Here are action steps you can take right now to buy a home in Kentucky in 2020
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:
First Ratio – The first ratio, top ratio or housing ratio. Basically that means out of all the gross monthly income you make, that no more that X percent of it can go to your housing payment. The housing payment consists of Principle, Interest, Taxes and Insurance. Whether you escrow or not every one of these items are factored into your ratio. There are a lot of exceptions to how high you can go, but let’s just say that if your ratio is 33% or less, generally, across the board, you’re safe.
Second Ratio- The second ratio, bottom ratio or debt ratio includes the housing payment, but also adds all of the monthly debts that the borrower has. So, it includes housing payment as well as every other debt that a borrower may have. This would include, Auto loans, credit cards, student loans, personal loans, child support, alimony….basically any consistent outgoing debt that you’re paying on. Again, if you’re paying less than 45% of your gross monthly income to all of the debts, plus your proposed housing payment, then……generally, you’re safe. You can go a lot higher in this area, but there are a lot of caveats when increasing your back ratio.
3. 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
4 . 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:
- FHA loans – federal loan through the Federal Housing Authority
- USDA loans– zero down mortgages for rural and suburban homeowners
- VA loans – if military service
- Kentucky Housing Down Payment Assistance Loan of $6000 available year around available up to 10 years at 1% or 5.5% depending on your income in the household and county you live in.
- $5,000 Welcome Grant available March 3rd 2020
There are federal, state and local assistance programs as well so be on the look out.
If you want a personalized answer for your unique situation call, text, or email me or visit my website below:
Mortgage Loan Officer
Individual NMLS ID #57916
American Mortgage Solutions, Inc.
10602 Timberwood Circle
Louisville, KY 40223
Company NMLS ID #1364