Why Kentucky Mortgage Loans Are Denied

When applying for a Kentucky mortgage loan, several factors play a crucial role in the approval and denial process. 

Understanding why Kentucky mortgage loans may not get approved due to credit score, bankruptcy, income ratio, work history, and foreclosure is essential for prospective homebuyers. 

Credit Score of 620 or below:

A credit score reflects an individual's creditworthiness. Lenders use this score to assess the risk of lending money. A lower credit score, typically below 620, can raise concerns for lenders. It may indicate past financial challenges, missed payments, or high levels of debt. To improve mortgage approval chances, borrowers should aim for a higher credit score by paying bills on time, reducing debt, and fixing any errors on their credit report.

Bankruptcy less than 2 years or foreclosure less than 3 years:


Bankruptcy can significantly impact mortgage approval. Depending on the type of bankruptcy (Chapter 7 or Chapter 13) and how long ago it occurred, lenders may view it as a red flag. 

Bankruptcies stay on credit reports for 10 years, affecting credit scores and indicating financial instability. Lenders may require a waiting period after bankruptcy before considering a mortgage application.

 
Chapter 7

If you have filed a Chapter 7  Bankruptcy, the mortgage waiting periods begin after the discharge date:

Fannie Mae (conventional) loan – 4 years from discharge date
FHA loan – 2 years from discharge date
VA loan – 2 years from discharge date
USDA loan – 3 years from discharge date

Chapter 13 Bankruptcy

On the other hand, if you have filed a Chapter 13 Bankruptcy, the mortgage waiting periods are shorter:

Fannie Mae (conventional) loan – 2 years from discharge date, and also 4 years from the dismissal date.
FHA loan – 1 year from the payout period. However, you also need court permission, and proof of satisfactory bankruptcy payment and performance.
VA loan – 1 year from the payout period. Also, court permission, and proof of satisfactory bankruptcy payment and performance.
USDA loan – 1 year of the payout must elapse and payment performance must be satisfactory. In addition, you need court permission to borrow again.

After Short Sale/Deed-in-Lieu of Foreclosure

The mortgage waiting periods after a short sale begin after the completion date:Fannie Mae (conventional) loan – 4 years
FHA loan – 3 years
VA loan – 2 years
USDA loan – 3 years



Debt to Income Ratio over 50% 

Lenders assess income ratios to determine if borrowers can afford mortgage payments. The debt-to-income ratio (DTI) compares monthly debt payments to gross monthly income. A high DTI suggests financial strain and may lead to loan denial. Lenders typically prefer a DTI below 50% for conventional loans. Increasing income or reducing debt can help improve this ratio and enhance loan approval chances.


Work History less than 2 years with job gaps: 

2 year Stable employment and consistent income are vital for mortgage approval. Lenders evaluate work history to ensure borrowers have a reliable source of income to repay the loan. Job changes, gaps in employment, or irregular income can raise concerns. Ideally, borrowers should demonstrate a steady work history with consistent or increasing income over time.











Joel Lobb Mortgage Loan Officer

Text/call: 502-905-3708

email: kentuckyloan@gmail.com


http://www.mylouisvillekentuckymortgage.com/








The view and opinions stated on this website belong solely to the authors, and are intended for informational purposes only. The posted information does not guarantee approval, nor does it comprise full underwriting guidelines. This does not represent being part of a government agency. The views expressed on this post are mine and do not necessarily reflect the view of my employer. Not all products or services mentioned on this site may fit all people.
NMLS ID# 57916, (www.nmlsconsumeraccess.org).

Qualifying for a Kentucky Mortgage Loan

Your lender needs to know everything about you for the application, but actually, all the lender needs to know about is employment, finances, and information about the home you’re buying (but you can be pre-approved before you choose a home). You will, however, need to provide quite a few details about these topics. The goal is to arrive at a monthly payment you can afford without creating financial hardships. Here's an idea of what lenders consider when they are qualifying you for a loan:

Your household income and expenses

Lenders look at your income in ways other than the total amount; how you earn it is also important. For example, income from bonuses, commissions and overtime can vary from year to year. If these sources make up a large percentage of your income, your lender will want to know how reliable they are.Your lender will also consider the relationship between your income and expenses. Generally, your fixed housing expenses (mortgage payment, insurance, and property taxes, but not repairs or maintenance) should not be more than 28 percent of your gross monthly income, although this is not an absolute rule. Your lender will also consider other long-term debts, such as car loans or college loans. It is a good idea to bring the following when you meet with your lender:

Income

Employment, salary and bonuses, and any other source of income for the past two years (bring your most recent pay stub, previous year’s W-2 forms, and tax returns if possible)
The most recent account statement showing the amount of any dividend and interest income you received during the past two years
Official documentation to support the amount of any other regular income you may receive (alimony, child support, etc.)

