Tag: Business

Obtaining new financing after a Short Sale or Foreclosure for a Kentucky USDA, FHA, VA, and Fannie Mae Loan


Obtaining new financing after a Short Sale or Foreclosure for a Kentucky USDA, FHA, VA, and Fannie Mae Loan.

What Credit Score do You Need to qualify for a FHA VA KHC USDA Kentucky Mortgage


 

What Credit Score do You Need to Buy a Home?

Call me today for a free credit report–502-905-3708 or email me at kentuckyloan@gmail.com

When it comes to mortgages and credit scores, there are two really important questions to ask:

–What credit score do I need to qualify for a mortgage?

–What credit score do I need to get the lowest interest rate on a mortgage?

These different but related questions are important if you are looking to buy a home. And the second question is particularly important. With a high FICO score, you can literally save tens of thousands of dollars in interest over the life of a home loan. So let’s take a look at both questions. And if you don’t know you score, be sure to get you free credit score.

What credit score do you need to qualify for a mortgage?

The first thing to keep in mind is that qualifying for a mortgage involves a lot more than just a credit score. While your FICO score is a very important ingredient, it is just one factor. Lenders also look at your income and level of debt, among other things.

As a rule of thumb, however, a credit score below 620 will make buying a home very difficult. A FICO score below 620 is considered sub-prime. In the past there were mortgage companies that specialized in sub-prime mortgages. Because of the challenges in the credit market over the last year or so, however, sub-prime loans have become difficult if not impossible to obtain.

A FICO score between 620 and 650 is considered fair to good credit. But keep in mind, this range of credit scores does not guarantee you will qualify for a mortgage, and if you do qualify, it won’t get you the lowest interest rate possible. Still, to buy a home aim for a score of at least 620, recognizing that other factors weigh in the decision and that some banks may require a higher score.

What credit score do you need to get a low rate mortgage?

It use to be that a score of about 720 would yield the lowest mortgage rates available. Today, the best rates kick in with a FICO score of 760. And interest rates go up significantly as your credit score drops. To give you an idea, the following table shows current rates by credit score and calculates a monthly principal and interest payment based on a $300,000 loan:

Eligibility Requirements  for a Kentucky  FHA Loan after September 15, 2015

When applying for eligibility for A Kentucky  FHA Loans, There are some factors taken into account:
  • Credit score 620 and above with the mortgage investors we work with, even though FHA will insured lower credit scores, most mortgage lenders will create overlays
  • No bankruptcies (Chapter 7) in last 2 years with clean credit afterwards and 3 years after a foreclosure or short sale
  • 3.5% Down payment. Can be gifted or money saved-up or money taken out of 401k or retirement account. No cash gifts or unsourced deposits are allowed for down payment on a FHA loan.
  • Debt to income ratios can be up to 55% on an Approved Eligible Files but restricted on manual underwrites to 31% and 43% respectively.
  • Overtime or bonus income needs to show a 2 year history for it be eligible for income qualifying on a FHA loan. FHA underwriters typically will take a 2 year average.
  • FHA appraisals with the new changes now call for the FHA appraiser to check and review the home more thoroughly, hence the typical costs of a FHA appraisal has gone from $325 to $425 due to more legwork involved on a FHA appraisal.
  • Any disputes on credit bureau will need to be taken out of dispute status typically for your credit scores to be validated, so please be aware of this.
  • Rent references are usually not called for unless your file get downgraded to a manual
  • FHA mortgage insurance the upfront and annual mi monthly fee is for life of loan.
  • A lender may approve a borrower if:  acceptable payment history and  no major derogatory credit on revolving accounts in the last 12 months. “Acceptable payment history” means:  the borrower made all housing and installment debt payments on time for the previous 12 months, and  there are no more than two 30‐day late mortgage or installment payments in the last 24 months. “Major derogatory credit” means:  payments made more than 90 days after the due date, or  3 or more payments made more than 60 days after the due date.
  •  Child support income is Allowed If using a voluntary payment agreement, the lender:  obtains 12 months canceled checks, deposit slips, or tax returns.  For divorce decree, legal separation agreement, or court order if there is evidence of receipt for the most recent 6 months, may use the current payment to calculate income, &  if there are not 6 months of consistent payments, may average the income received over the prior 2 years, or less if the income has not been received that long  4000.1 II.A



Joel Lobb
Senior  Loan Officer
(NMLS#57916)
text or call my phone: (502) 905-3708
email me at kentuckyloan@gmail.com
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.
All loans and lines are subject to credit approval, verification, and collateral evaluation and are originated by lender. Products and interest rates are subject to change without notice. Manufactured and mobile homes are not eligible as collateral.
Co-branded Daily Rate Report for:
joel lobb
Louisville Mortgage Group
License:  NMLS# 57916
I specialize in Kentucky FHA, VA, USDA, KHC, Jumbo and Fannie Mae mortgage loans in Ky. I have helped over 589 Kentucky families buy their first home and refinance their current mortgage for a lower rate; For the first time buyer with little money …view more
Email Me | Visit My Website
(502) 905-3708
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INVESTMENT HOME LOAN


INVESTMENT HOME LOAN.

Can You Afford to Buy a House?


Can You Afford to Buy a House?.

Be sure to factor in all the costs

By Michelle Dawson | Realtor.com

Although the thought of paying a mortgage is more enticing than paying rent, it’s important to understand all the costs involved in buying and owning a home as you determine whether you can afford to join the ranks of homeowners.

Potential buyers sometimes forget to factor in the down payment, homeowners insurance and the possibility of depreciation, as well as the costs associated with closing the transaction, moving, purchasing major appliances, and home, landscape and pool maintenance, not to mention furnishings and design accessories once you move in.
The days of calling up the landlord to fix your problems come to an abrupt halt when you’re a homeowner. You’ll be responsible for everything from malfunctioning appliances to leaky faucets to broken heating and air conditioning units and everything in between. And if you buy an older home, you’ll probably eventually encounter costly repairs, such as replacing the roof or windows.
To determine whether you can afford to buy a home, you should do the following:
1. Determine the property value of homes that interest you. The property value (what the home is worth) is determined by comparing the prices of homes recently sold of similar size in the same neighborhood. Your real estate agent will be able to provide this information to you.
2. Review different mortgage loan types and compare their required down payment amounts to the money you have available. Down payments, based on a percentage of the value of the property and determined by the type of mortgage you select, typically range from three to 20 percent of the property value. Don’t forget to factor in private mortgage insurance, a policy that allows mortgage lenders to recover part of their financial losses if a borrower fails to full re-pay a loan. Mortgage insurance makes it possible to buy a home with as little as 3 percent down. Usually, the lower the down payment, the higher the PMI, which typically will cost somewhere between $40 and $125 a month.
3. Get an estimate of your closing costs, including points (the dollar amount paid to a lender for obtaining a lower interest rate on a loan—one point is one percent of the loan amount), taxes, recording, inspections, prepaid loan interest, title insurance (a policy that insures a home buyer against errors in the title search; cost of the policy is usually a function of the value of the property, and is often borne by the purchaser and/or seller) and financing costs from your mortgage lender or a real estate professional. These will generally add up to between 2 and 7 percent of the property value. You’ll receive an estimate of these costs from your lender after you apply for a mortgage.
4. Add the down payment requirements and the closing costs together to determine the amount of money you’ll need right off the bat. But you’re not done yet.
5. Think about the actual move. Will you hire a moving company or rent a truck? Either way will cost you. The more stuff you have, the more it will cost.
6. Property taxes. Many lenders will require an impound account in which monthly payments for property tax (and often insurance) are paid together with the monthly mortgage payment. You can figure your average annual tax rate will be about 1.5 percent of the purchase price of your home.
7. Next, budget for maintenance and repairs. HouseMaster, a home inspection company with 300 franchises nationwide, said that based on a study that evaluated 2,000 inspection reports, the typical costs of major repairs are:
  • Roofing: $1,500 to $5,000
  • Electrical systems: $20 to $1,500
  • Plumbing systems: $300 to $5,000
  • Central cooling: $800 to $2,500
  • Central heating: $1,500 to $3,000
  • Insulation: $800 to $1,500
  • Structural systems: $3,000 to $1,500
  • Water seepage: $600 to $5,000
Once you crunch the numbers and find you come up a bit short, investigate ways to reduce or creatively fund your down payment—it can come from a variety of sources. Check with your realtor or lender to find out what’s available.
You’ll also need to factor in the cost of homeowners insurance. In addition to the type of construction, age of the home, your credit history and past insurance history, new issues like litigating costly toxic mold cases are raising homeowners insurance rates.
In fact, the National Association of Insurance Commissioners reports that homeowners will spent an average of $822 on homeowners insurance in 2007, the last year data was available.
In your final analysis of whether you can afford to buy a home, you’ll want to weigh the costs with the financial benefits—a consistent mortgage payment (unlike rent, which can increase), the tax benefits (you can deduct, in most cases, mortgage interest, closing costs, and property taxes), and the all-important appreciation factor—the rate of increase in a home’s value.
And of course, you’ll want to weigh perhaps the biggest benefit of all—having a place to call your own.

