What Does It Take to Get Kentucky FHA Loans Approved?

To qualify for Kentucky FHA loans in 2022, you must meet the minimum credit score requirements of the FHA and the lender. Although the FHA may insure the mortgage loan at a certain credit score, many lenders will require a higher credit score to protect against risk.

Some lenders will require a higher credit score from borrowers looking to get an FHA loan in KY in 2022. This is in addition to the FHA Mortgage Insurance program.

The Basics

The credit score is one-factor lenders look at when considering a mortgage. Other factors, such as income and level of debt, are also important.

A credit score below 620 will make it very difficult to purchase a home. A FICO score below 620 is considered subprime, and in the past, there were mortgage companies that specialized in subprime mortgages. However, due to the challenges in the credit market over the last year or so, these types of loans have become difficult or impossible to obtain.

A FICO score of 600–640 is considered fair to good credit. This range of credit scores does not guarantee that a person will qualify for a mortgage, but it is a good starting point. If a person does qualify for a mortgage, they may not get the lowest interest rate possible. It is still advisable to aim for a score of 620 or higher when buying a home, as other factors are also considered in the decision. Some banks may require a higher score than others.

What Happens If Your Credit Score Is Lower?

If your score is below 620, the Automated Underwriting Systems (AUS) will refer your loan to a human being for manual underwriting. This is when someone looks at your entire file to see if they can approve the mortgage loan, even if the automated software can’t.

To qualify for Louisville FHA loans with a score below 620, the lender will likely require verification of your rent history and that you have had no bankruptcies or foreclosures in the last two to three years. This means that if you have been late on any payments since your bankruptcy, this will probably result in a denial on a file that requires manual underwriting.

Your maximum monthly house payment will be 31 percent of your gross monthly income. Your new house payment, plus any bills you pay on your credit report, cannot exceed 43 percent. The lender will also check if the borrower has enough money to cover mortgage payments for a set period in case of an emergency.

Kentucky home buyers wanting to purchase a home or refinance their existing Louisville FHA loans would need a 3.5 percent down payment and a 580 FICO Credit Score. If their score is below 580, they would need 10 percent down but still qualify on a manual underwrite. However, if your FICO score is between 500 and 579, your down payment will be 10 percent of the loan.

Always check your credit score with the three main credit bureaus: Equifax, Experian, and Transunion, to be sure.

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