Job stability is a factor that a mortgage lender will look for, and two years at your current job helps, but this also is not an absolute requirement. If you change jobs but stay in the same line of work, you should not have a problem — especially if the job change is an advancement or increase in income.

Credit score

Your credit score also helps to predict how likely you are to repay the mortgage debt. Credit scores will determine if you qualify for the loan, what your rate is, and mortgage insurance payments each month. 

Typical fico scores wanted for an automated approval run around 620 for an FHA loan and VA loan, 640 for a USDA, 640 for a KHC Loan with Down Payment Assistance, and 620 for an AU approval for Fannie Mae Loan.

It is very possible to get a mortgage loan with a lower credit score than 620 with a FHA loan or USDA loan. FHA will allow you to go down to a 500 credit score with 10% down payment and a 580 credit score or higher will allow for a 3.5% down payment. 

Lenders will create overlays so some lenders will create a higher credit score threshold than what FHA or USDA says on paper in their official guidelines. 

USDA loans and VA loans do not have a minimum credit score requirement, but most lenders will create overlays to filter out lower credit profile customers. The reason behind that is due to if the lender sends a lot of loans with lower credit scores to the government agency that insures the loan against default, they will get shut off from doing loans all together which would be detrimental to their business.

A lot of loan officers will work with you on your credit report to get your scores up with a rapid rescore, which is something we offer. 

Personal assets

Current balances and recent statements for any bank accounts, including checking and savings
Most recent account statement showing current market value of any investments you may have, such as stocks, bonds or certificates of deposit
Documentation showing interest in retirement funds
Face amount and cash value of life insurance policies
Value of significant pieces of personal property, including automobiles
Debt Information
The balances and account numbers of your current loans and debts, including car loans, credit card balances and any other loans you may have

 

Underwriting

The lender does the best possible job of ensuring that a borrower qualifies for a loan. The final decision, however, rests with the lender's underwriter, who measures the total risk that the specific investor, who backs up the loan, is taking. Each investor (or investment company) has its own underwriting guidelines (often using statistical models), so while the underwriters evaluate many of the same factors as the lenders, they may look more closely at some areas than others, depending on the guidelines. For example, while the lender may have pre-approved you before you chose a home, by the time you get to underwriting, you will have chosen the property you want to buy, and the underwriter will review the property details closely.However, most of the information used is the same as that used by the lender, but it may be evaluated differently. The underwriter will evaluate the borrower's ability to pay (income), willingness to pay (credit history), and the collateral (property). As underwriters analyze each of these risks (although this is not a complete list), here are some possible guidelines they may use:

Income

Is the income sufficient to repay the loan? Ratio guidelines of 31 percent payment-to-income and 43 percent total debt-to-income are standard, but some programs allow for higher ratios. This is the typical manual underwrite for a score that does not fit the current Automated Underwriting Engines used for Fannie Mae (DO), FHA, VA, USDA and Rural Housing (GUS)
Is the income stable from month to month and year to year?
Has the borrower been on his/her current job and in the same industry for a sufficient amount of time? A minimum of two years is the standard guideline, but exceptions can be made.

 Can the income be verified?

Credit

 
Does the borrower have a good credit score-Typically 740 or higher will yield the best rates and lowest mortgage insurance for a conventional loan? 

FHA mortgage insurance and VA mortgage insurance is the same no matter what your credit score is.

 
Does the borrower have late payments, collections, or a bankruptcy?

 If so, is there an explanation that can be provided for the late payments/collections/bankruptcy? FHA, VA requires 2 years removed from bankruptcy and USDA requires 3 years removed from bankruptcy.

 
Fannie Mae requires 4-7 years after a bankruptcy.

 
Does the borrower have excessive monthly debts to repay? Typical Debt to income ratios for a no money down loan are limited to 45% of your total gross monthly income for a USDA or KHC loan.
Is the borrower maxed out on credit cards? Pay down your credit card balances to less than 25% of your credit limits before you apply for a mortgage loan.

Collateral

Is the property worth what the borrower is paying for it? If not, the lender will not loan an amount in excess of the value. If the appraisal comes back less than the offer on the house, sometimes you can renegotiate the terms of the purchase contract with the seller and his/her real estate, agent.Some borrowers agree to purchase the home at the price they originally offer and pay the difference between the loan and the sales price. You need to have the disposable cash to do this, and you should assess whether the property is likely to hold its value. You also need to consider the type of loan for which you have qualified. 