Can I Pay My Loan Officers Differently Per Mortgage Product?


Can I Pay My Loan Officers Differently Per Mortgage Product?.

 

 

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How Long Do I Have To Be Employed to Qualify for an Kentucky FHA Loan?


How Long Do I Have To Be Employed to Qualify for an Kentucky FHA Loan?

Another Satisfied Home Buyer! Let us help you buy your next Kentucky Home. Great Rates and local, friendly, honest advice. Zero Application FEES! Free Credit Report on all April Applications
Another Satisfied Home Buyer! Let us help you buy your next Kentucky Home. Great Rates and local, friendly, honest advice. Zero Application FEES! Free Credit Report on all April Applications

The Kentukcy FHA loan application process includes many steps, including running a credit report and having the Kentucky FHA borrower fill out paperwork with personal information like open lines of credit and current income. Applying for a government home loan also requires giving the lender two types of personal history–a record of where the borrower has lived and where the borrower has worked.

KEntucky FHA requirements dictate furnishing at least a two-year work history, but that requirement shouldn’t be mistaken for an employment minimum. According to the FHA’s official site, “FHA does not impose a minimum length of time a borrower must have held a position of employment to be eligible for a mortgage.”

What does a buyer do if they can’t show at least a two-year work history? Some KEntukcy FHA home loan applicants who recently graduated from college or have separated from the military may wonder if they have reduced chances of getting an FHA loan approved because they can’t show a history of traditional employment.

In the case of military members, especially Guard and Reserve members who may have joined and been called to active duty right away because of wartime operations, the military service itself is viewed as employment.

There’s no liability or negative consequences as a result of military service, especially where a government home loan application is concerned. The FHA requests a copy of discharge paperwork or related documents to establish a military work history.

For students, part-time work and internships may be interpreted as employment under the right circumstances, but regardless all the FHA requires is supporting documentation of college attendance. College transcripts are usually sufficient. There is one caveat–according to the FHA official site, “…You must prove steady income for at least three years, and demonstrate that you’ve consistently paid your bills on time.”

Steady income for college students may be more difficult to demonstrate, but those on work-study programs, lengthy internships or other programs may find it easier to get Kentucky FHA approval for a home loan than those who studied full-time but did not work. In the end, it’s up to the lender and the FHA to determine what college experience is worth on the Kentucky FHA loan application.

How Long Do I Have To Be Employed to Qualify for an Kentucky FHA Loan?

