5 tips to on getting approved for a Mortgage Loan in Kentucky for 2020
1. You Need a Credit Score to Get a Home Loan
Credit scores go from 300 to 800 on the FICO scale. The higher the score, the better the chances of getting approved. Most borrowers fall in the 500 to 700 range on most credit pulls.
A good rule of thumb, to get the very best rates, you will need a 760 Fico score or higher. Now that doesn’t mean you have to have that high of score to get approved, just to get the best rates and pricing.
In order to get approved for most homes loans nowadays that are sold to FHA, VA, USDA, Fannie Mae and Kentucky Housing, you will need to have a 620 credit score for most programs, with FHA, USDA, and VA going below that threshold.
You have three credit scores from Experian, Transunion and Equifax. Lenders will throw out the high and low score to get your qualifying score.
For example, if you have a 598 Experian score, a 609 Equifax score, and a 603 Transunion score, then your qualifying scour would be 603.
If your scores are in the lower range, say below 680, they’re still numerous home loan programs in Kentucky where you can get approved for a mortgage loan and get a very good fixed rate for 30 years.
On FHA loans in Kentucky, FHA will go down to a 500 minimum credit score with at least 10% down payment or 10% equity on a refinance.
If your scores is over 580, then you could use a FHA loan in Kentucky to with just 3.5% down payment or refinance with that much equity.
If you happen to be a Veteran and qualify for a Kentucky VA loan, you could possibly get approved for a VA loan with no minimum credit score.
In reality, it is very difficult to get for a VA loan with a score below 560 to 580 range, with most VA lenders requiring a 620 credit score.
If you are looking to purchase a home in a rural area, you can look at doing a Kentucky USDA loan because they have no minimum credit score but most lenders will want a 620 to 640 credit score.
2.How much can I afford?
Your Debt to IncomeRatio (DTI) is the percentage of your incomet hat you owe in debt on a monthly basis. For example, if you make $5,000 per month, and have debt payments (car loans, credit cards, student loans, etc.) of $2,000, your DTI ratio is 40%. The higher this ratio is, the less likely you will be to qualify for a low interest rate.
Conventional loans typically have a qualifying ratio of 28/45. FHA loans will sometimes allow for a higher debt load of 45/55 qualifying ratio.
The first number in a qualifying ratio is the maximum percentage of your gross monthly income that can be applied to your mortgage. That includes the loan principal and interest, private mortgage insurance, property taxes, homeowners insurance, and homeowner’s association dues.
The second number is the maximum percentage of your gross monthly income that can be applied to housing expenses and recurring debt. Recurring debt includes monthly payments for cars, boats, motorcycles, child support payments and monthly credit card payments.
Example: of a 28/36 qualifying ratio:
Gross monthly income of $5,000 x .28 = $1400 can be applied to housing.
Gross monthly income of $5,000 x .36 = $1,800 can be applied to recurring debt plus housing expenses
Example: of a 29/41 qualifying ratio:
Gross monthly income of $5,000 x .29 = $1,450 can be applied to housing.
Gross monthly income of $5,000 x .41 = $2,050 can be applied to recurring debt plus housing expenses
That means your monthly debt payments are divided by your gross monthly income. Most lenders want your debt-to-income ratio to be no higher than 40%
The general rule for most FHA, VA, KHC, USDA and Fannie Mae loans is that we run your loan application through the Automated Underwriting systems, and it will tell us your max loan qualifying ratios.
There are two ratios that matter when you qualify for a mortgage loan. The front-end ratio, is the new house payment divided by your gross monthly income. The back-end ratio, is the new house payment added to your current monthly bills on the credit report, to include child support obligations and 401k loans.
Car insurance, cell phone bills, utilities bills does not factor into your qualifying rations.
If the loan gets a refer on the initial desktop underwriting findings, then most programs will default to a front end ratio of 31% and a back-end ratio of 43% for most government agency loans that get a refer. You then take the lowest payment to qualify based on the front-end and back-end ratio.
So for example, let’s say you make $3000 a month and you have $400 in monthly bills you pay on the credit report.
What would be your maximum qualifying house payment for a new loan?
Take the $3000 x .43%= $1290 maximum back-end ratio house payment. So take the $1290-$400= $890 max house payment you qualify for on the back-end ratio.
Then take the $3000 x .31%=$930 maximum qualifying house payment on front-end ratio.
So now your know! The max house payment you would qualify would be the $890, because it is the lowest payment of the two ratios.
∘ How much money do I need to pay to close the loan?
Depending on which loan program you choose, the outlay to close the loan can vary. Typically you will need to budget for the following to buy a home: Good faith deposit, usually less than $500 which holds the home for you while you close the loan. You get this back at closing; Appraisal fee is required to be paid to lender before closing. Typical costs run around $400-$450 for an appraisal fee; home inspection fees. Even though the lender’s programs don’t require a home inspection, a lot of buyers do get one done.