If you need to move suddenly and have a large loan relative to the original value, and the property has not held its value, you could face a difficult cash shortfall when you go to pay off your loan.Is the property an acceptable type of property, and does it meet coding requirements and zoning restrictions? Is the property comparable to other properties in the area? Surveys are common and are used to get an accurate measurement of the land that goes with the property you are purchasing. The person who prepares the survey should be a licensed land surveyor. The survey shows the location of the land, dimensions of the land and any improvements.Encroachments are improvements to the property that illegally violate another's property or their right to use the property, such as building a fence that is actually on your neighbor's property instead of yours, or constructing a building that crosses from your property to another’s property without their permission. Evidence of encroachments can slow the final approval process.

The down payment

A downpayment is a percentage of your home's value. The type of mortgage you choose determines the down payment you will need. It can range from zero to 20 percent, or more if you wish.A number of loans are available that do not require high down payments, particularly for first-time home buyers. FHA loans, for example, may require less than 5 percent down, and veterans or those on active duty in the military can obtain loans with no down payment at all. USDA loans are offered to rural home buyers with a no down payment option just like VA loans.In addition to down payment assistance offered through Kentucky Housing where you don't have to put a down payment down with income caps for both KHC and USDA loans.These programs may have less strict guidelines for loan approval, such as allowing a higher ratio of payment to income or debt to income. They also may accept alternative forms of credit history if you have not established credit through traditional means — credit cards and car loans. For example, a lender could look at the history of utility payments and rent payments to determine credit worthiness.

Joel Lobb (NMLS#57916)
Senior  Loan Officer

Text/call 502-905-3708

kentuckyloan@gmail.com

Big News for Kentucky Homebuyers: USDA Rural Housing Loans Just Got More Accessible With Higher Debt to Income Ratios

Debt to Income Changes for Kentucky USDA Loans

The Kentucky USDA Rural Housing Loan program has recently updated its guidelines for it's housing ratios for debt to income purposes , making it easier for more Kentuckians to qualify. Let's dive into the details of these changes and what they mean for you.

The Headline: Higher PITI Ratio Now Allowed

The biggest change is the increase in the maximum PITI (Principal, Interest, Taxes, and Insurance) ratio. This ratio, also known as the front-end ratio, has been bumped up to 34%. But what does this actually mean for you?

• More Buying Power: With a higher PITI ratio, you may be able to qualify for a larger loan amount. This could mean the difference between settling for a fixer-upper and landing your dream home.
• Easier Qualification: If you were previously on the edge of qualifying, this increase might just push you over the line into homeownership.

Understanding the Changes

Let's break down the key updates:

1. Maximum PITI Ratio Increase:
   • Old limit: 29%
   • New limit: 34%
   • Impact: You can now allocate up to 34% of your gross monthly income towards your mortgage payment, property taxes, and insurance.
2. Clarification on Business Debts:
   • The USDA has provided additional guidance on how business debts reported on your personal credit report are treated.
   • This could be particularly beneficial for small business owners and self-employed individuals.
3. Ratio Waivers for Purchases:
   • Important note: Waivers are not permitted to increase the PITI ratio above 34% for purchase transactions.
   • This ensures responsible lending practices while still providing flexibility.
4. New Compensating Factors:
   • The USDA has added more compensating factors that can support the approval of a ratio waiver.
   • This means more opportunities for approval if you have strengths in other areas of your financial profile.

What This Means for Kentucky Homebuyers

These changes are a game-changer for many potential homeowners in rural Kentucky. Here's why:

• More Flexibility: The higher PITI ratio gives you more wiggle room in your budget when shopping for a home.
• Clearer Guidelines: With better clarification on business debts and compensating factors, you'll have a clearer picture of where you stand.
• Responsible Lending: The cap on ratio waivers for purchases ensures that the program remains sustainable and responsible.

How the New 34% PITI Ratio Benefits USDA Loan Applicants: A Practical Example

To understand the real-world impact of the increased PITI (Principal, Interest, Taxes, and Insurance) ratio for USDA loans, let's walk through a hypothetical example. We'll compare how a potential buyer would fare under the old 29% ratio versus the new 34% ratio.

Meet Our Hypothetical Buyer: The Johnson Family

• Annual Gross Income: $60,000
• Monthly Gross Income: $5,000
• Credit Score: 680
• Existing Monthly Debts: $500 (car loan and credit card payments)

Scenario 1: Old 29% PITI Ratio

Under the old rules, here's how the Johnsons' maximum mortgage payment would be calculated:

1. Maximum PITI payment:
   • 29% of $5,000 = $1,450 per month
2. Maximum loan amount (assuming a 3.5% interest rate, 30-year term, and estimated taxes and insurance of $250/month):
   • Maximum P&I payment: $1,450 - $250 = $1,200
   • This translates to a maximum loan amount of approximately $268,000

Scenario 2: New 34% PITI Ratio

Now, let's see how the Johnsons fare under the new 34% PITI ratio:

1. Maximum PITI payment:
   • 34% of $5,000 = $1,700 per month
2. Maximum loan amount (same assumptions as above):
   • Maximum P&I payment: $1,700 - $250 = $1,450
   • This translates to a maximum loan amount of approximately $324,000

The Benefit: Increased Buying Power

The difference is significant:

• Increase in maximum PITI payment: $250 per month
• Increase in maximum loan amount: $56,000

This means the Johnson family can now qualify for a home that's about $56,000 more expensive than they could under the old rules. In many rural areas of Kentucky, this could be the difference between a modest starter home and a more spacious family home, or a home with desirable features like an extra bedroom, a larger lot, or modern amenities.