Free Application and Credit call today 502=905=3708 or email kentuckyloan@gmail.com
Free Application and Credit call today 502=905=3708 or email kentuckyloan@gmail.com
Joel Lobb
Senior  Loan Officer

(NMLS#57916)
American Mortgage Solutions, Inc.
800 Stone Creek Pkwy, Ste 7,
Louisville, KY 40223
 Fax:     (502) 327-9119
 
 Company ID #1364 | MB73346

Recent Prospect Kentucky Area Home Sales 40059


Recent Prospect Kentucky Area Home Sales 40059

ADDRESS / OWNER SALES PRICE / DATE TYPE PARCEL ID
6904 WYTHE HILL CIR 6904 WYTHE HILL CIR
HULBERT LELAND T Sr
$277,500
11/04/2011
0.5963 AC LOT 3 HUNTING CREEK SEC 1 A PB 21 PG 27 155200030000
6926 WYTHE HILL CIR 6926 WYTHE HILL CIR
DUVALL SCOT A
$333,000
03/07/2011
HUNTING CREEK SEC 1 A 155200140000
6928 WYTHE HILL CIR 6928 WYTHE HILL CIR
HANNAH DWIGHT
$340,000
09/19/2011
LOT 15 HUNTING CREEK SUBDIVISION SEC 1A, PB. 21, PG. 27, 0.4053 AC +/- 155200150000
7006 FOXCROFT PL 7006 FOXCROFT PL
THACKER GEORGE W III
$314,500
10/27/2010
HUNTING CREEK SEC 1 B 1 155300580000
7409 SHADWELL LN 7409 SHADWELL LN
MARKHAM JENNIFER
$254,000
03/08/2012
LOT 62 HUNTING CREEK SEC 1 B 1 PB 21 PG 28 0.6053 AC 155300620062
6408 DEEP CREEK DR 6408 DEEP CREEK DR
KIDMAN ERIN H
$395,000
09/23/2011
0.4767 AC LOT 187 HUNTING CREEK SEC 5 PB 25 PG 5 158201870000
6203 DEEP CREEK DR 6203 DEEP CREEK DR
STOVALL JEFFREY G
$355,000
02/28/2012
LOT 232 HUNTING CREEK SEC 6 PB 27 PG 59 0.4133 AC 161002320000
6310 DEEP CREEK DR 6310 DEEP CREEK DR
POSNANSKY BRIAN E
$239,000
12/28/2011
LOT 248 HUNTING CREEK SUBDIVISION SEC 6, PB 27 PG 59, 0.3747 AC +/- 161002480000
6301 DILLARD CT 6301 DILLARD CT
PHILLIPS MARY LISA
$289,500
05/13/2011
LOT 332 HUNTING CREEK SUBDIVISION SEC 7, PB. 28, PG. 54, 0.6679 AC +/- 162203320000
7516 ROCKINGHAM RD 7516 ROCKINGHAM RD
SAUER MICHAEL B
$230,000
08/26/2011
HUNTING CREEK SEC 7 162203360000
7504 ROCKINGHAM RD 7504 ROCKINGHAM RD
WRIGHT HEATHER
$268,500
11/08/2011
LOT 345 HUNTING CREEK SUBDIVISION SEC 7, PB. 28, PG. 54, 0.4413 AC +/- 162203450000
7521 ROCKINGHAM RD 7521 ROCKINGHAM RD
TATE ROBERT L
$365,000
07/21/2011
HUNTING CREEK SEC 7 162203680000
6604 GUNPOWDER LN 6604 GUNPOWDER LN
WILLIAMS STUART JOSEPH
$235,000
09/16/2010
FOX HARBOR SEC 2 APP 100 X 157 164400790000
6709 GUNPOWDER LN 6709 GUNPOWDER LN
GREENE WILSON W
$327,000
11/07/2011
0.4553 AC LOT 89 FOX HARBOR SEC 2 PB 29 PG 70 164400890000
8029 MONTERO DR 8029 MONTERO DR
SCHEITLIN CONSTANCE J
$249,000
09/20/2011
LOT 421 HUNTING CREEK SUBDIVISION SEC 0-2, PB. 30, PG. 14, 0.4366 AC +/- 165204210000
7915 WESTOVER DR 7915 WESTOVER DR
ELMORE PATRICIA A
$330,000
11/23/2010
HUNTING CREEK O-3 165304370000
8309 STAR POINT CT 8309 STAR POINT CT
MCDEARMAN MICHAEL A
$265,000
01/21/2011
HUNTING CREK SECTION 0-4 166504690000
8201 MONTERO DR 8201 MONTERO DR
COYLE JENNIFER M
$235,000
12/09/2011
0.4657 AC LOT 481 HUNTING CREEK SEC 0-4 PB 31 PG 4 166504810000
6910 TIMBER RIDGE CT 6910 TIMBER RIDGE CT
ETHERTON DON E Sr
$270,000
09/15/2011
0.3316 AC LOT 22 TIMBERLAKE SEC 1 PB 32 PG 90 171100220000
2 RIDING RIDGE RD 2 RIDING RIDGE RD
ZAUSCH JO F
$260,000
08/10/2011
LOT 2 RIDING RIDGE SUBDIVISION, PB. 34, PG. 21, 0.1435 AC +/- 174100020000
13 RIDING RIDGE RD 13 RIDING RIDGE RD
HILL YANCHUN GRAHAM
$287,500
02/15/2012
LOT 17 REV OF LOTS 14-21 RIDING RIDGE SUB PB 34 PG 21 (ORIGINAL PLAT) 0.1212 AC 174100170000
22 AUTUMN HILL CT 22 AUTUMN HILL CT
GAMMEL ALLEN
$457,000
09/16/2011
LOT 22 MINOR PLAT DB 5274 X 542, 5304 X 714, 0.524 AC +/- 174600220000
14 AUTUMN HILL CT 14 AUTUMN HILL CT
MAYHUGH JOAN H
$330,000
03/09/2012
0.3299 AC LOT 14A MINOR PLAT DB 5646 PG 98 (REVISION OF LOTS 13, 1746014A0000
7805 DEEP TRAIL CT 7805 DEEP TRAIL CT
CISSELL DEBORAH
$355,000
03/01/2011
.3668 AC+- DEEP COVE WOODS 244201690000
7802 DEEP TRAIL CT 7802 DEEP TRAIL CT
SCHMIED BRAD
$376,000
02/17/2012
LOT 171 & 171A MINOR PLAT DB 5828 X 287, 0.6253 AC +/- 24420

