Kentucky First-Time Home Buyer Loan Programs

Kentucky First Time Home Buyer Loan Programs for 2022 Home-buyers


 Kentucky First-Time Home Buyer Loan Programs

There are 4 basic things that a Kentucky-First Time Homebuyers in 2022  needs to show a lender in order to get approved for a mortgage. Each category has so many what-ifs and sub plots that each box can read as its own novel. In other words, each category has so many variables that can affect what it takes to get approved, but without further adieu here are the four categories in no particular order as each without any of these items, you’re pretty much dead in the water:

KHC loan – Kentucky First-Time Homebuyer Loan Programs for FHA, VA, KHC and USDA Mortgage Loans in Kentucky
KHC loan – Kentucky First-Time Homebuyer Loan Programs for FHA, VA, KHC and USDA Mortgage Loans in Kentucky


1. Income

You need income. You need to be able to afford the home.  But what is acceptable income? Let’s just say that there are two ratios mortgage underwriters look at to qualify you for mortgage payment:

First Ratio – The first ratio, top ratio or housing ratio. Basically, that means out of all the gross monthly income you make, that no more that X percent of it can go to your housing payment. The housing payment consists of Principle, Interest, Taxes, and Insurance. Whether you escrow or not every one of these items is factored into your ratio. There are a lot of exceptions to how high you can go, but let’s just say that if your ratio is 33% or less, generally, across the board, you’re safe.

Second Ratio- The second ratio, bottom ratio or debt ratio includes the housing payment, but also adds all of the monthly debts that the borrower has. So, it includes housing payment as well as every other debt that a borrower may have. This would include, Auto loans, credit cards, student loans, personal loans, child support, alimony….basically any consistent outgoing debt that you’re paying on. Again, if you’re paying less than 45% of your gross monthly income to all of the debts, plus your proposed housing payment, then……generally, you’re safe. You can go a lot higher in this area, but there are a lot of caveats when increasing your back ratio.

What qualifies as income? Basically, it’s income that has at least a proven, two-year history of being received and pretty high assurances that the income is likely to continue for at least three years. What’s not acceptable? Unverifiable cash income, short term income and income that’s not likely to continue like unemployment income, student loan aid,  VA education benefits, or short term disability are not allowed for a  mortgage loan.

2. Assets

What the mortgage underwriter is looking for here is how much can you put down and secondly, how much will you have in reserves after the loan is made to help offset any financial emergencies in the future.

Do you have enough assets to put the money forth to qualify for the down payment that the particular program asks for? The only 100% financing or no money down loans still available in Kentucky for home buyers are available through USDA, VA, and KHC or Kentucky Housing Loans. Most other home buyers that don’t qualify for the no money down home loans mentioned above, will turn to the FHA program. FHA loans currently require a 3.5% down payment.

Kentucky Home buyers that have access to putting down at least 5% or more, will usually turn to Fannie Mae or Freddie Mac mortgage programs so they can get better pricing when it comes to mortgage insurance.

These assets need to be validated through bank accounts, 401k or retirements account and sometimes gifts from relatives or employer… Can you borrow the down payment? Sometimes. Generally, if you’re borrowing a secured loan against a secured asset you can use that. But rarely can cash be used as an asset. FHA will allow for gifts from relatives for down payments with little as 3.5% down but Fannie Mae will require a 20% down payment when a gift is being used for the down payment on the home.

The down payment scenarios listed above are for Kentucky Primary Residences only. There are stricter  down payment requirements for investment homes made in Kentucky.

 3. Credit


  • 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 580 to 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 580 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 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 trade lines are necessary to validate an applicant’s credit report score.  Eligible trade lines 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%.
  •  
  • Kentucky Fannie Mae and Freddie Mac Conventional Credit Score Requirements
These are considered “conventional loans’ that can be often be obtained with a 3% to 5% down payment. Of course, there are higher standards for conventional home financing.
 
The most common minimum credit score requirement to get approved today is a 620 FICO. This type of score is typical for people that have high credit card balances or a few delinquent payments in their past. The general consensus on Freddie Mac and Fannie Mae loans in Kentucky is that a 620 score is the entry-point to qualify, but you will need thorough documentation of income with credit scores in the 620 to 640 range.
 
