How to Qualify for a Kentucky FHA Loan Approval:
If you're looking to buy a home in Kentucky and are considering a Kentucky FHA loan, it's essential to understand the qualifying criteria and the necessary steps. This article covers all the crucial aspects you need to know, from credit scores, bankruptcy, work history, collections, closing, home insurance, title, debt ratio , down payment and other required documents for pre-approval for a Kentucky FHA loan pre-approval letter.
Credit Score for Kentucky FHA loan
For an FHA loan in Kentucky, the minimum credit score requirement is typically 580 for maximum financing with a 3.5% down payment. If your score is between 500 and 579, you may still qualify, but you will need a higher down payment of at least 10%.
- Any judgments or collections on the credit report must be resolved or satisfactorily explained. Collections do not have to be paid but they will count them in your debt to income ratio. If they are judgements, they will have to be paid off because they could effect the clear title of the home
- Cosigners are allowed. Family members or close associates okay. They don't have to live in the home with you. Cosigner are used to for income purposes only or work history that does not meet FHA lender requirements .Not used to compensate for the primary borrowers bad credit. They always take the lowest credit score of both borrowers.
Bankruptcy and Foreclosures for Kentucky FHA loans
- Bankruptcy: You can qualify for an FHA loan two years after a Chapter 7 bankruptcy discharge, provided you have re-established good credit or have not incurred new debt. For a Chapter 13 bankruptcy, you need one year of the payout period completed and permission from the court to enter into a new mortgage.
- Foreclosures: You must wait three years after a foreclosure before you can qualify for an FHA loan. This period can be reduced if the foreclosure was due to extenuating circumstances beyond your control.
Debt-to-Income Ratio (DTI)
The FHA guidelines typically require a front-end DTI (monthly mortgage payment divided by gross monthly income) of no more than 31% and a back-end DTI (total monthly debt payments divided by gross monthly income) of no more than 43%. However, higher ratios may be accepted with compensating factors, such as significant cash reserves or high credit scores. Can be much higher with AUS approval with 45% and 57% respectively on the front end and back end.
Down Payment for Kentucky FHA loans
The standard down payment for a Kentucky FHA loan is 3.5% of the purchase price, which is feasible for many first-time homebuyers. This down payment can come from savings, a gift from a family member, or an approved down payment assistance program. 10% down payment needed with scores below 580.
Checklist of Documents Needed for Kentucky FHA loan Pre-Approval
To get pre-approved for a Kentucky FHA loan, you'll need to provide several documents, including:
- Proof of identity (driver’s license or passport)
- Social Security number
- Recent pay stubs
- W-2 forms for the past two years
- Federal tax returns for the past two years
- Bank statements for the last two to three months
- Employment verification letter
- Debt information (credit cards, student loans, auto loans)
- Proof of additional income (alimony, child support, bonuses)
Work History for Kentucky FHA loans
You need to show a stable work history for at least the past two years. If you have changed jobs, the new position should be in the same field or demonstrate career advancement.
Loan Limits Kentucky FHA loan
The FHA loan limits in Kentucky vary by county and are set based on the median home prices in the area. In most counties, the limit for a single-family home is $498,257 for a single-family home. in 2024, but this amount can be higher in more expensive areas.
Income Limits Kentucky FHA loan
There are no specific income limits for FHA loans; however, your income must be sufficient to cover the mortgage payments and other debts. Lenders will assess your ability to repay the loan based on your income, debts, and employment history.
Down Payment Assistance Grants Kentucky FHA loan
Kentucky offers several down payment assistance programs to help first-time homebuyers. These programs can provide funds to cover the down payment and closing costs. Some popular programs include:
- Kentucky Housing Corporation (KHC) Programs: KHC offers several down payment assistance options, including repayable and forgivable loans. $10,000 available at 3.75% rate currently over 10 year pay back period. Changes periodically. Check your lenders requirements with income limits, loan limits, debt to income ratio requirements
- Local Government Programs: Many local governments offer grants and loans for down payment assistance.
Federal Loan Programs for First-Time Homebuyers in Kentucky
In addition to KHC programs, several federal loan options are available to Kentucky residents, including:
- Kentucky Federal Housing Administration (FHA) Loans: FHA loans are insured by the U.S. Department of Housing and Urban Development (HUD) and cater to borrowers with lower credit scores (minimum 580 with a 3.5% down payment).
- Kentucky Department of Veterans Affairs (VA) Loans: Active-duty military personnel, veterans, and eligible family members can qualify for VA loans with no down payment required. These loans typically offer lower interest rates than conventional mortgages.
- Kentucky USDA Loans: Guaranteed by the U.S. Department of Agriculture (USDA), these loans are available to moderate-income borrowers in designated rural areas, with no down payment required.
You may qualify for one of these programs.
