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.
Disclaimer: No statement on this site is a commitment to make a loan. Loans are subject to borrower qualifications, including income, property evaluation, sufficient equity in the home to meet Loan-to-Value requirements, and final credit approval. Approvals are subject to underwriting guidelines, interest rates, and program guidelines and are subject to change without notice based on applicant’s eligibility and market conditions. Refinancing an existing loan may result in total finance charges being higher over the life of a loan. Reduction in payments may reflect a longer loan term. Terms of any loan may be subject to payment of points and fees by the applicant Equal Opportunity Lender. NMLS#57916http://www.nmlsconsumeraccess.org/
— Some products and services may not be available in all states. Credit and collateral are subject to approval. Terms and conditions apply. This is not a commitment to lend. Programs, rates, terms and conditions are subject to change without notice. The content in this marketing advertisement has not been approved, reviewed, sponsored or endorsed by any department or government agency. Rates are subject to change and are subject to borrower(s) qualification.
FICO score dropped from 800 to 580 overnight, here’s how it happened..
I talk to a lot of people every week about their credit scores. I spoke with a gentleman yesterday that was telling me about his credit score issue.
He was recently out of the country for a couple months and one of his accounts’ auto pay amount changed which only covered part of his monthly payment. The bank noted this on the account and reported him late 30 days because the full payment amount wasn’t received.
Prior to this event his credit scores were in the 800’s, now they are in the high 500’s. It had taken him years to achieve such a high credit score, and only days to lose that score.
Payment history is the biggest factor in your FICO score. It amounts to 35% of your credit rating.
If there’s anything you do with your credit, make absolutely sure you get your monthly payment (in full) in on time. It will take years for him to get his scores anywhere near 800 again.
If you need help raising your credit scores please contact me direct. I can review your credit reports and give specific direction on how to get your scores up.