Four things to know about qualifying and closing a mortgage loan for Kentucky First Time Home Buyers
1. Do Mortgage Interest Rates Change Daily?
Just like the gas prices at the pump, mortgage rates can change daily or throughout the day. Typically mortgage rates are published at 10-11 am daily by most lenders and you can lock up through the close of business which is usually around 6-7 PM. Mortgage rates can change up or down throughout the day based on various financial, economics, and geopolitical news in the US Financial markets and World markets. Generally speaking, good economic news is bad for rates and vice versa, bad economic news is good for mortgage rates.
The good news is this: Once you find a home and get it under contract, you can lock your mortgage loan rate. Typically it takes about 30-45 days to close a mortgage loan in Kentucky, so the typical lock is for 30-60 days. If rates get better you may be able to negotiate a better rate with your lender, but they usually have to improve by at least 25 basis points (.25) to do that. Not all lenders offer this option. The longer you lock the loan, the greater the costs. It is usually free to lock in a loan for up to 90 days without having to pay a fee.
What a lot of lenders are experiencing now is that some loans don’t close on time for various reasons. You can always extend the lock on the loan but it will costs you usually .125 basis points to do so. If you let the lock expire on the loan, then you have to take worse case pricing on that day when you go to relock. It is usually best to extend the lock on your loan.
2. What kind of Credit Score Do I need to qualify?
3. What are the down payment requirements?
FHA will allow a home buyer to purchase a house with as little as 3.5% down. If your credit scores are low, say 680 and below, a lot of times it makes sense to go FHA because everyone pays the same mortgage insurance premiums no matter what your score is, and the down payment can be gifted to you. Meaning you really don’t have to have any skin into the game when it comes to down payment. They even allow down payment assistance through eligible parties (government grants or non-profits). Lastly, FHA will allow for higher debt to income ratios with sometimes getting loan pre-approvals up to 55% of your total gross monthly income.
VA loans offer eligible Veterans and Active Duty Personnel to buy a home going no money down with no monthly mortgage insurance. This is probably the best no money down loan out there since the rates are traditionally very low on comparison to other government insured mortgages and no monthly mortgage insurance. The VA loan can be used anywhere in the state of Kentucky with the maximum VA loan limit being $417k
USDA loans offer people buying a home in rural areas (typically towns of $20k or less) to buy a home going zero down. You cannot currently own another home and there is household income limits of $75,000 for a household family of four, and up to $99,000 for a household of five or more. You search USDA website for eligible areas and household income limits below at the yellow highlighted link :
4. What if I have had a bankruptcy or foreclosure in the past?
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The view and opinions stated on this website belong solely to the authors, and are intended for informational purposes only. The posted information does not guarantee approval, nor does it comprise full underwriting guidelines. This does not represent being part of a government agency. The views expressed on this post are mine and do not necessarily reflect the views of my employer. Not all products or services mentioned on this site may fit all people
Kentucky Mortgage Loan Credit Score Requirement for 2019
What kind of credit score do I need to qualify for a Kentucky Mortgage Loan?
Vantage Score ranges vary depending on the version the bureau is using. Earlier versions offer a range of 501 to 990 whereas a newer version would range from 300 to 850.
Credit bureaus will often provide scores within several different scoring models, which can cause you to have two different scores issued by a single bureau at one time. This can be confusing if you do not understand where the score is coming from, who it is being provided to, and why. If you go to get a credit card and then go to buy a car, those two places of business from whom you are seeking credit will likely be looking at different scoring models and therefore would each likely be looking at a different score by which they would determine your creditworthiness.
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
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 a 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.
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