- HUD Community Development Block Grants (CDBG) - Kentucky contacts - HUD provides grant money to communities and those funds may be used to assist homebuyers
- HUD HOME Program - Kentucky contacts - HUD provides grant money to communities designated as participating jurisdictions for assisting homebuyers, rental assistance, and other housing initiatives
- Community Ventures Corporation Kentucky Home Financing
- The Kentucky Housing Corporation offers:
- Habitat for Humanity - Through volunteer labor and donations of money and materials, Habitat builds and rehabilitates simple, decent houses with the help of the homeowner (partner) families
- Federal Home Loan Bank of Cincinnati - serves Kentucky residents by offering various homebuying programs including Welcome Home grants. For more information, you may call 1 (888) 345-2246
- Kentucky Association for Community Action - helps to fund housing programs for low-income residents
- Federal Appalachian Housing Enterprise (FAHE) - provides housing assistance in rural, low-income, Appalachian communities
- Housing Partnership, Inc. - provides affordable housing services for residents of Jefferson County
- Secondary financing/down payment assistance programs are listed by state
- USDA Rural Development - programs that reduce the cost of homeownership for low and moderate-income families.
Additional Resources
- City and County Programs: Some Kentucky cities and counties offer their own down payment assistance programs or resources for first-time homebuyers. It's recommended to research programs available in your target location.
- HUD Homeownership Programs: The U.S. Department of Housing and Urban Development provides resources for homeownership assistance programs across the country. You can explore their website for additional options.
Seller Concessions for Kentucky FHA loans
Sellers can contribute up to 6% of the home's purchase price toward closing costs, prepaid expenses, discount points, and other financing concessions. This can significantly reduce your out-of-pocket expenses.
Appraisals and Inspections Kentucky FHA loan
- Appraisals: An FHA-approved appraiser must conduct an appraisal to ensure the property's value and condition meet FHA standards. Always required for FHA approval and ordered by lender.
- Inspections: While not required by FHA, a home inspection is highly recommended to uncover any potential issues with the property. Not required, and ordered by borrower. Lender never sees the inspection report on home.
Home Insurance for Kentucky FHA loans
Homeowners insurance is mandatory for all FHA loans. You need to secure a policy that covers the property against loss or damage.
Title Report for Kentucky FHA loans
A title report ensures that the property has a clear title with no outstanding liens or claims. This is a crucial step in the home buying process to protect your investment.
Earnest Money Deposit for Kentucky FHA loans
An earnest money deposit is typically required to show the seller that you are serious about purchasing the home. This amount varies but is usually between 1% and 3% of the purchase price. $500 is typical in Kentucky for a deposit on a home you are buying.
Credit Reports for Kentucky FHA loans
Lenders will pull your credit report to assess your creditworthiness. It's important to check your credit report for errors and ensure that all information is accurate before applying for a loan. Some lenders will charge you upfront for the credit report fee and others will pull all three credit reports from Experian, Transunion and Equifax for free. Usually lender will not share the report with you but give you the scores. Scores go from 350 to 850 on each credit bureau.
Time to Close on a Kentucky FHA loan
The time to close an FHA loan can vary but typically ranges from 30 to 45 days. This period can be shorter or longer depending on various factors, including the lender's efficiency and the completeness of your documentation.
Locking in Rate on a Kentucky FHA loan
Once you are approved for a loan, you can lock in your interest rate to protect against rate fluctuations. Rate locks can last from 15 to 180 days or longer, depending on the lender.
CAIVRS Check for FHA loan in Kentucky
The Credit Alert Verification Reporting System (CAIVRS) is used to determine if a borrower has a federal debt or delinquency. If your name appears on this list, you may be ineligible for an FHA loan until the issue is resolved. So if you are delinquent on any student loan debt, back taxes to the IRS or social security overpayments, this can stop your Kentucky FHA loan pre-approval
Student Loan Rules for FHA Kentucky FHA loan
For FHA loans, the monthly payment for student loans is calculated as either .5% of the outstanding balance or the actual documented payment amount, whichever is greater. If your loans are in deferment or forbearance, .5% of the outstanding balance will be used for DTI calculations.
Delinquent Government Debt Kentucky FHA loan
If you have delinquent government debt, such as unpaid federal taxes or a defaulted student loan, you may not qualify for an FHA loan until the debt is resolved.
By understanding these requirements and preparing accordingly, you can increase your chances of qualifying for an FHA loan in Kentucky and successfully purchasing your new home.
Joel Lobb, American Mortgage Solutions (Statewide)
Joel has worked with KHC for 14 of his 25 years in the mortgage lending business. Joel said, “A lot of my clients would not have been able to purchase a home of their own or possibly delayed their purchase due to lack of down payment but with the $10,000 DAP loan program, this gets them into a house sooner and starts their path to homeownership while building equity instead of throwing their money away.”
When you’re ready to purchase a home in Joel's area, contact him at:
Phone: 502-905-3708
Email: Kentuckyloan@gmail.com
Website: www.mylouisvillekentuckymortgage.com
APPLY ONLINE BY CLICKING HERE OR CALL OR TEXT 502-905-3708 OR EMAIL KENTUCKYLOAN@GMAIL.COM