With homes sold within 6 months and are located within 5.0 miles.

Address Radius
From
Property
Sales
Date
Sales
Price
Square
Feet
8117 Montero Dr
Prospect, KY 40059
.35 03/22/2012 $237,300 0
7509 Rockingham Rd
Prospect, KY 40059
.40 04/24/2012 $275,000 0
6301 Rockingham Ct
Prospect, KY 40059
.41 04/04/2012 $235,000 0
14 Autumn Hill Ct
Prospect, KY 40059
.43 03/09/2012 $330,000 0
6203 Deep Creek Dr
Prospect, KY 40059
.47 03/02/2012 $355,000 0
7409 Shadwell Ln
Prospect, KY 40059
.50 03/08/2012 $254,000 0
8300 Westover Dr
Prospect, KY 40059
.57 05/14/2012 $345,000 0
7206 Fox Harbor Rd
Prospect, KY 40059
.76 04/18/2012 $297,500 0
6923 Wythe Hill Cir
Prospect, KY 40059
.89 04/02/2012 $250,000 0
7017 Rock Hill Rd
Prospect, KY 40059
1.00 04/04/2012 $245,000 0
Neighborhood High: $355,000
Neighborhood Low: $235,000
Neighborhood Avg: $282,380
Joel Lobb (NMLS#57916)
Senior  Loan Officer
502-905-3708 cell
502-813-2795 fax
jlobb@keyfinllc.com

Key Financial Mortgage Co. (NMLS #1800)*
107 South Hurstbourne Parkway*
Louisville, KY 40222*

 

Kentucky Homepath Financing 2012 Fannie Mae Properties in Kentucky


HomePath Financing for Kentucky Homebuyers 2012

HomePath Mortgage loans have the following characteristics: HomePath Renovation loans have the following characteristics:
HomePath Mortgage allows a borrower to purchase a Fannie Mae-owned property with a low down payment, flexible mortgage terms, no lender-requested appraisal and no mortgage insurance. Expanded seller contributions to closing costs are allowed.

