Tag: USDA

Which Credit Score is used for a Kentucky Mortgage Loan Approval?

Credit score used for a Kentucky Mortgage Loan Approval for FHA, VA, USDA Rural Housing, KHC Down payment assistance FAnnie Mae


If you’re planning to apply for a mortgage, be aware that the credit score you see on your application might differ slightly from the one you’re used to.

Banks use a slightly different credit score model when evaluating mortgage applicants. Below, we go over what you need to know about credit scores you’re looking to buy a home.

The scoring model used in mortgage applications

While the FICO® 8 model is the most widely used scoring model for general lending decisions, banks use the following FICO scores when you apply for a mortgage:

FICO® Score 2 (Experian)
FICO® Score 5 (Equifax)
FICO® Score 4 (TransUnion)

As you can see, each of the three main credit bureaus (Equifax, Experian and TransUnion) use a slightly different version of the industry-specific FICO Score. That’s because FICO tweaks and tailors its scoring model to best predict the creditworthiness for different industries and bureaus. You’re still evaluated on the same core factors (payment history, credit use, credit mix and age of your accounts), but the categories are weighed a little bit differently.

The FICO 8 model is known for being more critical of high balances on revolving credit lines. Since revolving credit is less of a factor when it comes to mortgages, the FICO 2, 4 and 5 models, which put less emphasis on credit utilization, have proven to be reliable when evaluating good candidates for a mortgage.

Mortgage lenders pull all three reports,from all three bureaus, but they only use one when making their final decision.

“A bank will use all three bureaus,”— “It’s called a tri-merge.”

If all three of your scores are the same, then their choice is simple. But what if your scores are different?

If two of the three scores are the same, lenders use that one, regardless of whether it’s higher or lower than the other one.

And if you are applying for a mortgage with another person, such as your spouse or partner, each applicant’s FICO 2, 4 and 5 scores are pulled. The bank identifies the median score for both parties, then uses the lowest of the final two. For example if you have a 598, 625, 604 on each of the main three reporting agencies, then your qualifying fico score would be 604.

Which Credit Score is used for a Kentucky Mortgage Loan Approval?
FICO Scores used for mortgages Which Credit Score is used for a Kentucky Mortgage Loan Approval?

FICO Scores used for mortgages Which Credit Score is used for a Kentucky Mortgage Loan Approval?

Joel Lobb
Mortgage Loan Officer
Individual NMLS ID #57916
 
American Mortgage Solutions, Inc.
 

Text/call:      502-905-3708

fax:            502-327-9119
email:          kentuckyloan@gmail.com

 

Kentucky Rural Housing USDA Loan Student Loan Debt Calculations


FHA, VA, USDA, Conventional, and KHC Zero Down Payment Home Loans

Kentucky USDA Mortgage Lender for Rural Housing Loans

For potential home buyers with student loans that are either in a deferred payment status or being paid back through an income based or graduated repayment program, the treatment of this liability needs to be considered. When student loan debts are not currently being paid upon, due to the loan applicant still being in school or recently graduating from school, the monthly liability will be calculated based on the lower of 1/2 of 1% of the outstanding loan balance or the monthly payment listed on the credit report. Example if you owe $100,000 in student loan debt the monthly payment will be $500. Also, if the student loan is being paid upon, but at a lesser amount than originally agreed, such as the payment being determined based on repayment ability (i.e. Income Based Repayment Plan), the monthly payment will be calculated the same as above (monthly liability = 1/2 of…

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Kentucky Rural Housing Development Mortgage Guide for USDA Loans


Kentucky USDA Rural Housing Mortgage Lender

The USDA Rural Development Loan Program offers first time homebuyers and move-up buyers:

  • 100% Financed Mortgage, No Money Down, $0 Down Payment
  • USDA Loans monthly mortgage insurance premiums are 59% lower than a comparable FHA Loan
  • Flexible Credit Requirements
  • Safe, Secure 30 Year Fixed Rate Mortgage
  • No Maximum Loan Amount
  • With Seller Help, No Out-Of-Pocket Closing Costs
  • Most Property Types Allowed

 

 
 

Louisville Kentucky Mortgage Loans

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What is a debt to income ratio for a Kentucky Mortgage?


