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).

How does consumer credit counseling effects things on a Kentucky FHA or USDA loan in Kentucky ?

 KENTUCKY FHA GUIDELINES FOR CONSUEMR CREDIT COUNSELING

(J) Credit Counseling/Payment Plan (APPROVE/ELIGIBLE)Participating in a consumer credit counseling program does not require a downgrade to a manual underwriting.No explanation or other documentation is needed.

 

(K) Credit Counseling/Payment Plan (MANUAL UW) Participating in a consumer credit counseling program does not disqualify a Borrower from obtaining an FHA-insured Mortgage, provided the Mortgagee documents that:

• one year of the payout period has elapsed under the plan;
• the Borrower’s payment performance has been satisfactory and all required payments have been made on time; and
• the Borrower has received written permission from the counseling agency to enter into the mortgage transaction.

 

 

KENTUCKY RURAL HOUSING USDA GUIDELINES FOR CONSUMER CREDIT COUNSELING 

CONSUMER CREDIT COUNSELING - DEBT MANAGEMENT PLANS

Credit counseling provides guidance and support to consumers which may include assistance to negotiate with creditors on behalf of the borrower to reduce interest rates, late fees, and agree upon a repayment plan. The credit score will reflect the degradation of credit due to participation in this plan. Credit accounts that are included in the repayment plan may continue to report as delinquent or as late pays. This is typical and will not be considered as recent adverse credit. Lenders must retain documentation to support the accounts included in the debt management plan and the applicable monthly payment. Lenders must include the monthly payment amount due for the counseling plan in the monthly liabilities. GUS Accept/Accept with Full Documentation files: No credit exception is required. GUS Refer, Refer with Caution, and manually underwritten files: The following must be documented and retained in the lender’s permanent loan file: •One year of the payment period of the debt management plan has elapsed; •All payments have been made on time; and •Written permission from the counseling agency to recommend the applicant as acandidate for a new mortgage loan debt. •No credit exception is required

--

Joel Lobb
Mortgage Loan Officer

Individual NMLS ID #57916

American Mortgage Solutions, Inc.

10602 Timberwood Circle 

Louisville, KY 40223

Company NMLS ID #1364

click here for directions to our office

Text/call:      502-905-3708

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

https://www.mylouisvillekentuckymortgage.com/

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 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
kentuckyloan@gmail.com
http://www.mylouisvillekentuckymortgage.com/

This website is not affiliated with any government agencies, including the VA. NMLS ID #57916 (www.nmlsconsumeraccess.org)