Benefits to You, the Borrower

  • Low down payment and flexible mortgage terms (fixed–rate, adjustable rate, or interest–only).
  • Down payment (at least 3 percent) can be funded by the borrower’s own savings; a gift; a grant; or a loan from a nonprofit organization, state or local government, or employer.
  • No lender-requested appraisal.
  • No mortgage insurance; ask your lender for cost details on loans without mortgage insurance.
  • Expanded seller contributions for closing costs allowed.
  • Available for primary residences, second homes and investment properties.
  • Many condo project requirements are waived; ask your lender for details.
  • For more information, contact a HomePath Mortgage lender or click here for the Home Buyers Guide.
HomePath Renovation Mortgage allows a borrower to purchase a property that requires light to moderate renovation. The one loan amount includes both the funds for the purchase and renovation – up to 35% of the as completed value, no more than $35,000.

Benefits to You, the Borrower

  • Low down payment and flexible mortgage terms (fixed- rate or adjustable-rate).
  • Down payment (at least 3 percent) can be funded by the borrower’s own savings; a gift; a grant; or a loan from a nonprofit organization, state or local government, or employer.
  • Renovation amount based on appraisal “as completed” value.
  • No mortgage insurance; ask your lender for cost details on loans without mortgage insurance.
  • Expanded seller contributions for closing costs allowed.
  • Available for primary residences, second homes, and investment properties.
  • Many condo project requirements are waived; ask your lender for details.
  • For more information about the renovation process, contact a HomePath Renovation Mortgage lender.
Note: Potential buyers should always use the lender and financing product that best meets the needs of the buyer and property, and should always consider requesting a home inspection of the property. *Ask your lender for cost details for loans with no mortgage insurance.
Louisville Mortgage Underwriting Guidelines

Louisville Mortgage Underwriting Guidelines


Louisville Mortgage Underwriting Guidelines

Understanding Louisville Mortgage mortgage underwriting guidelines will help you understand your loan options when purchasing or refinacing a home. Now that you have found your dream house, you are going to need to apply for a Louisville Mortgage mortgage loan. Your realtor will either recommend a banking institution or you may already have one in mind. You will be dealing with a loan officer who will be compiling all the data on you to see if you qualify for a loan to pay for this house. All lending institutions have different Underwriting Guildelines set in place when reviewing a borrower’s financial history to determine the likelihood of receiving on-time payments. The primary items reviewed are:

Income

Income is one of the most important variables a lender will examine because it is used to repay the loan. Income is reviewed for the type of work, length of employment, educational training required, and opportunity for advancement. An underwriter will look at the source of income and the likelihood of its continuance to arrive at a gross monthly figure.

Salary and Hourly Wages – Calculated on a gross monthly basis, prior to income tax deductions.

Part-time and Second Job Income – Not usually considered unless it is in place for 12 to 24 straight months. Lenders view part-time income as a strong compensating factor.

Commission, Bonus and Overtime Income – Can only be used if received for two previous years. Further, an employer must verify that it is likely to continue. A 24-month average figure is used.

Retirement and Social Security Income – Must continue for at least three years into the future to be considered. If it is tax free, it can be grossed up to an equivalent gross monthly figure. Multiply the net amount by 1.20%.

Alimony and Child Support Income – Must be received for the 12 previous months and continue for the next 36 months. Lenders will require a divorce decree and a court printout to verify on-time payments.

Notes Receivable, Interest, Dividend and Trust Income – Proof of receiving funds for 12 previous months is required. Documentation showing income due for 3 more years is also necessary.Rental Income – Cannot come from a Primary Residence roommate. The only acceptable source is from an investment property. A lender will use 75% of the monthly rent and subtract ownership expenses. The Schedule E of a tax return is used to verify the figures. If a home rented recently, a copy of a current month-to-month lease is acceptable.

Automobile Allowance and Expense Account Reimbursements – Verified with 2 years tax returns and reduced by actual expenses listed on the income tax return Schedule C.

Education Expense Reimbursements – Not considered income. Only viewed as slight compensating factor.