The costs for a home inspection runs around $300-$400. Lastly, termite report. They are very cheap, usually $50 or less, and VA requires one on their loan programs. FHA, KHC, USDA, Fannie Mae does not require a termite report, but most borrowers get one done.
There are also lender costs for title insurance, title exam, closing fee, and underwriting fees that will be incurred at closing too. You can negotiated the seller to pay for these fees in the contract, or sometimes the lender can pay for this with a lender credit. The lender has to issue a breakdown of the fees you will incur on your loan pre-approval.
Here are a few home loans you can choose from:
The Federal Housing Administration (FHA) mortgage loan is popular with first-time home buyers. You can get approved with a 500 credit score and only 10% down.
The U.S. Department of Agriculture (USDA) has a loan program to help low-income buyers living in rural areas. These loans come with a zero-down payment and offer the lowest mortgage insurance premium for any type of mortgage.
You’ll need a Veterans Affairs (VA certificate of eligibility to qualify for the VA home loan program. If you do qualify, there’s no down payment requirement and no mortgage insurance.
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.
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FICO credit scores are among one of the most commonly used scoring systems by lenders and creditors whose range plays in between 350 to 800. A consumer with a credit score below 620 is considered to have poor credit, while those with credit scores of 750 or higher is considered to have excellent credit.
Now, if you want to qualify for a home improvement financing or a mortgage and nail a low mortgage rate, make sure your credit score is in good shape. Whenever you apply for a mortgage, every credit bureau gathers information about your credit history and calculate your credit score that lenders will use to gauge your risk factor.
If you find an error or any inconsistencies in your credit report, report it immediately to the credit bureau and have it fixed.
Your DTI (debt-to-income ratio) is one of the major factors that lenders consider when you apply for a mortgage loan. It’s the ratio of the total amount of your recurring debt every month with your monthly gross income.
To calculate your DTI, add up all of your recurring monthly debt such as student loan payments, minimum credit card payments, or car loan payments, then divide it by your pre-tax (the amount you earn before taxes and other withholdings) income every month.
Since your debt-to-income contains two main components: debt and income, the efficient way to reduce it is to:
earn more income
repay existing debt do both
Pay Attention to Your Payments
Case in point: Lenders will approve the application of those who are financially responsible.
Know it that your payment history takes up one of the biggest portions of your credit score. Thus, to make sure that you pay on time, set up an autopay system for all your accounts so that funds are automatically debited every month.
Moreover, your FICO is being weighed heavily by current payments, which means your future will matter more than your past. Make sure also to do the following:
Pay off the balance if you have a delinquent payment.
Do not skip payments.
Pay on time.
Get Yourself Pre-approved for a Mortgage
The common cycle for home buyers is to look for a property, then get a mortgage. You have to switch it.
It’s better if you get yourself pre-approved with a lender, so you will know how much you can afford for a home. To get pre-approved, lenders will look at your income, credit profile, employment, assets, to name a few.
Besides your credit score and DTI, your lenders also assess your credit card utilization score, or your credit card expenses as a percentage of your credit limit every month. The ideal credit utilization must be 30% or less. Even better, keep it less than 10% if possible.
For instance, if you have a $20,000 credit card limit and spent $6,000, your credit utilization is equivalent to 30%.
If you want to regulate your credit card utilization better, here are the things you can do:
Talk with your lender about increasing your credit limit. It may require a hard credit pull so better consult your lender first.
Pay off your balance at least twice a month to lessen your credit utilization.
To track credit utilization, set up alerts for automatic balance.
Even if you have outstanding student loan debts, you can still seek for different down payment assistance. You can start with the following:
USDA loans. These loans have zero-down mortgages for suburban and rural homeowners.
FHA loans. Acquire federal loan through the Federal Housing Authority.
VA loans. You can avail these loans if you’ve served in the military service.
There are local, state, and federal assistance programs as well that you can resort to.
If paying off your credit card balance is impossible before getting a mortgage, you can consolidate your credit card debt into one personal loan for a lower interest rate.
Taking a personal loan can help you save big on you on interest expenses over the repayment term, which usually lasts for three up to7 years, depending on the lender. It can also enhance your credit score since it’s an installment loan with a fixed repayment term.
On the flip side, credit cards have no fixed repayment terms because they are revolving loans. When such is the case, you can minimize your credit utilization and diversify your debt types whenever you trade your credit card debt for a personal loan. Takeaway
Buying a home while grappling with student loan debts can be taxing. Your likelihood to get a mortgage for a property will depend on your loans. It can result in disappointment if your loans are in bad shape.
The lenders I currently deal with have the following fico cutoffs for credit scores:
As you can see, different government-backed loan programs have different minimum score requirements with most lenders for a FHA, VA, or Fannie Mae loan, and 620 is required for the no down payment programs offered by USDA and KHC in Kentucky for First Time Home Buyers wanting to go no money down.
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 view of my employer. Not all products or services mentioned on this site may fit all people. NMLS ID# 57916, (www.nmlsconsumeraccess.org). USDA Mortgage loans only offered in Kentucky.
All loans and lines are subject to credit approval, verification, and collateral evaluation