What kind of credit score do I need to qualify for a Kentucky Mortgage Loan in 2019?
Different Kentucky Home Loan Programs require different credit score requirements. I will discuss each below:
- Kentucky FHA Mortgage loan credit score requirements:
- The minimum credit score is 500 for Kentucky FHA loans. However please keep in mind these two things: 1. Lenders credit their own overlays to increase the credit score threshold, most being 620, and secondly, if your credit score is below 580, you would need 10% minimum down payment, and if the credit score is over 580, then you can go with the minimum 3.5% down payment.
- Obviously if you have a higher credit score, this will increase your chances of getting approved for a Kentucky FHA Mortgage and possibly better rates and closing costs options.
- Kentucky VA Mortgage loans requirements :
- VA does not have a minimum credit score requirement, but if the credit score is below 620 few lenders will do the loan, but I am set up with several Kentucky VA lenders where I have closed them down to a 560 credit score, but the borrower had good compensating factors such as: large down payment, low dti ratios, good job history and good residual income with no previous bankruptcies or foreclosures.
- I would suggest if your credit scores are below 580, I would suggest on working on getting the scores up before you applied for a VA mortgage loan.
- A lot of lenders will do a rapid rescore which in some cases can increase your credit scores in as little as 7-10 working days.
- The federal Department of Veterans Affairs (VA) guarantees loans for current and former members of the military and their families. VA loans provide very favorable terms to eligible borrowers and have limited qualifying requirements. You can get a VA loan with no down payment so long as the home isn’t worth more than you pay for it, and there’s no minimum credit score to qualify. You also don’t have to pay for mortgage insurance, although you do have to pay an up-front funding fee of of between .5% and 3.3% of the loan amount unless you fall within an exception for disabled vets or military widows or widowers.
- Kentucky USDA Mortgage credit score requirements:
- According to their guidelines, USDA will go down to a 580 credit score, but most lenders will want a 640 credit score. USDA uses an online system to underwrite the risk of the loan, and scores under 640 are very difficult to get approved.
- Validating the Credit Score. Two or more eligible tradelines are necessary to validate an applicant’s credit report score. Eligible tradelines consist of credit accounts (revolving, installment etc.) with at least 12 months of repayment history reported on the credit report. At least one applicant whose income or assets are used for qualification must have a valid credit report score
- The Rural Housing Service (RHS) operates under the federal Department of Agriculture to guarantee loans for rural home-buyers with limited income who can’t obtain conventional financing. The upside is that Kentucky USDA loans require no down payment. The downside is that they charge a steep up-front fee of 1% of the loan amount (which can be paid off over the entire loan term) and an annual fee of 0.35%.
- Credit score over 680: Perform a basic level of underwriting to confirm the applicant has an acceptable credit reputation. Perform additional analysis if the applicant’s credit history has indicators of unacceptable credit as noted in Paragraph 10.7 of this Chapter.
- Credit score 679 to 640: Perform a comprehensive level of underwriting. Underwrite all aspects of the applicant’s credit history to establish the applicant has an acceptable credit reputation. Credit scores in this range indicate the applicant’s reputation is uncertain and will require a thorough analysis by the underwriter of the credit to draw a logical conclusion about the applicant’s commitment to making payments on the new mortgage obligation. The applicant’s credit history should demonstrate his or her past willingness and ability to meet credit obligations.
- Credit score less than 640: Perform a cautious level of underwriting. Perform a detailed review of all aspects of the applicant’s credit history to establish the applicant’s willingness to repay and ability to manage obligations as agreed. Unless there are extenuating circumstances documented in accordance with this Chapter, a credit score in this range is generally viewed as a strong indication that the applicant does not have an acceptable credit reputation.