 

A debt to income ratio, commonly referred to as DTI, is the ratio of the amount of monthly expenses you have relative to your gross (before tax) income. 

 

The automated underwriter will look at two ratios when analyzing your DTI: your front end DTI ratio and your back end DTI ratio.

 

Front End DTI

 

The front end DTI is the ratio of your new housing payment including taxes and insurance relative to the amount of income you earn.  The front end DTI ratio excludes all other debts and simply analyzes your income relative to the payments on the new mortgage plus tax and insurance. 

 

So, if your mortgage payments including tax and insurance are $1,000 and you earn $4,000 per month in gross income, your front end DTI would be 25% ($1,000 / $4,000 = 25%). 

 

Generally, the automated underwriter likes to see front end DTI ratios below 40%, although it will approve higher front end DTI ratios with compensating factors like high credit scores, money in the bank, low loan to value ratio, etc. 

 

Back End DTI

 

The back end DTI is the ratio of all of your expenses appearing on your credit report plus your new mortgage payment including taxes and insurance divided by your gross monthly income.  The back end DTI ratio does not include things like utilities, health insurance or groceries.  It is calculated using only the liabilities appearing on your credit report plus any child support or garnishments that may appear on your paystubs. 

 

So, to continue our example from above, if your mortgage payments with tax and insurance are $1,000 per month, you have a $250 car payment, $250 in credit card payments and a gross income of $4,000, your back end DTI is 37.5% ($1,500 / $4,000 = 37.5%). 

 

Generally the automated underwriter likes to see back end DTI ratios under 45%.  However, it will approve loans with a 55% back end DTI or higher if there are compensating factors. 

 

It is important to understand what a debt to income ratio is, however, you do not have to calculate it yourself.  Your Loan Originator and your Processor will do this for you. 

 


Joel Lobb
Mortgage Loan OfficerIndividual NMLS ID #57916

American Mortgage Solutions, Inc.10602 Timberwood Circle Louisville, KY 40223Company NMLS ID #1364

click here for directions to our office
Text/call:      502-905-3708fax:            502-327-9119
email:          kentuckyloan@gmail.com

https://www.mylouisvillekentuckymortgage.com/

FHA Changes for Mortgage Loans in Kentucky


Minimum Credit Scores for a Kentucky FHA loan.

All Kentucky FHA loans  will soon require a 500  credit score for all Kentucky Home buyers or homeowners looking to refinance who have a debt to income ratio over 55% percent.

Kentucky FHA Loans with FICO scores under 620 will remain FHA-eligible, but you must show compensating factors or reasons to approve the loan. Compensating factors would be large down payments in excess of 10%, or a lot of money in savings or reserves after the loan is made.

Credit Scores Required For A Kentucky Mortgage Loan Approval

Credit Score FHA Requirements for FHA Loans.

Kentucky FHA loans and Foreclosure Rules

Currently,  a Kentucky homebuyer or home owners can get a  FHA-insured financed three years after a foreclosure or short-sale.  FHA will now require  that only borrowers who (1) have re-established credit, and (2) can provide a fully-documented loan application will qualify for a Kentucky FHA loan

Furthermore, the group will examine the cause of the foreclosure to determine whether it was a one-time event, such as loss of employment, which may be a predictor of future loan performance.

FHA loans Louisville Ky Kentucky

FHA Premiums and Kentucky FHA Loans

There is a very good chance that the mortgage insurance premiums for upfront mortgage insurance and monthly mortgage insurance will be going up from the current 1.75% upfront funding fee and .85 and .80 % monthly mi factor for 30 year fixed rate FHA loans

Loan Type Minimum FICO Credit Score Intended For
FHA 580 with a 3.5% down payment or 500 with 10% down Homebuyers with low- to moderate-income
VA No set minimum from the VA although most lenders with require a 620 or higher credit score (some may allow a score as low as 580) Veterans & Active Military
USDA No set minimum from the USDA although most lenders will require a score of at least 640 Buyers purchasing a home in a designated rural area
Conventional 620 to 640 Buyers who want a traditional mortgage

If you have any more questions or would like to apply for your Kentucky FHA loan, please contact me below: