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.
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 :
Where do buyers begin?
Haley Newton, a loan officer with Starkey Mortgage in Sherman, said the first step in the buying process is not finding a house, rather it’s getting prequalified for a home loan. Buyers need to first find out how much house they can afford and if they can actually purchase a home.
“A lot them want to know what the first step is, and many people believe that the first step is finding a house, but that’s actually the second step,” Newton said. “You want to get prequalified with a local lender to know what you’re prequalified for, and then go out and find a house, which is the hard part.”
What documents do buyers need to provide to get prequalified and preapproved?
Prequalification is typically the quick and easy initial step and preapproval is a more involved process. The prequalification process starts with an application, which most lenders have available online, though Newton said buyers can call a lender or meet them in person to fill it out. After buyers fill out an application, which covers the buyers’ finances and history, the lenders will verify the information for preapproval and that requires the supporting documents.
“Once they’re prequalified, we’ll give them a list of documents they need depending on their application,” Newton said.
The list typically calls for pay stubs from the last 30 days, tax returns for the last two years, bank statements for the last two months, W-2s, IDs and Social Security cards.
Jeremy Lewis, branch manager of Grayson Home Loans, said sometimes the lender may require divorce decrees and documentation to indicate other income depending on the buyers’ situation. After preapproval, Lewis said he usually gives the buyers a call, and they figure out a loan program that best fits the buyers.
How much do buyers need for a down payment?
Short answer: It depends on the loan.
Lewis said the down payment is often the main concern for buyers, and it’s not a set amount. Depending on the loan type and what programs the buyers are eligible for, the down payment can be as little as zero down. Loans from the Federal Housing Administration, Veteran Affairs and the U.S. Department of Agriculture each have a set of stipulations that include the percentage required for the down payment.
“It depends on the loan type they’re going with — whether it be a conventional loan, an FHA loan, a VA loan or a USDA loan, it will determine what they’re going to have to place down — what their initial investment is going to be,” Lewis said. “There are still those out there out there that think they have to put 10 to 20 percent down, which is not correct. They can, in certain programs, put as little as zero down.”
Newton said there are down payment assistance programs in the state that can help cover the amount needed. These programs are income based and are capped anywhere from $55,000 to $75,000 depending on the program.
What’s the deal with closing costs?
In addition to a down payment, buyers also need funds to cover the closing costs. Lewis said the closing costs depend on the loan amount as a higher loan amount is going to cost more. About half the closing costs are directed to building the buyers’ escrow account, and the other half is a combination of fees for items such as the title and appraisal.
“Closing costs are another piece of the puzzle they’re going to have to come up with,” Lewis said. “However, in a Texas residential contract, you can ask the sellers to pay a certain percentage, depending on the loan type, for your closing costs.”
Buyers can negotiate with the sellers and ask that the seller pays a portion of the closing costs, which if the buyers qualify for a down payment assistance program, the initial costs can be very low.
“If you’re able to use the down payment assistance programs in addition to requesting the seller to pay some of their closing costs, they can actually get into a home with little to nothing down,” Newton said.
What is an escrow account?
“It kind of works like a separate checking account, and the purpose of that account is to pay the yearly tax bill that comes due every January, and their insurance premium that’s due once a year depending on when they closed on their home,” Newton said.
The initial money put into the escrow account is part of the closing costs, and Lewis said homeowners then add to it monthly when they make their house payments. The account is for buyers to put back money so property taxes and insurance are covered.
“Say when their tax bill comes due in January, there will be plenty of money in the account for them to pay their taxes, so that way they’re not coming up $2 to 3 to 5,000 all at once to pay their tax bill,” Newton said.
Can buyers purchase a home with a bad credit score?
Newton said buyers don’t necessarily need the best credit in order to get a home loan, and she noted that first-time homebuyer programs have recently lowered their credit score requirements.
“A lot people around here they don’t necessarily have bad credit, they just don’t have a lot,” Newton said. “They don’t use their credit.”
Newton said lenders will work with buyers and give them steps to take over 60 to 90 days to boost their credit score to where they can buy a home.
“It can be intimidating but we can walk them through it,” Newton said.
Buyers should consult with local lenders, and Lewis said he guides buyers through the process so they know what to expect.
“There’s so many different moving parts to a loan anymore,” Lewis said. “I try to keep everyone versed and ready for what’s to come in the process and what to expect.”
American Mortgage Solutions, Inc.
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Louisville, KY 40223
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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 view of my employer. Not all products or services mentioned on this site may fit all people. NMLS ID# 57916, (www.nmlsconsumeraccess.org). Mortgage loans only offered in Kentucky.
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Joel E Lobb
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Kentucky FHA, VA, USDA & Rural Housing, KHC and Fannie Mae mortgage loans.
Debt-to-Income Ratio for Kentucky Mortgage Loans Debt-to-Income Ratio: What It Is and Why You Should Care for A Kentucky Mortgage Loan Debt-to-Income Ratio: What It Is and Why You Should Care for…
Fannie Mae recently announced some changes to the Selling Guide. The following changes are effective immediately for loans submitted to Crescent under Fannie Mae’s requirements.
Student Loan Payments
If a payment is provided on the credit report, that amount can be used for qualifying purposes. If the credit report does not identify a payment amount (or reflects $0), the lender may use either 1% of the outstanding balance, or a calculated payment that will fully amortize the loan based on documented loan repayment terms.
Debts Paid by Others
Documentation requirements to exclude a NON-MORTGAGE debt from qualifying ratios have been simplified. Non-mortgage debts included installment loans, student loans, and other monthly debts as defined in the Fannie Mae Guide. When documentation is provided to show the debt has been satisfactorily paid by another party for the past 12 months, then the debt can be excluded from the debt-to-income ratio calculation. This applies regardless of whether the other party is obligated on the loan.
NOTE: This does not apply if the other party is an interested party to the subject transaction such as the seller or realtor.
Student Loan Cash-out Refinance
The update introduces the student loan cash-out refinance feature, which provides the
opportunity to pay off one or more student loans through the refinance transaction. The loan level price adjustment that applies to cash-out refinance transactions is waived when are all requirements for this feature have been met.
The student loan cash-out refinance feature contains elements of both a cash-out refinance and a limited cash-out refinance transaction as described in the table that follows.