- Little or no credit history: The lack of credit history on the credit report may be mitigated if the applicant can document a willingness to pay recurring debts through other acceptable means such as third party verifications or cancelled checks. Due to impartiality issues, third party verifications from relatives of household members are not permissible. Lenders can develop a Non-Traditional Credit Report for applicants who do not have a credit score in accordance with Paragraph 10.6 of this Chapter
- Competitive Mortgage Rates and Fees
- Monthly Mortgage Insurance Is Not Always Required
- Ideal for First Time Home Buyers with Good Credit
If I pay off my balance every month so it should show a zero balance on my credit report: Wrong!
Credit card companies will usually report your ending balance on your monthly statement. So even if you pay off your credit card every month, it will not show a zero balance on credit. A bad scenario for someone’s score would be the following: Credit limit is $1,000 and the card owner charges $900 but pays off the balance once the statement is received. The card will report a $900 balance that is 90% of the credit limit and that will hurt the credit score as 30% of a credit score is balance compared to credit limits as a percentage.
I will lower my credit limits to make my credit look better. Wrong!
Do not put your credit limits too low! Again, 30% of your score is balance compared to credit limits. For instance if you charge $1000 per month on a $10,000 limit card, the balance is 10% of the limit which is very good. On the other hand, if you lower the limit to $1500, the balance is 67% of the limit which hurts the credit score.
I will close my credit cards to help my credit report. Wrong! most of the time
Having a good mix of credit types is very important to have a great credit score. I will say this again, 30% of the score is balance compared to credit limits on revolving accounts and if someone doesn’t have any open cards, then a lot of points are being lost on a score. Most experts say that having 2 or 3 revolving accounts that report to all 3 bureaus with low balances compared to the limits is the magic number for the best score. Also a portion of the credit score is how long accounts are open so keep the lines of credit open a very long time rather than opening and then closing accounts often
What if underwriting will require me to pay off a collection to approve my loan, Am I stuck? No
Then all you need to do is simply have to do it have it as a condition to pay off the collection at closing rather than up-front. By doing this, it will not have time to lower your credit score before closing your loan.
I haven’t paid my student loans in years because they are in collection status, but that was a long time ago so I’m ok, right? No
Unfortunately if they are government backed loans, then this will affect your ability to obtain a government mortgage loan. A good thing about government student loans is that they will usually allow you to start paying them again, then usually within 6 – 12 months, they will report the loan again as current. Make sure that the company agrees to do this and get it in writing. By doing this, you can go from owing Thousands of dollars as a collection to having a regular loan with hopefully a manageable payment.
I just got a car loan, so my credit should be good. Not necessarily
I hate to say it, but about anyone can get a car loan no matter how bad the credit is so this is not an indication of good credit. Having an installment loan like a car loan is a good thing to have on credit as long as it is paid on time and the longer it has reported, the better. As a side note, be wary of buying a car and the dealership pulling your credit without your knowledge to many creditors. It is not uncommon for someone with marginal or sometimes good credit to have their credit pulled 10 times or more.
I will pay off my old collections just before applying for a mortgage so my scores will go up. Usually your scores will go down unless they agree to “delete” or “remove” them from your credit in writing
Be careful here! If there are older collections with a date of last activity that is a while back and they are paid off, the credit scores can go down in the short term. So if someone has a 650 credit score which would qualify for most mortgages, wants to increase their scores a little by paying off old collections just before purchasing a home, the collections would now show paid off (if they actually update which they often don’t), but now show a date of last activity as “now”. It doesn’t make sense but the bureaus treat the collection activity like it just happened which doesn’t seem right but it happens. Often it makes more sense to pay off the collections at or prior to closing following the recommendation of the loan officer. Fair Isaac is working on potential changes to how this affects scores and maybe the other credit bureaus will make this change too.
Charged off accounts and collections are treated the same when getting a mortgage, right? Actually NO
Sometimes when an account is charged off, it is not required to be paid off for qualifying purposes. This is true on FHA loans for instance.
I will dispute some credit accounts on my credit report so my scores will go up.
Read the article below on how dispute language can hurt you when applying for a mortgage.
Mortgage Loan Officer
Individual NMLS ID #57916
American Mortgage Solutions, Inc.
10602 Timberwood Circle
Louisville, KY 40223
Company NMLS ID #1364
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