Showing posts with label down payments. Show all posts
Showing posts with label down payments. Show all posts

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   American Mortgage Solutions, Inc. 10602 Timberwood Circle Suite 3 Louisville, KY 40223 Company ID #1364 | MB73346    Text/call 502-905-3708 kentuckyloan@gmail.com

Joel Lobb (NMLS#57916)
Senior  Loan Officer


Kentucky FHA Loans and Conventional Mortgage Loans

What is the difference between Kentucky FHA Loans and Conventional Mortgage Loans?


 You know that two of the most popular mortgage options available are FHA and Conventional, but you no doubt have some clients who need help understanding each loan type’s finer details and benefits. 

 Here’s a quick, simple three-bullet comparison that you can provide for your clients: 

 Low down payments: 


Both options feature low down payment options (eligible borrowers can put down as little as 3.5% for FHA and 3% for Conventional), but it can be easier to qualify for an FHA loan, as lower credits scores are accepted and there are less restrictive debt-to-income ratio requirements. 

Residence type: 


You can only use an FHA loan on a primary residence;  a Conventional mortgage can be used for primary homes, vacation homes, or investment properties.

 Mortgage insurance: 


Mortgage insurance is required on all FHA loans, regardless of down payment size. You can avoid paying private mortgage insurance on a Conventional loan if you have a 20% down payment. But if you don’t, PMI drops after you reach 22% of your home’s equity.


Kentucky FHA Loans and Conventional Mortgage Loans




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

Documenting Your Assets for A Louisville Kentucky Mortgage loan downpayment-


Documenting Your Assets for A Louisville Kentucky Mortgage loan downpayment-

When buying a home, it is not enough to just "come up" with the money. With the exception of "no asset verification" loans, lenders want to verify where the money comes from. If you can document the funds comes from your personal savings, the lender is more confident of your strength as a borrower. 

In addition, if you can verify you have additional assets that are not needed for the down payment, it is important to document those, too. Additional assets are "reserves" you can draw upon during times of trouble, such as unemployment, medical emergencies, and similar occurrences. Additional assets can also help to document that you have a history of saving money, which makes you a more dependable borrower.

It is extremely important to completely document the paper trail of any funds you use for down payment and closing costs. The sections below provide guidance on both verifying assets and documenting them as a source of your down payment.

Checking, Savings, & Money Market Accounts

The quickest and easiest way to document funds in your bank account is to provide your lender with copies of your most recent bank statements. Most lenders request two months bank statements, but some still ask for three. Some lenders still send a "Verification of Deposit" to your bank in order to determine your current bank balances and average balance for the last two months. However, that is the old way of doing business and most lenders nowadays prefer to have bank statements.

If the money you are using for the down payment and closing costs has been in the bank for the entire period covered by the bank statements, you're fine. These are known as "seasoned funds." However, if your statements show any large or unusual deposits the lender will ask you to explain them and document their source.

Stocks, Bonds, Mutual Funds, etc.

Most of those who own stocks get a monthly or quarterly statement from their brokerage. You will need to supply statements for the most recent sixty or ninety days in order to document these assets.

Though it is rare nowadays, some people actually have stock certificates instead of having a brokerage account. When this is the situation, make copies of the certificates and provide those copies to your lender. You might also want to supply tax records to indicate you have owned these stocks for some time.

If part of your down payment will come from the sale of stocks and investments, you will need to keep all documentation that applies to the sale. Provide these copies to your lender as well.

Gifts

Especially when buying a first home, some borrowers need help coming up with the down payment. This help should come in the form of a gift from a close family member. Lenders will require the donors to sign a special form called a "gift letter." The gift letter states the relationship between the parties, the address of the purchased property, the amount of the gift, and sometimes the source of the funds used to make the gift. The gift letter also clearly states that the funds are a gift and not required to be repaid.

With most lenders, the donor will have to also provide evidence that they have the ability to make the gift. This can be in the form of a bank or stock statement to show they have the funds available. You should also make a copy of the check used to make the gift and keep a copy of the deposit receipt when you deposit the gift funds into your bank account or escrow.



Documenting Your Assets for A Louisville Kentucky Mortgage loan downpayment-




401K or Retirement Accounts

It is important to provide documentation about your retirement accounts or 401K programs because this is another asset you could draw upon as reserves in case of a problem. It is also another way to show you have a savings history. Just provide a copy of your most recent statement to your lender.

Many people use these accounts as a source of funds for their down payment, too. Some employers allow you to "cash out" a portion of the 401K and some allow you to borrow against it. Be sure to keep copies of all paperwork involving the transaction. If they cut you a check, be sure to make a photocopy of that, too, including any receipt for deposit into your personal bank account.

If you are borrowing against your 401K, some lenders will count this as an additional debt to go along with car payments, credit cards and other obligations. This may seem kind of silly because you are borrowing your own money, but from the lender's viewpoint it is still a monthly obligation that you must come up with and should be taken into account. If you are "tight" on your debt-to-income ratios in qualifying for a home loan, this could be an important consideration. It may affect whether you choose to cash out the account and pay any tax penalty, or simply borrow against it.

Employers

Some companies provide down payment assistance for their employees. They may feel that Homeowners are more stable and reliable employees, or that providing down payment assistance fosters an environment of higher morale and loyalty to the firm. Just make copies of all the paperwork, including a copy of the check and the receipt when you deposit the funds into your personal bank account. It is important that these funds do not require repayment.

Savings Bonds

If you have Savings Bonds, they are a financial asset, too. Since you hold the actual bonds in your possession, the easiest and best way to verify them for your mortgage lender is to make photocopies of them. If you choose to cash them in for down payment or closing costs, you should do this at your local bank. Be sure to keep copies of the paperwork the bank provides because that will establish the current value of the bonds and show that you received their cash value.

Personal Property - Cars, Antiques, etc.


Personal property includes automobiles, vehicles, boats, furniture, collections, heirlooms, antiques, art, clothing, and practically everything you own except for real estate. The mortgage application asks you to estimate the value for these items.

The larger the loan amount, the more important it is for you to provide details on your personal property. This is because larger loans usually indicate larger incomes, and lenders check to see if your personal property matches your income. If it does not, this sends a "red flag" to the underwriter and they take a closer look at your application.

You are not required to document the value of personal property unless you intend to sell them to come up with your down payment.

Selling Personal Property

For those Homebuyers who do sell personal property in order to come up with their down payment, the verification process can be arduous. Lenders are much stricter about documenting this method of coming up with your source of funds.

Selling a car is perhaps the easiest to document. First, you need to photocopy the registration that shows you actually own the vehicle. You will have to provide a copy of the page in the "Blue Book" that shows your model and its value. Then you need to photocopy the bill of sale showing the transfer to another individual and a copy of the check used to purchase the vehicle. Do not get paid in cash because that makes it impossible to show you actually received the funds. Make a copy of the receipt when you deposit the funds into the bank.

Other types of personal property are more difficult because you have to show that you actually own the property and that it actually has the value that you sold it for. This is a little harder to do for most assets than it is for automobiles.

If you have records to show you purchased the property, that would be helpful. You could also provide an old inventory that documents ownership. To determine value, you may have to contract with an independent appraiser or a specialist who has the knowledge for that particular type of property.

If you cannot document the item's value, the lender will not view the sale as an acceptable source of funds. Just like selling a car, you have to prove you own the item, make a copy of the bill of sale, copy the check used to purchase the item, and make a copy of your receipt when you deposit the funds into your bank. 





Joel Lobb (NMLS#57916)Senior  Loan Officer
502-905-3708 cell
502-813-2795 fax
jlobb@keyfinllc.com

Key Financial Mortgage Co. (NMLS #1800)*
107 South Hurstbourne Parkway*
Louisville, KY 40222*











Fill out my form!

Kentucky Home Loan Mortgage Types


Kentucky Mortgage Loan Terms
Kentucky FHA Loan:A Kentucky FHA Loan is a federal assistance mortgage loan in the United States insured by the Federal Housing Administration.  FHA loans have historically allowed lower income Americans to borrow money for the purchase of a home that they would not otherwise been able to afford. FHA loans require 3.5% down payment but it can be gifted from relatives or family member or use a state housing agency down payment assistance program. Mi upfront is 1.75% and monthly mi is .85% to .80% depending on your term. 
Kentucky VA Loan:A Kentucky VA Loan is a mortgage loan in the United States guaranteed by the U.S. Department of Veterans Affairs.  The VA loan allows veterans 100% financing without private mortgage insurance for monthly payments but it does have a funding fee upfront varying from 2.15% to 3.3% depending on your situation. Some Veterans are not required to pay if they have a VA disability.
 Kentucky USDA Rural Housing Loan:Single Family Housing Guaranteed Loan program or Section 502 loans are primarily used to help households purchase homes in rural areas.  The Kentucky USDA loan allows for 100% financing with upfront mi fee of 1% and monthly or annual mi of .35%. This is very low compared to FHA loans in Kentucky
DTI Ratio:Debt-to-Income Ratio indicates the percentage of income that goes toward paying all recurring debt payments, including mortgage, interest, mortgage insurance, and other debts such as credit card payments, car loan payments, student loan payments, child support payments, alimony payments, and legal judgments.
Down Payment:The difference between the investment price and the loan amount.
Closing Costs:All the cost that a lender requires to obtain a loan.
Fixed Rate:A constant interest rate that does not change for the term of the loan.
Adjustable rate:An interest that can change during the term of the loan on an annual basis.
Rate Buy Down:Lowers your interest rate for a given duration on a fixed mortgage reducing your
monthly mortgage payment.
Credit Report:A report that contains a person's credit history.
Appraisal:A report that gives the current market value of the home.
Term:The number of years to pay off a loan.
Points:1% of the loan amount a lender may charge.
Pre-Paids:Expenses that the lender requires being paid upfront. (Homeowners Insurance, Escrow Accounts, Interest)
Short Interest:Interest collected from the date of closing to the end of the month.
Mortgage Insurance:Insurance required by the lender for loans with less than 20% down payment. 
Home Owners Insurance:Insurance required by the lender to replace the homes value in the case of disaster.




Kentucky Down Payment and Closing Costs Assistance

Kentucky Down Payment and Closing Costs Assistance



Kentucky Down Payment and Closing Costs Assistance

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Kentucky Housing recognizes that down payments, closing costs and prepaids are stumbling blocks for many potential home buyers. Here are several loan programs to help. Your KHC-approved lender can help you apply for the program that meets your needs.

Neighborhood Down payment Assistance Program (DAP) 

Kentucky Housing Corporation (KHC) received $3 million from the National Mortgage Foreclosure Settlement Fund to offer a new mortgage program for down payment and closing costs assistance. This program is only available until all funds are gone.
Repayable second mortgage up to $10,000
  • 1 percent interest rate for 30 years.
  • Income must be less than $124,775 (terms and conditions apply).
To be eligible for the Neighborhood DAP, either:
  • The property must be in the process of disposition option (i.e., deed-in-lieu, short sale) or foreclosed upon.
  • The newly-constructed or existing property has been for sale for at least six months.
  • The home buyer has experienced a foreclosure and credit qualifies to purchase another home.

Regular DAP

  • Purchase price up to $243,000.
  • Assistance in the form of a loan up to $6,000 in $100 increments.
  • Repayable over a ten-year term at 6 percent.  A DAP of $6,000 over ten years at 6 percent interest would equal a payment of $66.61.
  • Available to all KHC first-mortgage loan recipients.

HOME-DAP

  • Purchase price up to $195,700.
  • Assistance up to $4,500
  • No monthly repayment; forgiven over five years.
  • Existing homes only.
  • Borrowers must meet HOME-income guidelines.

More about down payment and closing costs

  • No liquid asset review and no limit on borrower reserves for Regular DAP.
  • Borrowers may retain two months’ house payments in reserve while using available funds first before looking for any form of HOME DAP assistance.
  • Specific credit underwriting standards may apply to down payment programs.



Joel Lobb (NMLS#57916)Senior  Loan Officer
502-905-3708 cell
502-813-2795 fax
jlobb@keyfinllc.com

Key Financial Mortgage Co. (NMLS #1800)*
107 South Hurstbourne Parkway*
Louisville, KY 40222*


Fill out my form!

Qualifying For a Kentucky Mortgage, Mortgage Rates, Down Payment


Qualifying For a Kentucky Mortgage, Mortgage Rates, Down Payment

A basic truth: A loan holds your house and land as collateral; it's not pound of flesh, but the loss can seem just as life-threatening.
In most cases, a lender does not really want to end up with your house. They want you to succeed and make those monthly payments that make the world (or at least the U.S. world) go 'round. So when you apply for a loan, the lender will scrutinize your financial situation to make sure you are worth the risk.
You need to get your paperwork in order before you find a Kentucky Mortgage  lender, but first you should understand the basic facts.
  • Down payment. Traditionally, lenders like a down payment that is 20 percent of the value of the home. However, there are many types of Kentucky mortgages that require less. Beware, though: If you are putting less down, your lender will scrutinize you even more. Why? Because the less you have invested in the home, the less you have to lose by just walking away from the loan. If you cannot put 20 percent down, your lender will require private mortgage insurance (PMI) to protect himself from losses. (However, if you can only afford, for example, 5 percent down, but have good credit, you can still get a loan, and even avoid paying PMI. Ask your lender about an 80/15/5 loan — an 80 percent first mortgage, followed by a 15 percent second mortgage, and 5 percent down. This gives the lender more security, while saving you the cost of insurance.)

  • LTV. Lenders look at the Loan to Value (LTV) when underwriting the loan. Divide your loan amount by the home's appraised value to come up with the LTV. For example, if your loan is $70,000, and the home you are buying is appraised at $100,000, your LTV is 70%. The 30 percent down payment makes that a fairly low LTV. But even if your LTV is 95 percent you can still get a loan, most likely for a higher interest rate.

  • Debt ratios. There are two debt-to-income ratios that you need to consider. First, look at your housing ratio (sometimes called the "front-end ratio"); this is your anticipated monthly house payment plus other costs of homeownership (e.g., condo fees, etc.). Divide that amount by your gross monthly income. That gives you one part of what you need. The other is the debt ratio (or "back-end ratio"). Take all your monthly installment or revolving debt (e.g., credit cards, student loans, alimony, child support) in addition to your housing expenses. Divide that by your gross income as well. Now you have your debt ratios: Generally, it should be no more than 28 percent of your gross monthly income for the front ratio, and 36 percent for the back, but the guidelines vary widely. A high income borrower might be able to have ratios closer to 40 percent and 50 percent.

  • Credit report. A lender will run a credit report on you; this record of your credit history will result in a score. Your lender will probably look at three credit scoring models (one for home equity loans or lines of credit) and then average them to arrive at your score. The higher the score, the better the chance the borrower will pay off the loan. What's a good score? Well, FICO (acronym for Fair Isaac Corporation, the company that invented the model) is usually the standard; scores range from 350-850. FICO's median score is 723, and 680 and over is generally the minimum score for getting "A" credit loans. Lenders treat the scores in different ways, but in general the higher the score, the better interest rate you'll be offered. The minimum credit score a Kentucky USDA loan is 640 and for a Kentucky VA loan it is 620 credit score.  The minimum credit score for a Kentucky  FHA loan is 640 

  • Automated Underwriting System. The days when a lender would sit down with you to go over your loan are over. Today you can find out if you qualify for a loan quickly via an automated underwriting system, a software program that looks at things like your credit score and debt ratios. Most lenders use an AUS to pre-approve a borrower. You still need to provide some information, but the system takes your word for most of it. Later on, you'll have to provide more proof that what you gave the AUS is correct.




Can Your Afford a Kentucky Mortgage Loan?

Whether you're a Kentucky first-time buyer looking for the perfect starter house, or a seasoned pro trading up to your waterfront dream home, you are probably asking the same questions: Can I afford this? And is this the right move at the right time?
Of course, you can use a mortgage calculator and ask the experts — lenders, agents, and mom — but the reality is that you are the only one who truly knows whether you can afford to buy right now. And, painful as it is, what you need to start with is a detailed expense breakdown. Analyze what you spend — at least get a full month's snapshot. You'll see where you may have wiggle room in your budget and what you can afford for housing. (Be sure to count all those little incidental expenses like dry cleaning and yes, those mid-afternoon Starbucks lattes count in the budget, too!)

Sample Budget

This sample budget belongs to a single, 35-year-old woman making $68,000 per year, renting a two-bedroom apartment. Her monthly pre-tax income is $5,667.

Monthly expenses:

Rent$1,600
Car payment$225
Credit card payments$200
Car insurance$75
Groceries$400
Health insurance/renters insurance$208
Electricity$40
Natural gas$70
Cell phone$49
Home phone + Internet access$72
Cable TV$50
Gas, dining, clothes, dry cleaning, gifts, other expenses$800
Memberships (gym, professional, etc.)$100
Water/sewer/garbage$0
Property tax/homeowners insurance/condo fees$0
Alarm company$0
Lawn$0
Total$3,889
The sample budget may not look like your expense snapshot, but by adding and subtracting your personal budget items with an eye toward true monthly out-of-pocket totals, you get a pretty good picture. Now, add in all of the expenses where the zeros are as well as the increased cost of your monthly mortgage payment (formerly rent). Maintenance costs like condo fees, utilities, the leaky bathroom sink that defies a simple trip to Home Depot to fix, property taxes, closing costs, and furniture for your new home all add to the bottom line.

Debt-to-Income Ratios

If you figure out that you can afford your projected budget, chances are you'll qualify for a mortgage in your range. Lenders will determine how much loan you can afford by using something called your debt-to-income ratio, which is the ratio of a borrower's total debt as a percentage of their total gross income. Basically, they will look at what's left in your budget after your monthly bills are paid. These include credit card payments, car payments, child support, etc.
  • Housing ratio (or "front-end ratio"): Lenders want your total mortgage debt (called PITI — an acronym for Principal, Interest, Taxes, and Insurance) and condo fees to be no more than 30 percent of your gross monthly income; 28 percent is standard.
  • Overall debt ratio (or "back-end ratio"): These are revolving monthly payments, such as credit card, car lease, or loan payments, student loans, child support, alimony, monthly utilities. (They do not include those lattes, but you might want to plug in your lifestyle expenses for your own sake.) The ratio should not be more than 36 percent.
Debt-to-income ratio standards differ from lender to lender, and vary based on your loan program, but most lenders will give more weight to your credit history as a factor in determining your particular situation. Here is a typical ratio for a first-time buyer:
Monthly gross household income:
$5,700
Mortgage debt ratio:
28% $1,596.0
Expenses and overall debt:
36% $2,052.0
The mortgage debt of $1,596 is right in line with the current monthly rent payment in the example above. As long as the monthly debt obligations and household expenses are no higher than $2,000-2,300, this borrower should have no problem qualifying.
If your credit is stellar, you will be rewarded. Lenders may stretch these ratios to 38/45, allowing you to purchase more home and take advantage of more lending programs. And if you are a Kentucky first-time home-buyer applying for an Kentucky FHA or VA loan, you may also be able to qualify with a higher back-end ratio — up to 41 percent of your monthly gross income — and get approved for these federally-insured loans.

How It Works

So, back to the question: How much home can I afford?
Keeping in mind the variables on debt-to-income ratios and the many lending programs available, here is a sample breakdown for a mid-range home.
Monthly gross household income (pre-tax):$7,000
Mortgage debt ratio28%$1,960
Home price$350,000
20% down payment$70,000
Mortgage$280,000
Interest rate on 30-year mortgage6.33%
Mortgage payment (principle and interest)$1,739
Here is an example of a lower price-range home, purchased with the same loan terms and interest rate:
Monthly gross household income (pre-tax):$3,600
Mortgage debt ratio28%$1,008
Home price$150,000
Mortgage payment (principle and interest)$1,739
10% down payment$15,000
Mortgage$135,000
Interest rate on 30-year mortgage6.33%
Mortgage payment (P&I)$838

And the Other Costs...

In addition to the monthly mortgage payment, remember to factor in the added costs of home purchase and ownership. Since this buyer above did not put 20 percent down, he will need to add mortgage insurance, also known as PMI, to his monthly payment. PMI protects lenders against losses that can occur when a borrower defaults on a loan, and is required for borrowers with a down payment of less than 20 percent of the purchase price. Buyers also incur closing costs of 2.5 to 3 percent of the total loan amount. This covers the cost of title searches, appraisals, legal fees, etc.
So what's left to apply to the down payment? Using the example above, our first-time buyer has $15,000 for the down payment on a $150,000 home, and the closing costs may come to $4,500. The mortgage total just increased to $139,500. Over the 30-year loan period, this brings the mortgage payment to approximately $866 per month. If your head is not already spinning, now tack on mortgage insurance (fees vary based on the loan), homeowners' taxes and condo fees (if applicable), bringing the total monthly payment to approximately $1,038. The good news is this is still well in the range of the acceptable debt ratio.

Keep Some Money in Reserve

Many buyers invest every red cent they have into their new purchase, but it's a good idea to keep some emergency cash, or "leaky faucet money," aside in the event of emergency repairs or a job loss. So don't completely raid your savings; with home ownership, expect the unexpected.




Joel Lobb (NMLS#57916)Senior  Loan Officer
502-905-3708 cell
502-813-2795 fax
jlobb@keyfinllc.com

Key Financial Mortgage Co. (NMLS #1800)*
107 South Hurstbourne Parkway*
Louisville, KY 40222*





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How much can you afford for a Kentucky Mortgage Loan





Joel Lobb (NMLS#57916)Senior  Loan Officer
502-905-3708 cell
502-813-2795 fax
jlobb@keyfinllc.com

Key Financial Mortgage Co. (NMLS #1800)*
107 South Hurstbourne Parkway*
Louisville, KY 40222*