You will have a better shot to be approved for a mortgage-backed by Fannie or Freddie with a 680-credit score and less strenuous underwriting.
  • Competitive Mortgage Rates and Fees
  • Monthly Mortgage Insurance Is Not Always Required
  • Ideal for First Time Home Buyers with Good Credit

As far as previous Bankruptcies and foreclosures:

Kentucky  FHA Mortgage Loans currently requires 3 years removal from a foreclosure or short sale  and 2 years on a bankruptcy with good re-established credit.

Kentucky Fannie Mae Mortgage Loans currently requires 4 years removal from bankruptcy, and 7 years on a foreclosure.

Kentucky VA Mortgage Loans currently requires 2 years of removal from bankruptcy or foreclosure with good re established credit.

Kentucky USDA loans require 3 years of removal from bankruptcy and foreclosure with good reestablished credit.

4. Appraisal

Generally, there’s nothing you can do to affect this. The bottom line here is…..” is the value of the house at least the value of what you’re paying for it?” If not, then not good things start to happen. Generally, you’ll find fewer issues with values on purchase transactions, because, in theory, the realtor has done an accurate job of valuing the house prior to taking the listing. The big issue comes in refinancing. In purchase transactions, the value is determined as the

Lower of the value or the contract price!!!

That means that if you buy a $1,000,000 home for $100,000, the value is established at $100,000. Conversely, if you buy a $200,000 home and the value comes in at $180,000 during the appraisal, then the value is established at $180,000. Big issues….Talk to your loan officer.

For each one of these boxes, there are over 1,000 things that can affect if a borrower has reached the threshold to complete that box. So..talk to a great loan officer. There are so many loan officers that don’t know what they’re doing. But, conversely, there’s a lot of great ones as well. Your loan is so important! Get a great lender so that you know, for sure, that the loan you want, can be closed on!

 
 



Joel Lobb
Mortgage Loan Officer
Individual NMLS ID #57916
 
American Mortgage Solutions, Inc.
 
Text/call:      502-905-3708
fax:            502-327-9119
email:
          kentuckyloan@gmail.com
 

 

 

 

Kentucky FHA Loan Requirements for 2022

Originally posted on Kentucky FHA Mortgage Lender:
Kentucky FHA Loan Requirements The requirements for Kentucky FHA loans are set by HUD. Borrowers must have a steady employment history of the last two years within the same industry or line of work. Recent college graduates can use their transcripts to supplant the 2 year work history…


Kentucky FHA Loan Requirements for 2022 to include Credit Fico Scores, Down Payment, Income and Job history

FHA

An FHA loan is a mortgage issued by federally qualified lenders and insured by the Federal Housing Administration (FHA). FHA loans are designed for low-to-moderate income borrowers who are unable to make a large down payment.

  • Minimum Credit Score is 500 with at least 10% down
  • Minimum Credit Score is 580 if you put less than 10% down
  • The FHA Kentucky Maximum loan for 2022 is $420,680
  • 2022 Kentucky FHA Loan Limits
    Units Kentucky FHA Loan Limits for 2022
    One $420,680
    Two $538,650
    Three $651,050
    Four $809,150

    Please Note: These new limits apply to FHA loans with case numbers assigned on and after January 1, 2022 through December 31, 2022.

  • Upfront and Monthly Mortgage Insurance is required regardless of the Loan to Value
  • FHA Loans are only available for financing primary residences
  • Maximum Debt to Income Ratio of 50% (unless mitigating factors justify allowing a higher DTI)

Kentucky FHA Loan Requirements

The requirements for Kentucky FHA loans are set by HUD.

