via Tips for first-time homebuyers in Kentucky
Category: First Time Tax Credit Extension?
“Grossing-Up” Non-Taxable Income
Did you know that you can gross up non-taxable income?
You may gross up non-taxable income for income qualifying purposes. The non-taxable income source being “grossed-up” must be documented.
Non-taxable income refers to types of income not subject to federal taxes, which includes, but is not limited to:
- some portion of Social Security Income;
- some federal government employee Retirement Income;
- Railroad Retirement benefits;
- some state government Retirement Income;
- certain types of disability and Public Assistance payments;
- Child Support;
- military allowances; and
- other income that is documented as being exempt from federal income taxes.
The percentage to be grossed-up varies by agency:
- FHA – the greater of 15% or the appropriate tax rate for the income amount
- USDA – 25%
- VA – 25%
- Freddie Mac – 25% or the amount of the current federal and state income tax withholdings tables
- Fannie Mae – 25% or the amount of the current federal and state income tax withholdings tables
- Jumbo – 25% (see guidelines for specific restrictions)
Now let’s talk about what it takes to qualify for a mortgage.
First off, you’ll need an adequate credit score, along with sufficient income to make the proposed mortgage payment each month.
Generally speaking, a credit score below 620 is considered subprime in the mortgage world and will make qualifying for a mortgage that much more difficult. But it’s still possible depending on lender and loan type.
If you’ve got previous foreclosures on your credit report, things will get even more problematic and you may not even be eligible for a certain period of time.
But if your credit score is above 740 and you’ve got some decent credit history to back it up, you should have access to the lowest mortgage rates and a wide array of loan options.
Credit scores in between should still work, though there might be pricing hits associated, which all else being equal, may bump up your interest rate.
Tip: Lenders want to see a minimum of 3 active credit tradelines with two-year history on each to assess your creditworthiness.
As far as job history goes, it’s important to show the mortgage underwriteryou’ve had (and still have!) a steady job, typically for two years or longer.
This essentially proves that you will continue to receive regular income to make those costly mortgage payments each month for the next 30 years.
If you just graduated and have held a job for a mere two months, don’t expect to qualify for a mortgage unless your new position directly correlates with what you studied in school.
For example, if you went to medical school, and now have a job as a doctor, this might be sufficient to qualify for a mortgage.
But if you were an art history student who has been working as a flight attendant for two months, mortgage lenders probably won’t feel comfortable lending to you just yet. Make sense?
When seeking out your mortgage, you’ll also need to consider the mortgage down payment requirements, which vary depending on the type of loan you’re after.
While there are still some zero down mortgages around, namely VA loans and USDA loans, it certainly helps to set aside some assets so you’ve got something to put into your home purchase.
Obviously, the amount of money needed will also vary based on the purchase price of the home. If you want a more expensive house, expect to put more down in order to qualify.
If we’re talking about a mortgage refinance, you’ll need a certain amount of home equity to qualify for the mortgage, as determined by loan-to-value ratioconstraints.
Use Common Sense and Think Like the Mortgage Lender
- Would you approve YOU for a mortgage?
- If not, address those red flags immediately
- Don’t guess, run the actual numbers with a professional
- And ask plenty of questions if you’re unsure about anything early on
When it comes down it, it’s all pretty much common sense. Do you think you can/should qualify for a mortgage?
Do you have a track record of making on-time payments, carrying large amounts of debt and paying it down, holding a job, and saving money?
Are you ready to make a big commitment? If you were the bank, would you lend you a mortgage…hmm.
I would guess that most prospective homeowners could assess the situation beforehand and determine if they should be granted a mortgage.
But without running the numbers, you won’t know for certain. So be sure to do plenty of calculations and speak with a loan officer or two to see where you stand.
What You Need to Qualify for a Mortgage
Here’s a general list of what you need to qualify for a mortgage. Keep in mind that qualification requirements vary greatly by lender and loan type.
In some cases, you won’t need all of these things, but it should certainly make life easier to satisfy everything on this list.
- Credit History – minimum of 3 active tradelines with 2-year history on each (credit score minimums vary)
- Job History – at least 2 years on same job or in same line of work (recent graduates with new jobs in certain fields like doctors and lawyers may be exempt)
- Income – verifiable income (tax returns, pay stubs) for the past two years that satisfies debt-to-income ratio limits
- Assets – enough to cover down payment, closing costs, and at least two months of mortgage payments (known as reserves)
- Rental History – proof of clean rental history for the past two years is also important to show the lender you have a propensity to pay on time each month (those currently living with their parents may be excluded from this rule).
If you can’t satisfy these basic requirements, you may want to keep renting, saving, and working on your credit until you can.
Or consider adding a co-signer who is better qualified to apply for a mortgage.
Either way, don’t be discouraged. There are lots of home loan programs and creative options out there to suit all different needs. As noted, one lender may say no while another says YES.
Read more: Tips for first-time homebuyers.