Self Employment Income – Lenders are very careful in reviewing self-employed borrowers. Two years minimum ownership is necessary because two years is considered a representative sample. Lenders use a 2-year average monthly income figure from the Adjusted Gross Income on the tax returns. A lender may also add back additional income for depreciation and one-time capital expenses. Self-employed borrowers often have difficulty qualifying for a mortgage due to large expense write offs. A good solution to this challenge used to be the No Income Verification Loan, but there are very few of these available any more given the tightened lending standards in the current economy. NIV loan programs can be studied in the Mortgage Program section of the library.

Debt

An applicant’s liabilities are reviewed for cash flow. Lenders need to make sure there is enough income for the proposed mortgage payment, after other revolving and installment debts are paid.

  • All loans, leases, and credit cards are factored into the debt calculation. Utilities, insurance, food, clothing, schooling, etc. are not.
  • If a loan has less than 10 months remaining, a lender will usually disregard it.
  • The minimum monthly payment listed on a credit card bill is the figure used, not the payment made.
  • An applicant who co-borrowed for a friend or relative is accountable for the payment. If the applicant can show 12 months of on-time cancelled checks from the co-borrowee, the debt will not count.
  • Loans can be paid off to qualify for a mortgage, but credit cards sometimes cannot (varies by lender). The reasoning is that if the credit card is paid off, the credit line still exists and the borrower can run up debt after the loan is closed.
  • A borrower with fewer liabilities is thought to demonstrate superior cash management skills.

Credit History

Most lenders require a residential merged credit report (RMCR) from the 3 main credit bureaus: Trans Union, Equifax, and Experian. They will order one report which is a blending of all three credit bureaus and is easier to read than the individual reports. This “blended” credit report also searches public records for liens, judgments, bankruptcies and foreclosures. See our credit report index.

Credit report in hand, an underwriter studies the applicant’s credit to determine the likelihood of receiving an on-time mortgage payment. Many studies have shown that past performance is a reflection of future expectations. Hence, most lenders now use a national credit scoring system, typically the FICO score, to evaluate credit risk. If you’re worried about credit scoring see our articles on it.

The mortgage lending process, once very forgiving, has tightened lending standards considerably. A person with excellent credit, good stability, and sufficient documentable income to make the payments comfortably will usually qualify for an “A” paper loan. “A Paper”, or conforming loans, make up the majority of loans in the U.S. and are loans that must conform to the guidelines set by Fannie Mae or Freddie Mac in order to be saleable by the lender. Such loans must meet established and strict requirements regarding maximum loan amount, downpayment amount, borrower income and credit requirements and suitable properties. Loans that do not meet the credit and/or income requirements of conforming “A-paper” loans are known as non-conforming loans and are often referred to as “B”, “C” and “D” paper loans depending on the borrower’s credit history and financial capacity.

Here are some rules of thumb most lenders follow:

