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Affects Loan Programs
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Debt ratios and mortgage guidelines for approval in Kentukcy?
When it comes to getting approved for a Kentucky Mortgage loan, lenders will look at your current gross monthly income versus your current debts to qualify up to your maximum spending limits for a mortgage loan. Also called your dti or debt to income ratios.
There are two ratios they use: Front end ratio and back-end ratio
The first ratio is measured using your new house payment, taking into account your principal and interest payment, property taxes and home insurance premiums along with the mortgage insurance. That ratio typically needs to be less than 1/3 of your gross monthly income to fit most KY mortgage programs for FHA, VA, USDA and Fannie Mae guidelines.
I have attached below a picture with a general overview of qualifying ratios for a Kentucky Mortgage loan approval when it comes to income vs debts or debt to income ratios.
|Housing||Debt to Income|
|Higher ratios may be accepted with compensating factors: low loan value, large cash reserves after closing, high credit scores, etc,|
So for example, let’s say you make $3000 gross a month, then your max house payment on the new loan would equal about $1000 for your new house payment.
Your current rent payment, utility bills, car insurance, cell phone bills, don’t go into account when figuring your max ratios.
The second ratio, called the backend-ratio measures your new house payment, plus your current monthly debts listed on the credit report. Most Kentucky Mortgage programs will want to cap this at 45% to 50%, with some going a little higher with compensating factors.
For example, let’s say you make $3000 gross a month, and your new house payment is $1000, taking you up to your max limits on the front end ratio of 1/3. and let’s say you have a $300 car payment, $100 in credit card payments and $150 student loan payment.
What is your maximum qualifying house payment with a back-end ratio of 50% with the current debts above? Let’s look at the math: Take $3,000 x 50% =$1,500 — this is going to be your max limits on the backend ratio with new house payment and current debt load. So let’s see what this amounts to:
So if we take the $1500 minus your current monthly bills on the credit report, this is going to equal a max house payment of $950. As you can see, even though the front end ratio allows for $1000 max house payment, the back-end ratio is going to be $950, so you would go with the lowest of the two.
If you pay or receive child support or child support this can be added or deducted to affect your max qualifying ratios for a mortgage loan, along with 401k loans.
As stated above, car insurance, cell phone bills, current rent payments, utility bills, insurance, does not come into play when qualifying for a max mortgage loan approval.
Curios about how much you would qualify for a mortgage loan in Kentucky?
Call, text or email me your questions and I would be glad to help you.
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/
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Two FHA Refinance Options
- Credit qualifying Streamline Refinance and Rate/Term Refinance
- Insured by the Federal Housing Administration
- Cash back to borrower not to exceed $500
- Upfront and monthly mortgage insurance
- Minimum credit score of 620
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