent and on credit report. A late is considered 30 days late in the credit rating world.

Ultimately, there is no singular credit score that can guarantee you a mortgage approval. Each lender is free to set their own credit score requirements.

But many loan types are insured by government organizations. And lenders cannot accept borrowers with credit scores below the minimum these organizations set. The four most popular home loan types are:


Conventional: Not backed by any government agency, but must meet the Fannie Mae and Freddie Mac underwriting guidelines

FHA: Loans backed by the Federal Housing Administration


VA: Loans backed by the US Department of Veterans Affairs (for military members)USDA: Loans backed by the US Department of Agriculture (for low- to moderate-income families who buy homes in rural areas)

The minimum credit score requirements for each of these loan types:

Conventional:

620 SCORE NEEDED. BUT TO GET APPROVED FOR A FANNIE MAE LOAN MOSTLY LIKE YOU WILL NEED A 720 SCORE OR HIGHER IF YOU HAVE LESS THAN 20% EQUITY POSITION OR LESS THAN 20% DOWN PAYMENT DUE TO PRIVATE MORTGAGE INSURANCE

FHA:

580 for a 3.5% down payment
500 for down payments of at least 10%
**MOST FHA LENDERS WILL WANT A 580 to 620 CREDIT SCORE NOWADAYS

VA:

No minimum BUT MOST VA LENDERS WILL WANT A 580 to 620 CREDIT SCORE

USDA:

No minimum, but with a credit score of at least 620 to 640 you could qualify for streamlined credit analysis and chances of approval goes way down if score is below 640...

Which credit score is used to qualify for a Mortgage loan in Kentucky?

For example if you have a 598, 625, 604 on each of the main three reporting agencies, then your qualifying fico score would be 604. 

If you’re planning to apply for a mortgage, be aware that the credit score you see on your application might differ slightly from the one you’re used to. 

It might even be different than what comes up when you monitor your credit, or even when you apply for a car loan.

Banks use a slightly different credit score model when evaluating mortgage applicants. Below, we go over what you need to know about credit scores you’re looking to buy a home.

The scoring model used in mortgage applications

While the FICO® 8 model is the most widely used scoring model for general lending decisions, banks use the following FICO scores when you apply for a mortgage:

FICO® Score 2 (Experian)
FICO® Score 5 (Equifax)
FICO® Score 4 (TransUnion)

As you can see, each of the three main credit bureaus (Equifax, Experian and TransUnion) use a slightly different version of the industry-specific FICO Score. That’s because FICO tweaks and tailors its scoring model to best predict the creditworthiness for different industries and bureaus. You’re still evaluated on the same core factors (payment history, credit use, credit mix and age of your accounts), but the categories are weighed a little bit differently.


The FICO 8 model is known for being more critical of high balances on revolving credit lines. Since revolving credit is less of a factor when it comes to mortgages, the FICO 2, 4 and 5 models, which put less emphasis on credit utilization, have proven to be reliable when evaluating good candidates for a mortgage.

Mortgage lenders pull all three reports,from all three bureaus, but they only use one when making their final decision.

“A bank will use all three bureaus,”--- “It’s called a tri-merge.”

If all three of your scores are the same, then their choice is simple. But what if your scores are different?


If two of the three scores are the same, lenders use that one, regardless of whether it’s higher or lower than the other one.

And if you are applying for a mortgage with another person, such as your spouse or partner, each applicant’s FICO 2, 4 and 5 scores are pulled. The bank identifies the median score for both parties, then uses the lowest of the final two.

Joel Lobb  Mortgage Loan Officer NMLS 57916

Text/call: 502-905-3708

email: kentuckyloan@gmail.com

http://www.mylouisvillekentuckymortgage.com/

NMLS 57916  | Company NMLS #173846

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).