  • Borrowers must have a steady employment history of the last two years within the same industry or line of work. Recent college graduates can use their transcripts to supplant the 2-year work history rule as long as it makes sense.
  • Self-Employed will need a 2-year history of tax returns filed with IRS. They will take a 2-year average.
  • FHA requires a 3.5% down payment. Can be gifted from family member or from retirement savings plan, or money saved-up. Any type of cash deposits is not allowed for down payments. No exceptions to this rule!! This is one of the biggest issues I see in FHA underwriting nowadays.
  •  FHA loans are for primary residence occupancy. Not rental houses.
  • Borrowers must have a property appraisal from a FHA-approved appraiser.
  • Borrowers’ front-end ratio (mortgage payment plus HOA fees, property taxes, mortgage insurance, homeowners’ insurance) needs to be less than 31 percent of their gross income, typically. You may be able to get approved with as high a percentage as 43 percent. If the Automated Underwriting System gives you an Approved Eligible you can go higher on the debt ratios
  • Borrowers must have a minimum credit score of 580 for maximum financing with a 3.5% down payment
  • Borrowers must have a minimum credit score of 500-579 for maximum LTV of 90 percent with a minimum down payment of 10 percent. Most lenders will not go below 620 score, and very few lenders will go to 580 score. It’s best to work on getting your scores up before you apply or work with a loan officer to improve them.
  • 2 years removed from Chapter 7 is required with good pay history after bankruptcy
  • 1 year removed from Chapter 13 is okay with an excellent pay history with the Chapter 13 plan and permission from trustee. You will need to qualify with the Chapter 13 payment along with new house payment. Again, scores will play into your loan pre-approval.
  • Typically, borrowers must be three years out of foreclosure and have re-established good credit. Exceptions can be made if there were extenuating circumstances and you’ve improved your credit. If you were unable to sell your home because you had to move to a new area, this does not qualify as an exception to the three-year foreclosure guideline.



FHA 

Low Down Payment which can be 100% gift from family member or Grant Program
Seller can pay closing costs-Maximum 6% of purchase price
There is maximum mortgage amount for each county. Check FHA loan limit for your county.
Non-occupant co-signers are allowed on this program.
FHA Approved Condos-Single family home-2-4 unit properties, and PUDs are eligible.
Fast automated underwriting approval available. Also, the file can be manually underwritten by a live person to get loan approval if you do not receive approval through automated underwriting system.

FHA Foreclosure Program 

Must be HUD Owned property or FHA Foreclosure in HUD Participating Communities
$100 Down Payment than standard FHA program
580 minimum credit score
Single family, 1-4 unit properties, HUD approved condominiums, and PUDS eligible

https://youtu.be/-kZbDJVgwY8

2. Kentucky Housing Corporation Down Payment Assistance for 2022.

Regular DAP

  • Purchase price up to $346,644 with Secondary Market.
  • Assistance in the form of a loan up to $6,000 in $100 increments.
  • Repayable over a ten-year term at 5.50 percent.
  • Available to all KHC first-mortgage loan recipients.

Affordable DAP

  • Purchase price up to $346,644​ with Secondary Market.
  • Assistance up to $6,000.
  • Repayable over a ten-year term at 1.00 percent.
  • Borrowers must meet Affordable D​AP income limits.

​MORE ABOUT DOWN PAYMENT AND CLOSING COSTS

  • No liquid asset review and no limit on borrower reserves.
  • Specific credit underwriting standards may apply to down payment programs
  • .​

SECONDARY MARKET FUNDING SOURCE

  • First-time and repeat homebuyers statewide
  • 30-year fixed interest rate
  • Principal residence ONLY
  • Purchase Price Limit:  $346,644
  • Borrower must meet KHC’s Secondary Market Income Limits

KENTUCKY HOUSING CORPORATION
2022 SECONDARY MARKET
GROSS ANNUAL APPLICANT’S INCOME LIMITATIONS
Effective May 1, 2021

Secondary Market Purchase Price Limit — $346,644

KENTUCKY HOUSING CORPORATION 2021 SECONDARY MARKET GROSS ANNUAL APPLICANT’S INCOME LIMITATIONS
KENTUCKY HOUSING CORPORATION 2021 SECONDARY MARKET GROSS ANNUAL APPLICANT’S INCOME LIMITATIONS

$6000 Kentucky housing grant for 2020 first time home buyers

Down Payment Assistance of $6,000 for KHC Loans. Apply online

Joel Lobb (NMLS#57916)
Senior Loan Officer

American Mortgage Solutions, Inc.
10602 Timberwood Circle Suite 3
Louisville, KY 40223
Company ID #1364 | MB73346

Text/call 502-905-3708
kentuckyloan@gmail.com

 NMLS Consumer Access for Joel Lobb 

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If you are an individual with disabilities who needs accommodation, or you are having difficulty using our website to apply for a loan, please contact us at 502-905-3708.