  • 12 plus months positive credit will usually equal an A paperloan program, depending on the overall credit. FHA loans usually follow this guideline more often than conventional loans.
  • Unpaidcollections, judgments and charge offs must be paid prior to closing an A paper loan. The only exception is if the debt was due to the death of a primary wage earner, or the bill was a medical expense.
  • If a borrower has negotiated an acceptable payment plan, and has made on time payments for 6 to 12 months, a lender may not require a debt to be paid off prior to closing.
  • Credit items usually are reported for 7 years. Bankruptcies expire after 10 years.
  • Foreclosure – 5 years from the completion date. From the fifth to seventh year following the foreclosure completion date, the purchase of a principal residence is permitted with a minimum 10% down and 680 FICO score. The purchase of a second or investment property is not permitted for 7 years. Limited cash out refinances are permitted for all occupancy types.
  • Pre-foreclosure (Short Sale) – 2 years from the completion date (no exceptions or extenuating circumstances).
  • Deed-in-Lieu of Foreclosure – 4 year period from the date the deed-in-lieu is executed. From the fifth to the seventh year following the execution date the borrower may purchase a property secured by a principal residence, second home or investment property with the greater of 10 percent minimum down payment or the minimum down payment required for the transaction. Limited cash out and cash out refinance transactions secured by a principal residence, second home or investment property are permitted pursuant to the eligibility requirements in effect at that time.
  • Chapter 7 Bankruptcy – A borrower is eligible for an A paper loan program 4 years after discharge or dismissal, provided they have reestablished credit and have maintained perfect credit after the bankruptcy.
  • Chapter 13 Bankruptcy – 2 years from the discharge date or 4 years from the dismissal date.
  • Multiple Bankruptcies– 5 years from the most recent dismissal or discharge date for borrowers with more than one filing in the past 7 years.
  • The good credit of a co-borrowerdoes not offset the bad credit of a borrower.
  • Credit scores usually range from 400 to 800. Changes to lending standards are occurring on a daily basis as a result of tightening lending standards, and can vary from lender-to-lender– so this information should be considered simply a guideline. For conforming loans, most lenders will lend down to a FICO of 620, with additional rate hits for the lower-end credit scores and loan-to-values. When you are borrowing more than 80%, they typically will not lend if you have a FICO below 680. The FHA/VA program just changed their minimum required FICO to 620, unless you are qualifying a borrower with non-traditional credit. The few non-conforming loan programs that are still available typically require 30% down payment with a minimum FICO of 700 for self-employed and 650 for W-2 employees, and the loan-to-value will change with the loan amount.
  • A credit score below 600 may require an Alternative Credit mortgage program.
  • Misinformation on a credit report can be repaired! For more information see our credit repairsection.
  • The FTC states, “Credit repair companies take your money and vanish.” Anything a credit repair company does for a fee, a consumer can do for free. Be wary of these guys!
  • If a borrower falls behind on a payment, the creditor should be contacted as quickly as possible. Most creditors will work with a borrower who makes an initial good faith effort to communicate with them.

Savings

Lenders evaluate savings for three reasons.

  1. The more money a borrower has after closing, the greater the probability of on-time payments.
  2. Most loan programs require a minimum borrower contribution.
  3. Lenders want to know that people have invested their own into the house, making it less likely that they will walk away from their life’s savings. They analyze savings documents to insure the applicant did not borrow the funds or receive a gift.

Lenders look at the following types of accounts and assets for down payment funds:

Checking and Savings – 90 days seasoning in a bank account is required for these funds.Gifts and Grants – After a borrower’s minimum contribution, a gifts or grant is permitted.

Sale of Assets – Personal property can be sold for the required contribution. The property should be appraised and a bill of sale is required. Also, a copy of the received check and a deposit slip are needed.

Secured Loans – A loan secured by property is also an acceptable source of closing funds.

IRA, 401K, Keogh & SEP – Any amount that can be accessed is an acceptable source of funds.

Sweat Equity and Cash On Hand – Generally not acceptable. FHA programsallow it in special circumstances.

Sale Of Previous Home – Must close prior to new home for the funds to be used. A lender will ask for a listing contract, sales contract, or HUD 1 closing statement.

Debt vs Income Ratio

The percentage of one’s debt to income is one of the most important factors when underwriting a loan. Lenders have determined that a house payment should not exceed approximately 30% of Gross Monthly Income. Gross Monthly Income is income before taxes are taken out. Furthermore, a house payment plus minimum monthly revolving and installment debt should be less than 40% of Gross Monthly Income (this figure varies from 35%-41% contingent on the source of financing).

Example

An applicant has $4,500 gross monthly income. The maximum mortgage payment is:

$4500 X .30 = $1350

Their total debts come to:

$500 Car
$20 Visa
$30 Sears
$75 Master Card
—————-
$625 per month.

Remember, their total debts (mortgage plus other debts) must be less than or equal to 40% of their gross monthly income.

$2,800 X .40 = $1800

$1800 is the maximum debt the borrower can have, debts and mortgage payments combined. Can the borrower keep all their debts and have the maximum mortgage payment allowed? NO!

In this case, the borrower, since they have high debts, must adjust the maximum mortgage payment downward, because:

$625 debts
$1350 mortgage
————–
$1975 – which is more than the $1800 (40% of gross debt) we calculated above.

The maximum mortgage payment is therefore:

$1800 – $625 (monthly debt) = $1175.

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