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




13,foreclosure,Short Sales,chapter 7,bankruptcy va mortgage,bankruptcy usda mortgage,FHA Mortgages and Bankruptcy,Bankruptcy,







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

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Kentucky FHA Loan Lender Requirements for Approval

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 $524,225 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:

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.


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.


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