Disclaimer: No statement on this site is a commitment to make a loan. Loans are subject to borrower qualifications, including income, property evaluation, sufficient equity in the home to meet Loan-to-Value requirements, and final credit approval. Approvals are subject to underwriting guidelines, interest rates, and program guidelines and are subject to change without notice based on applicant’s eligibility and market conditions. Refinancing an existing loan may result in total finance charges being higher over the life of a loan. Reduction in payments may reflect a longer loan term. Terms of any loan may be subject to payment of points and fees by the applicant Equal Opportunity Lender. NMLS#57916

— Some products and services may not be available in all states. Credit and collateral are subject to approval. Terms and conditions apply. This is not a commitment to lend. Programs, rates, terms and conditions are subject to change without notice. The content in this marketing advertisement has not been approved, reviewed, sponsored or endorsed by any department or government agency. Rates are subject to change and are subject to borrower(s) qualification.

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Kentucky FHA Mortgage Lender

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Kentucky FHA Loan Requirements

The requirements for Kentucky FHA loans are set by HUD.

  • Borrowers must have a steady employment history of the last two years within the same industry or line of work. Recent college graduates can use their transcripts to supplant the 2 year work history rule as long as it makes sense.
  • Self-Employed will need a 2 year history of tax returns filed with IRS. They will take a 2 year average.
  • FHA requires a 3.5% down payment. Can be gifted from family member or from retirement savings plan, or money saved-up. Any type of cash deposits are not allowed for down payments. No exceptions to this rule!! This is one of the biggest issues I see in FHA underwriting nowadays.
  •  FHA loans are  for primary residence occupancy. Not rental houses.
  • Borrowers must have a property appraisal from a FHA-approved appraiser.
  • Borrowers’ front-end ratio (mortgage payment plus HOA fees…

View original post 453 more words

How to qualify for a Kentucky FHA loan


To be eligible for a Kentucky FHA loan, Kentucky mortgage borrowers must meet the following lending guidelines:

Have a FICO score of 500 to 579 with 10 percent down, or a FICO score of 580 or higher with 3.5 percent down.

Have verifiable employment history for the last two years.
Have verifiable income through pay stubs, federal tax returns and bank statements.
Use the loan to finance a primary residence.
Ensure the property is appraised by an FHA-approved appraiser and meets HUD guidelines.
Have a front-end debt ratio (monthly mortgage payments) of no more than 31 to 45 percent of gross monthly income.
Have a back-end debt ratio (mortgage plus all monthly debt payments) of no more than 43 to 56.9 percent of gross monthly income (lenders could allow a ratio up to 56.9 percent, in some cases).
Wait one to two years before applying for the loan after bankruptcy, or three years after foreclosure (lenders might make exceptions on these waiting periods for borrowers with extenuating circumstances).
Kentucky FHA loans vs. Kentucky conventional mortgages
KY CONVENTIONAL LOAN KY FHA LOAN
Credit score minimum 620 500
Down payment 3% to 20% 3.5% for credit scores of 580+; 10% for credit scores of 500-579
Loan terms 10- to 30-year terms 15- or 30-year terms
Mortgage insurance premiums PMI (if less than 20% down) varies based on credit score and down payment Upfront premium: 1.75% of loan amount; annual premium: 0.45% to 1.05%

Kentucky FHA loans Advantages and Disadvantages

  • You can have a lower credit score: If you haven’t established much of a credit history or you’ve encountered some issues in the past with making on-time payments, a 620 credit score — the typical magic number for consideration of a conventional mortgage — might seem out of reach. If your credit score is 580, you’re in good standing with most FHA-approved lenders.
  • You can make a lower down payment: FHA loans also give the option for a smaller down payment. With a credit score of at least 580, you can make a down payment of as little as 3.5 percent. If your credit score is between 500 and 579, you may still be able to qualify for an FHA-backed loan, but you will need to make a 10 percent down payment.