Additional Considerations

1. Debt-to-Income Ratio: Remember, USDA loans also consider the overall debt-to-income ratio. In this case:
   • Old rule: ($1,450 + $500) / $5,000 = 39% DTI
   • New rule: ($1,700 + $500) / $5,000 = 44% DTI Both are within USDA's typical maximum of 41-46% DTI.
2. Affordability: While the Johnsons can qualify for a larger loan, they should carefully consider if the higher payment fits comfortably within their budget.
3. Home Price Variations: In some rural areas of Kentucky, a $56,000 increase in buying power could significantly expand housing options.

Conclusion

The increase in the PITI ratio from 29% to 34% provides substantial benefits to USDA loan applicants like the Johnson family. It increases their buying power and expands their options in the rural housing market. However, it's crucial for buyers to consider their overall financial picture and ensure they're comfortable with the monthly payments before maxing out their borrowing capacity.

Next Steps: Is a USDA Rural Housing Loan Right for You?

If you've been on the fence about applying for a USDA Rural Housing Loan, now might be the perfect time to take action. Here's what you can do:

1. Check if your desired area qualifies as "rural" under USDA guidelines.
2. Review your current debt-to-income ratio and see how it fits with the new 34% PITI limit.
3. Gather documentation on your income, including any business debts if you're self-employed.
4. Speak with a USDA-approved lender to get a more detailed assessment of your eligibility.

Remember, while these changes make it easier to qualify, it's still important to borrow responsibly and ensure that your mortgage payments are comfortably within your budget.

Conclusion

The Kentucky USDA Rural Housing Loan program's new guidelines offer a fantastic opportunity for many Kentucky residents to achieve their dream of homeownership. With higher ratios allowed and clearer guidelines, the path to your rural Kentucky home just got a little smoother. Don't wait – start exploring your options today!

Joel Lobb  Mortgage Loan Officer

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

Text/call: 502-905-3708

email: kentuckyloan@gmail.com

http://www.mylouisvillekentuckymortgage.com/

NMLS 57916  | Company NMLS #1364/MB73346135166/MBR1574

The view and opinions stated on this website belong solely to the authors, and are intended for informational purposes only. The posted information does not guarantee approval, nor does it comprise full underwriting guidelines. This does not represent being part of a government agency. The views expressed on this post are mine and do not necessarily reflect the view of my employer. Not all products or services mentioned on this site may fit all people.
NMLS ID# 57916, (www.nmlsconsumeraccess.org).

The reasons you will get turn down for a mortgage loan in Kentucky.

 There are several reasons why people in Kentucky might get turned down for a mortgage loan. These reasons can be broadly categorized into issues with the borrower or the property:

Borrower-related reasons:

• Credit score: Low credit scores (generally below 620) are a major factor in loan denials. Having a history of late payments, delinquencies, or collections can negatively impact your score.
• Debt-to-income ratio (DTI): This ratio compares your monthly debt payments to your gross income. A high DTI (generally above 50%) indicates you have a lot of debt compared to your income, making it harder to afford a mortgage payment.
• Employment history: Lenders prefer borrowers with stable employment and income. Recent job changes, gaps in employment, or insufficient income documentation can raise concerns.
• Down payment: A smaller down payment increases the loan amount and loan-to-value ratio (LTV), making the loan riskier for lenders. In Kentucky, FHA loans require a minimum 3.5% down payment, while conventional loans typically require 20%.
• Insufficient assets: While not always a disqualifier, having limited savings or assets can weaken your application by reducing your financial cushion.

Property-related reasons:

• Appraisal value: If the appraised value of the property is lower than the purchase price, it creates a high LTV, making the loan riskier for lenders.
• Property condition: Major repairs or structural issues with the property could require significant investment before closing, which lenders may not be comfortable with.
• Location: Properties in floodplains or other high-risk areas may be ineligible for certain loan types or require additional insurance.

Here are some resources that can help:

• Reasons loan denied in Kentucky https://www.mylouisvillekentuckymortgage.com/2010/10/get-approved-for-mortgage-or-home-loan.html

Joel Lobb  Mortgage Loan Officer

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

Text/call: 502-905-3708
fax: 502-327-9119
email: kentuckyloan@gmail.com

http://www.mylouisvillekentuckymortgage.com/