Mortgage Loan Officer
Kentucky FHA, VA ,USDA, KHC, Conventional and Jumbo mortgage loans. I am based out of Louisville Kentucky. For the first time buyer with little money down, we offer Kentucky Housing or KHC loans with down payment assistance.
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Down Payment Assistance Program | Louisville Kentucky
The Down Payment Assistance Program provides qualified homebuyers a loan to assist with purchasing a home which will be their primary residence.
Homebuyer households must have income no greater than 80% of median income, adjusted for family size.
All Homebuyers must complete HUD approved homeownership counseling before assistance can be committed. A Certificate of Completion from the counseling agency must be submitted with the application. Contact us at (502) 905-3708 for counseling.
Metro Louisville Government has revised its Down Payment Assistance Program increasing the amount of assistance.
We are now offering Metro Louisville Kentucky Wide assistance, and homebuyers may qualify for a forgivable mortgage which will be forgiven over a five (5) year period of 10% of the purchase price of the home to a maximum of $10,000.
Our Department has also allocated closing cost assistance in the amount of up to $2,000 for down payment assistance programs; however, homebuyers must pay all prepaid costs from their own funds.
Homebuyers are responsible for obtaining primary financing with a fixed rate mortgage from a reputable lender.
A Housing Quality Standards inspection will be conducted by a inspector before closing. All deficiencies must be corrected and verified by re-inspection prior to closing
A HUD-1 closing statement must be received two working days (48 hours) prior to closing.
Applications will be accepted at any time. Assistance is granted on a first come, first serve basis. For more information about the Down Payment Assistance Program, please call 502-905-3708
Down Payment Assistance Program | Louisville Kentucky
FHA Loans for First-time Home Buyers
Getting an HUD Insured Home Loan with Low Down Payment
FHA loans are attractive for first-time home buyers with a less than perfect credit history and who find it difficult to come up with the 10 to 20% down payment.
FHA loans are once again gaining popularity due to a variety of reasons. Their market share dropped significantly during the period from 2000 to 2007 due to the surge in popularity of sub-prime loans and loans that allowed zero down payment. However the recent sub-prime crisis and the flurry of foreclosures led to most of the lenders tightening the mortgage requirements. FHA loans are once again becoming a viable option for low-to-middle income families for acquiring home loans. The recent bridge loan for the $8000 tax credit which is limited to FHA loans may well be another boost for the popularity of FHA loans.
How FHA Loans Work
The FHA loans are available to purchase or refinance a principal residence. Federal Housing Administration(FHA), which is a part of HUD do not fund a loan, instead they insure the loan. The mortgage loan is funded by a lending institution, such as a mortgage company, bank or savings and loan association.
Borrowers are required to pay a small upfront mortgage insurance premium(1.5% of the purchase price) and a small monthly mortgage insurance (MMI) premium.
Advantages of FHA Loans
1. Low Down Payment- The minimum down payment requirement for FHA loans is 3.5%. Combined with a HUD down payment assistance grant or other similar programs, the borrower can often purchase a home with zero down payment.
2. Less than perfect credit history- FHA loans are ideal for borrowers with less than perfect credit history who will find it difficult to qualify for a conventional loan. Since the loan is guaranteed by the government, lenders will
3. Ideal for first-time home buyers- The typical first-time home buyer is someone who is young and in the early stages of their career. They will have other student debts and will find it difficult to come up with the 5 to 20% down payment required for a conventional loan. They are also likely to have a blemished credit history. FHA loans are much more suited to this type of home buyers because they allow for higher debt-to-income ratios, less than perfect credit history and lower down payment.
4. Down payment can be gifted by a family member or non-profit organization- One significant advantage of FHA loans is that the down payment can be gifted by a parent, a government agency or a non-profit organization which will allow people with out money for down payment to buy a home.
5. Foreclosures and bankruptcy- While borrowers whose homes have been foreclosed or who have gone into bankruptcy will have to wait for a longer period to get a conventional loan, FHA will allow a home purchase two years after a Bankruptcy and three years after a foreclosure.
6. No prepayment penalties- FHA loans do not have any prepayment penalties and can be easily refinanced.
7. Higher debt-to-income ratios- The maximum allowable debt-to-income ratio for a FHA loan is 41%, which is higher than most conventional loans.
Limitations of FHA Loans
Relatively low limits- One important disadvantage of FHA loans is that loan limits for FHA loans is typically less than the loan limits for most conventional loans. If the loan amount exceeds the loan limits, the borrowers will have to contribute additional money or they will have to look for other types of loans.
Borrowers with good credit history can find better rates- FHA loans are typically for borrowers with a blemished credit history or who find it difficult to come up with the 10 to 20% down payment. Borrowers with a good credit history who can also come up with the 10 to 20% down payment can find better rates with conventional loans.
FHA loans are a great option for first-time home buyers who are looking to buy a home in this buyer’s market. Lenders are willing to give better rates even with tighter credit norms since they are assured that the loan will be paid off by HUD in the event of a foreclosure.
For a Quick Easy Loan Approval:
Have These Items Ready When You Apply For a Loan
◦W2 forms for the last two years
◦Most recent pay stubs covering a 30 day period
◦Federal tax returns (1040’s) for the last two years, if:
■you are self-employed
■earn regular income from capital gains
■earn sizable interest income, etc.
■earn more than 25% of your income from commissions or bonuses
■own rental property
■or are in a career where you are likely to take non-reimbursed business expenses).
◦Year-to-Date Profit and Loss Statement (for self employed)
◦Corporate or Partnership tax returns (if you own more than 25% of the business)
◦Pension Award letter (for retired individuals)
◦Social Security Award letters (for those on Social Security)
◦Bank statements for previous two months (sometimes three) on all accounts. All pages, even if you don’t think them important.
◦Statements for two months on all stocks, mutual funds, bonds, etc
◦Copy of latest 401K statement (or other retirement assets because they can count as reserves)
◦Explanations for any large deposits and source of those funds
◦Copy of HUD1 Settlement Statement on recent sales of homes
◦Copy of Estimated HUD1 Settlement Statement if a previous home is for sale, but not yet closed
◦Gift letter (if some of the funds come as a gift from a family member – the lender will supply a blank form)
◦Gifts can also require:
■Verification of donor’s ability to make the gift (bank statement)
■Copy of the check used to make the gift
■Copy of the deposit receipt showing the funds deposited into bank account or escrow
◦Note: many get their statements of various kinds over the internet and these are not always acceptable to lenders, especially when the printed version does not contain the borrower’s name, account number, and the name of the institution.
◦Landlord’s name, address, and phone number (if you rent – for verification of rental)
◦Explanations for any of the following items which may appear on your credit report:
■Credit inquiries in the last 90 days
◦Copy of bankruptcy papers if you have filed bankruptcy within the last seven years
◦Copy of purchase agreement (if you have already made an offer)
◦To document receipt of child support (if you desire to show it as income)
■Copy of Divorce Settlement (to show the amount)
■Copies of twelve months canceled checks to document actualreceipt of funds
◦Copy of Social Security Card (or other documentation of social security number)
◦Copy of Driver’s license
◦Copy of DD214
◦Copy of your most recent monthly mortgage bill
◦The following cannot hurt to have ready, but are not as necessary as they once were:
Copy of Note on existing loan
Copy of HUD1 Settlement Statement on existing loan
Report: 1 in 3 loan applications denied
By ALAN ZIBEL (AP) – 1 hour ago
WASHINGTON — Nearly one in three borrowers who applied for a mortgage last year was denied as lenders kept their standards tight as the mortgage crisis accelerated, the government reported Wednesday.
In its annual look at mortgage practices among lending institutions, Federal Reserve said the denial rate for all home loans was about 32 percent last year — about the same as in 2007, but up from 29 percent in 2006. The denial rates for blacks and Hispanics were more than twice as high as the rate for white borrowers.
The report highlights massive changes in the lending industry after the housing market bust. Overall loan applications were down by a third from a year earlier, and were half the level in 2006.
Loans backed by the Federal Housing Administration soared to 21 percent of all loans made last year from less than 5 percent in both 2005 and 2006.
For black borrowers, more than half of all loans were FHA-insured, more than triple a year earlier. For Hispanics, that number shot up to 45 percent, more than four times as high as in 2007. That was troubling news for consumer advocates.
“I’m hard-pressed to believe that many of those borrowers couldn’t have been served by the private sector,” said John Taylor, chief executive of the National Community Reinvestment Coalition, a consumer group in Washington. “It implies that the industry has shut down in serving this population.”
High-priced loans with rates at least 3 percentage points above the rate for prime loans, shrunk to nearly 12 percent of the market from a high of 29 percent in 2006. But that figure mainly reflects unusually low interest rates during the recession, the report said, and understates the disappearance from the market of high-priced subprime loans made to borrowers with poor credit.
Last year, about 17 percent of blacks and 15 percent of Hispanics got high-priced loans, compared with about 7 percent of whites. Even controlling for factors that might widen that discrepancy, there still a gap of almost 8 percentage points between the number of blacks and whites who got high-cost loans.
The mortgage industry says lenders are not discriminating by race, and are making adjustments based on borrowers’ risk profile — such as their credit score and the size of their down payments.
“You still have a certain degree of risk-based pricing in the market,” said Jay Brinkmann, the Mortgage Bankers Association’s chief economist.
Lenders also scaled back dramatically on the amount of so-called “piggyback” mortgages, in which borrowers used second mortgages to avoid making a 20 percent down payment. Those loans have virtually disappeared from the market: Only 98,000 were made last year, down from 1.3 million annually in 2006.
The data, collected from nearly 8,400 lenders, is required under the Home Mortgage Disclosure Act of 1975.
Copyright © 2009 The Associated Press. All rights reserved.