Cons

  • You won’t be able to avoid mortgage insurance: Since your credit score is lower, you’re a bigger risk of default. To protect the lender, you have to pay mortgage insurance. You can roll the upfront insurance premium into your closing costs, but your annual premiums will be divided into 12 installments and show up on every mortgage bill. If you put down less than 10 percent, you have to pay those annual premiums for the entire life of the loan. There’s no escaping them. That’s a big difference from conventional loans: Once you build up 20 percent equity, you no longer have to pay for private mortgage insurance.
  • You’ll have to meet property requirements: If you’re applying for an FHA loan, the property has to meet some eligibility requirements. The most important is the price: FHA-backed mortgages are not allowed to exceed certain amounts, which vary based on location. You have to live in the property, too. FHA loans for new purchases are not designed for second homes or investment properties.
  • FHA borrowers must pay an upfront mortgage insurance premium of 1.75 percent of the loan, plus a fixed monthly mortgage insurance of 0.85 percent of the loan.

    For borrowers with a credit score of 700 or higher, the mortgage insurance premium on a conventional loan, which varies according to several factors, might be 0.68 percent, May says. In that case, a conventional loan would be the better option.

    But borrowers with a credit score between 620 and 680 could have a private mortgage insurance premium as high as 1.69 percent, which would make the FHA loan the better option.

    Disadvantages of FHA loans

    The main disadvantage of FHA loans is that the mortgage insurance premiums must be paid for the life of the loan for borrowers who make a down payment of 3.5 percent. FHA borrowers can only eliminate their mortgage insurance payment by refinancing into another type of loan.

    “Conventional loans require less mortgage insurance,” Shalaby says. “In addition, borrowers have the option of lender-paid mortgage insurance, which wraps the insurance into the loan with a slightly higher rate.”

    Unlike FHA loans, private mortgage insurance automatically ends on conventional loans when the borrowers reach 20 percent in home equity by paying down their loan. Borrowers can also request an appraisal and earlier end to their private mortgage insurance if their home value has increased.

    One more disadvantage of an FHA loan is that FHA appraisals are stricter than those required for conventional loans, May says. Buyers purchasing a fixer-upper may have a harder time qualifying for an FHA loan unless they opt for a renovation loan.

    Every mortgage loan choice should be made on an individualized basis that takes into consideration the borrowers’ entire financial plan. First-time buyers can ask their lender for a loan comparison of an FHA loan and a conventional to see which fits their needs best.

    Joel Lobb
    Mortgage Loan Officer
    Individual NMLS ID #57916
     
    American Mortgage Solutions, Inc.
     

    Text/call:      502-905-3708

    fax:            502-327-9119
    email:
              kentuckyloan@gmail.com

     

KENTUCKY HUD REO PROPERTIES ELIGIBLE FOR THE $100 DOWN PAYMENT INCENTIVE

The HUD $100 down program is an FHA loan with a twist. Instead of the minimum required 3.5% of the price down payment, FHA allows a $100 minimum


