Kentucky FHA Guidelines for Bankruptcy
Guide to Kentucky FHA mortgage underwriting for purchase, streamline & standard refinance.
- Collections: Based upon the surrounding circumstances, and as determined by our underwriter, these do not necessarily have to be paid.
- Judgment: Judgments are required to be paid off before the mortgage loan is eligible for insurance. However, exceptions can be made if the borrower has been making regular timely documented payments and the creditor is willing to subordinate the judgment to the insured mortgage.
- Foreclosure: A borrower whose previous residence or other real property was foreclosed on, or who has given a deed-in-lieu of foreclosure within the previous three years is not generally eligible. Exceptions can be made based upon extenuating documented circumstances.
- Chapter 7 Bankruptcy: Will not disqualify a borrower if at least two years have passed since the bankruptcy was discharged.
- Chapter 13 Bankruptcy: A borrower paying off debt under Chapter 13 may also qualify if at least one year of the pay out period has elapsed with satisfactory payment performance and the court approves the borrower entering into a mortgage transaction
- No Income Restrictions.
- Higher Ratios: KEntucky HUD’s standard ratio guidelines are 29% (maximum exception of 36%) of your gross income for housing and 41% (maximum exception of 50%) of your gross income for housing plus other creditors. Borrowers may, at the underwriter’s discretion, be allowed to extend beyond these ratios based upon sufficient compensating factors.
- Down Payment: The minimum down payment is approximately 3.5%. While credit quality can affect this qualifying requirement, the typical borrower only needs the standard HUD guideline of 3.5% to be approved.
- Gifts: 100% gift funds are acceptable. The donor may be a relative of the borrower, the employer or labor union, a governmental agency, a not for profit private organization, or close friend with a clearly defined interest in the borrower. No repayment of any gift may be expected or implied. Sellers are allowed to pay all closing costs on behalf of the borrower, up to 6% of the purchase price.
- Reserves: There are no reserve requirements for one and two-family unit residences. Three months reserves are required for three and four-family unit residences.
- Overtime, Bonus, and Part-time Income: Overtime and/or bonus income received for a period of less than two years is acceptable where the underwriter determines that there are reasonable expectations of its continuance. An earning trend over the period of time of receipt must be established and analyzed. Part-time income means income from jobs taken in addition to the normal regular employment to supplement the borrower’s income. The same rules apply for determining using it as a part of qualifying.
- Extended Absence From Workforce: In some cases, the borrower may have recently returned to the work force after an extended absence. The borrower’s income may be considered effective and stable, provided the borrower has been employed in the current job for 6 months or more and the borrower can document a 2 year work history prior to the absence from the work force.
- Rental Income: Rental income from relatives residing on the premises is acceptable, provided the rental income is shown on the borrower’s tax returns.
- Cash Saved at Home: Borrowers who meet the “cash borrower” profile (no traditional credit, no bank accounts, etc.), who have saved cash at home and are able to adequately demonstrate the ability to do so, are permitted to have this money included, with satisfactory explanation, as an acceptable source of funds to close a mortgage loan.
- Child care expenses are NO LONGER included as debt.
- Non Occupant Co-Borrowers: When there are two or more borrowers, but one or more will not occupy the property as a primary residence, the maximum mortgage is usually limited to 75% loan to value. However, maximum financing is available for borrowers related by blood or for unrelated individuals that can document evidence of family type or long-standing and substantial relationship not arising out of the loan transaction. Qualifying is determined by the underwriter.
- Assumable: All Kentucky FHA FHA loans are assumable.
- Electronic/Online Payroll: The industry as a whole recognizes that some employers use online payroll for pay stubs and W-2s. These types of documentation are acceptable.
- Secondary Financing: Secondary financing is not allowed with an Kentucky FHA FHA loan. The only acceptable second mortgage is with an approved HUD gifting agent, such as
- down payment assistance provided by a gov’t agency in the form of a second mortgage
- Home Inspection: A home inspection may or may not be required on a property, depending on various factors. Typically, you will find it is not required, but is recommended on any existing residence.
Below are some items (in red) that we will review for your mortgage loan pre-approval letter to purchase a home along with some different loan programs to consider:
Most lenders want a 640 credit score, however there are some lenders now doing FHA and VA loans down to a 580 score with no bankruptcies in the last 2 years and no foreclosures in the last 2 years. You have three fico scores and they will throw out the high and low score and take the middle score of the lowest between both borrowers. They take the lowest of both borrower’s middle score.
There are still housing programs that exist for Kentucky home buyers whereas you can purchase a home with no down payment. You will need a 620-640 middle credit score to purchase a home using the USDA or KHC loan programs for their no down payment credit requirements.
The first no money-down home loan program, KHC, currently offers $6000 in down payment assistance (DAP) along with a 30 year fixed rate loan of 4.25%.
The second no money down home loan option is the USDA program for properties located outside urban areas of Kentucky areas where you can secure a no money down loan at a current low fixed rate of 3.75% on 30 years. The max income limits usually are between $76k to $99k for most rural area counties.
If you have access to at least 3.5% down payment or more, we can always look at doing a FHA loan with a lower credit score of 580.
You can use a gift from family member for your 3.5% investment or from retirement funds like 401k if you have one or from your savings.
I will go over your options once we get you pre-approved to let you decide which is best for your situation.
If your credit scores just a little out-of-reach, we can look at doing a rapid rescore and try to get your scores up to the minimum standards.
Mortgage Rates maybe higher or lower once you go to lock-in a rate this year, so keep that in mind.
The maximum house payment is usually limited to 1/3 of your gross monthly income. For example, if you make $3000 gross a month, then x that by 30%, and this would equal about a $1000 maximum house payment.
In order to get you pre-approved for your max loan amount, I will need the following items from you. This is a free process and I will give you a copy of your credit report for free!
Mortgage Pre-Approval Checklist:
- One full month’s or 30 days worth of pay stubs
- Last 2 years W-2′s
- Last 2 years tax returns
4. Last two months bank statements for all accounts including 401 k or retirement account if you have one
Once I get the information above, I can usually get you pre-approved in one day, and get your loan closed in 30-45 days after you get an accepted offer on a home.
Your first house payment usually starts 30-60 days after you close.
I don’t need originals, copies are fine. You can fax or email me the above documents.
Let me know your questions.
Thanks and look forward to helping you.
Senior Loan Officer
phone: (502) 905-3708
Fax: (502) 327-9119