Loan Info in regards to Credit Score, Down payments and debt to income ratios.

 

Here are a few Kentucky mortgage misconceptions in regards to qualifying for a Mortgage loan in 2020

Credit Score Myth For Kentucky Mortgage Loans

53% of people surveyed believe they need a minimum credit score of 650 to qualify for a mortgage.

 

Credit Score Facts For Kentucky Mortgage Loans

There are many loan programs available for credit scores as low as 580 for government backed loans like FHA, VA, and USDA.

Down Payment Myths for Kentucky Mortgage Loans

The minimum down payment required is 3% (or even 20%).

 

Down Payment Fact

Many loan programs, including conventional loans, are available with down payments as low as 3%. USDA, VA, and Kentucky Housing Corp with their down payment assistance offer zero down payment options. 

Debt-to-Income Myths for Kentucky Mortgage Loans

Most people think 40 to 45%% (percent of your monthly income that goes to debt payments) is the max.

 

Debt-to-Income Fact

Lenders may accept higher ratios depending on things like credit score and down payment amount. FHA and VA will allow over 50% debt to income ratios on the back-end, but Conventional and USDA restrict their back-end debt to income ratios to 45% or less.

 

Think back to the last time you financed a purchase — be it a home, automobile, or what have you… You may remember having heard the term “debt-to-income ratio.” Today I want to spend some time going over exactly what this ratio is, and to also touch on how it can effect your personal finances.

What is your debt-to-income ratio?

Commonly referred to as your “DTI,” your debt-to-income ratio is a personal finance benchmark that relates your monthly debt payments to your monthly gross income.
As an example… Let’s say that your gross monthly salary is $5,000 and you are spending $2,800 of it toward monthly debt payments. In that case, your DTI would be an unhealthy 56%.
This version of your DTI is sometimes referred to as your “back-end” DTI. This is often broken down further to give a front-end debt-to-income ratio, which is a component of your back-end DTI.

How to calculate your front-end DTI for a Kentucky Mortgage Loan Approval

Your front-end DTI is calculated by dividing your monthly housing costs by your monthly gross income. Front-end DTI for renters is simply the amount paid in rent, whereas for homeowners it is the sum of mortgage principal, interest, property taxes, and home insurance (i.e., your PITI) divided by gross monthly income.
From above, if that $2,800 in debt payments is attributable to $1,500 in housing costs and $1,300 in non-housing costs, then your front-end DTI is $1,500/$5,000 = 30% (and your back-end ratio is still 56%, as calculated above).

How lenders use your DTI for a Kentucky Mortgage Loan Approval

Kentucky Mortgage lenders typically use DTI (along with other variables) to determine whether or not you qualify for a loan, and to help determine your Kentucky mortgage rate. A high front-end DTI raises red flags with lenders because it is commonly associated with borrower default. In fact, reducing front-end DTI to reduce the risk of homeowner default was one of the main objectives of the loan modification programs introduced by the government in 2009.
There are specific limits for DTI that are used as cut-off points when evaluating borrowers. Current DTI limits for conventional conforming mortgage loans are typically 28% on the front end and 36% on the back end, though these limits are slightly higher for government subsidized Kentucky FHA loans.
While there are certainly other factors to consider
Acceptable Ratios
Housing Debt to Income
Conventional 28% 41-50%
FHA 29% 41-56.5%
VA
USDA/RHS
KHC 		 29%
29%
40%		 41-65%
41-45%
50%
Higher ratios may be accepted with compensating factors: low loan value, large cash reserves after closing, high credit scores, etc,

 

The bottom line: When it comes to home loans, one size definitely does not fit all, and it can be hard to determine what’s best for your situation on your own. Speaking to a mortgage professional about your unique circumstances is usually your best bet.

Ready to get started? Contact us at 502-905-3708.