Search Results for HUD Homes in KY

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Property Case Address Price Status Bed Bath Listing Period Bid Open Date Details 
201-398904 85 Tomahawk Dr
Louisa, KY, 41230
Lawrence County
$146,500 3 2.00 Extended  01/31/2022 View Street
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201-411367 6893 Ky 57
Vanceburg, KY, 41179
Lewis County
$53,000 4 2.00 Exclusive  02/04/2022 View Street
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201-443322 99 Falls Br
Belfry, KY, 41514
Pike County
$88,200 3 2.00 Extended  01/31/2022 View Street
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201-463104 7916 Owenton Rd
Frankfort, KY, 40601
Franklin County
$130,000 3 2.00 Extended  01/31/2022 View Street
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201-492365 9655 Marshall Rd
Ryland Hght, KY, 41015
Kenton County
$137,700 2 1.00 Extended  01/31/2022 View Street
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201-560235 1280 Alton Rd
Lawrenceburg, KY, 40342
Anderson County
$139,500 3 2.00 Extended  01/31/2022 View Street
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201-574687 2444 Bardstown Rd
Lawrenceburg, KY, 40342
Anderson County
$118,000 3 3.00 Extended  01/31/2022 View Street
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201-591350 1306 Oak Hill Dr
Leitchfield, KY, 42754
Grayson County
$110,000 3 1.00 Exclusive  01/31/2022 View Street
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201-599368 853 Abner Fork Rd
Belcher, KY, 41513
Pike County
$52,000 3 1.00 Extended  01/31/2022 View Street
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201-617955 841 S Hwy 3
Louisa, KY, 41230
Lawrence County
$139,500 2 2.00 Extended  01/31/2022 View Street
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201-641322 514 5th St
Carrollton, KY, 41008
Carroll County
$174,000 3 1.10 Extended  01/31/2022 View Street
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201-648672 882 Whippoorwill Ro
Paintsville, KY, 41240
Johnson County
$135,000 3 2.00 Extended  01/31/2022 View Street
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201-657931 4930 Wellsworth Ave
Louisville, KY, 40216
Jefferson County
$147,000 2 2.00 Exclusive  02/07/2022 View Street
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Repossession on a credit report for FHA Loan

How to handle a Repossession on a credit report for FHA Loan Approval?


How to handle a Repossession on a credit report for FHA Loan Approval?

Q: How should evidence of a previous repossession being on a Borrower’s credit report for an FHA loan be handled?

A: A Borrower can still owe money after a car or other property has been repossessed by a lender. The loan should be documented with evidence that any outstanding debt that may have resulted from the repossession is included in the qualifying DTI.

Documentation must be included in the loan file by either the borrower or from a credit supplement verifying whether or not any debt was left outstanding after the repossession.

If there is any debt outstanding after the repossession the terms of repayment must be provided and the debt must be included in the DTI.
If the remaining debt has gone into collections or been charged off ensure all FHA collection and/or charge-off requirements are met.

Does FHA require collections to be paid off for a borrower to be eligible for FHA financing?
A Collection Account refers to a Borrower’s loan or debt that has been submitted to a collection agency by a creditor.

If the credit reports used in the analysis show cumulative outstanding collection account balances of $2,000 or greater, the lender must:

•     verify that the debt is paid in full at the time of or prior to settlement using an acceptable source of funds;
•     verify that the Borrower has made payment arrangements with the creditor and include the monthly payment in the Borrower’s Debt-to-Income ratio (DTI); or
•      if a payment arrangement is not available, calculate the monthly payment using 5 percent of the outstanding balance of each collection and include the monthly payment in the Borrower’s DTI.

Collection accounts of a non-borrowing spouse in a community property state must be included in the $2,000 cumulative balance and analyzed as part of the Borrower’s ability to pay all collection accounts, unless excluded by state law.

Unless the lender uses 5 percent of the outstanding balance, the lender must provide the following documentation:

•     evidence of payment in full, if paid prior to settlement;
•     the payoff statement, if paid at settlement; or
•     the payment arrangement with creditor, if not paid prior to or at settlement.

For manually underwritten loans, the lender must determine if collection accounts were a result of:

•     the Borrower’s disregard for financial obligations;
•     the Borrower’s inability to manage debt; or
•     extenuating circumstances.

The lender must document reasons for approving a mortgage when the Borrower has any collection accounts. The Borrower must provide a letter of explanation, which is supported by documentation, for each outstanding collection account. The explanation and supporting documentation must be consistent with other credit information in the file.

For additional information see Handbook 4000.1 II.A.4.b.iv(M); II.A.5.a.iii(D), II.A.5.a.iv(O)  at https://www.hud.gov/program_offices/administration/hudclips/handbooks/hsgh

All policy information contained in this knowledge base article is based upon the referenced HUD policy document. Any lending or insuring decisions should adhere to the specific information contained in that underlying policy document.
Joel Lobb
Mortgage Loan Officer
Individual NMLS ID #57916
 
American Mortgage Solutions, Inc.
 

Text/call:      502-905-3708

fax:            502-327-9119
email:
          kentuckyloan@gmail.com

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