Louisville Kentucky FHA Loans

13 Jan 2024 ~ Louisville Kentucky Mortgage Broker Offering FHA, VA, USDA, Conventional, and KHC Zero Down Payment Home Loans

FHA LOAN BLOG 2021 PICS

Conventional vs. FHA vs. VA loans in Kentucky

One of the big questions you’ll have to answer when you are ready to buy a home is what type of mortgage loan to choose. There are plenty of options out there, with conventional and FHA being among the most popular. Here’s what you need to know about these common mortgage choices.

Funding

Federal Housing Administration (FHA) loans are backed by that government agency with the intention of making mortgages more affordable to lower-income homebuyers. Those with less-than-ideal financial qualifications have found help from FHA loans.

Conventional loans are guaranteed by the government-sponsored entities Fannie Mae and Freddie Mac. These are not directly made or backed by the federal government, but once made by a private lender, Fannie or Freddie promise to buy them, taking the risk away from the lender and giving them more incentive to make more loans.

Down Payment

The minimum down payment requirements are similar between FHA and conventional loans. Depending on the borrower’s credit score, it can be as low as 3.5% for FHA and 3% for conventional. With both mortgages, borrowers can receive up to 100% of their down payment funds from gifts, making it easier for parents or grandparents to help homebuyers get into their first house.

Credit Score

A conventional loan requires a higher minimum credit score (620) compared with an FHA (500 to 580.) Of course, the better your credit score, the better your mortgage interest rate will be.

Mortgage Rate

Interest rates on both types of loans tend to be very close, with FHA sometimes coming in slightly lower. The rates are mostly determined in either case by your credit score, down payment, loan-to-value ratio, and your other assets. Rates can also vary from lender to lender.

Mortgage Insurance

With conventional loans, borrowers must pay private mortgage insurance (PMI) until they have 20% equity in the home. That can happen by either paying down the principal of your loan over time, or gaining equity as your home value rises along with the market, or a combination of both. Until you reach that threshold though, you will have to pay PMI premiums to help protect your lender against possible default. This can cost you anywhere from 0.5% to 1.75% of your loan total every year. If you took out a $300,000 mortgage, and paid PMI at 1%, you’d be shelling out an extra $3,000 a year. The good news is that payment will disappear after your equity reaches 20%.

With FHA loans, you are required to pay mortgage insurance for the life of the loan. The rate is 1.75%, so the total cost may end up being more for an FHA than a conventional. However, you can refinance out of an FHA to a conventional down the road to eliminate that mortgage insurance premium.

Give us a call today and we can discuss your particular situation and help you pick the option that is best for you!

Conventional loan

A conventional loan isn’t insured or guaranteed by a government entity. You can take one out through a private lender like a bank, credit union or mortgage company. While conventional loans are more difficult to qualify for than government loans, they’re also usually more flexible.

Minimum credit score: 620
Minimum down payment: 3-5%
May be good for: Borrowers with good credit and minimal debt

Fannie Mae HomeReady

HomeReady is a conventional mortgage loan offered by Fannie Mae. If you apply for one, you can use income from your parents, grandparents, relatives and others to help you get approved. Upon approval, you may get rid of your private mortgage insurance, or PMI, after you pay down 20% of your home’s value.

Minimum credit score: 620
Minimum down payment: 3%
May be good for: Borrowers with lower-than-average incomes

FHA loan

FHA loans are insured by the Federal Housing Administration. While these loans have low down payment and credit score requirements, you’ll be required to pay mortgage insurance to protect the lender in the event you default.

Minimum credit score: 500
Minimum down payment: 3.5% if your credit score is 580 or higher; 10% if your score falls in the 500-579 range
May be good for: Borrowers with lower credit scores and down payment amounts

Freddie Mac Home Possible

The Freddie Mac Home Possible mortgage has a low down payment of 3%. But in order to qualify, you can’t earn more than 100% of the annual median income in your area.

Minimum credit score: 680
Minimum down payment: 3%
May be good for: Borrowers with lower incomes and down payment amounts

USDA loan

Backed by the United States Department of Agriculture, a USDA loan is a low-interest, zero-down-payment mortgage that can help you finance a home in an eligible rural area.

Minimum credit score: no minimum score
Minimum down payment: 0%
May be good for: Borrowers with low to moderate incomes who want to buy a home in a rural area

VA loan

A VA loan is guaranteed by the United States Department of Veterans Affairs. As long as you’re an active service member, veteran or eligible spouse, you may get approved for a VA loan with 0% down and no PMI. But keep in mind that you’ll likely have to pay a funding fee of up to 3.6% of your loan amount.

Minimum credit score: no minimum score
Minimum down payment: 0%
May be good for: Borrowers who are active service members, veterans or eligible spouses

Here are action steps you can take right now to buy a home in Kentucky in 2022

31 Dec 2021 ~ Louisville Kentucky Mortgage Broker Offering FHA, VA, USDA, Conventional, and KHC Zero Down Payment Home Loans ~ 1 Comment

Here are action steps you can take right now to buy a home in Kentucky in 2022

1. Focus on your credit score

FICO credit scores are among the most frequently used credit scores, and range from 350-800 (the higher, the better). A consumer with a credit score of 750 or higher is considered to have excellent credit, while a consumer with a credit score below 620 is considered to have poor credit.

To qualify for a mortgage and get a low mortgage rate, your credit score matters.

Each credit bureau collects information on your credit history and develops a credit score that lenders use to assess your riskiness as a borrower. If you find an error, you should report it to the credit bureau immediately so that it can be corrected.

2. Manage your debt-to-income ratio

Many lenders evaluate your debt-to-income ratio when making credit decisions, which could impact the interest rate you receive.

A debt-to-income ratio is your monthly debt payments as a percentage of your monthly income. Lenders focus on this ratio to determine whether you have enough excess cash to cover your living expenses plus your debt obligations.

Since a debt-to-income ratio has two components (debt and income), the best way to lower your debt-to-income ratio is to:

repay existing debt;
earn more income; or
do both

3. Pay attention to your payments

Simply put, lenders want to lend to financially responsible borrowers.

Your payment history is one of the largest components of your credit score. To ensure on-time payments, set up autopay for all your accounts so the funds are directly debited each month.

FICO scores are weighted more heavily by recent payments so your future matters more than your past.

In particular, make sure to:

Pay off the balance if you have a delinquent payment
Don’t skip any payments
Make all payments on time

4. Get pre-approved for a mortgage before you start shopping for a home loan.

Too many people find their home and then get a mortgage.

Switch it.

Get pre-approved with a lender first. Then, you’ll know how much home you can afford.

To get pre-approved, lenders will look at your income, assets, credit profile and employment, among other documents.

5. Keep credit utilization low on your credit cards

Lenders also evaluate your credit card utilization, or your monthly credit card spending as a percentage of your credit limit.

Ideally, your credit utilization should be less than 30%. If you can keep it less than 10%, even better.

For example, if you have a $10,000 credit limit on your credit card and spent $3,000 this month, your credit utilization is 30%.

Here are some ways to manage your credit card utilization:

set up automatic balance alerts to monitor credit utilization
ask your lender to raise your credit limit (this may involve a hard credit pull so check with your lender first)
pay off your balance multiple times a month to reduce your credit utilization

6. Look for down payment assistance in Kentucky

There are various types of down payment assistance, even if you have student loans.

Here are a few: