What affects your home loan preapproval
Your income, work history, credit score, money down and saving are key factors that lenders will consider during the mortgage process.
Employment Status for Kentucky Mortgage Pre-Approval
Self-employed individual requires two-year tax returns'.
Only borrowers who have an ownership interest of 25% or more in a business and are not W-2 employees are considered “self-employed.” However, there is an exception if the borrower can show a two-year history in a similar line of work, which includes having documentation that proves an equal or higher income in the new role compared to the W2 position.
Debt-to-Income Ratio
The debt-to-income ratio is the percentage of your monthly gross income that goes toward paying debts. There are two types of DTI that lenders will consider during the mortgage process: front-end and back-end. The first consists only of your housing-related expenses, whereas the latter also includes all your minimum required monthly debts.
The lower your DTI, the better your chances of securing a home loan.
For example, FHA loans secured by the government have more lenient requirements — you can have a DTI of up to 57% and still get approved for an FHA home loan. USDA loans used to buy homes in rural areas have a lower maximum DTI of 45%.
Loan-to-Value Ratio
The loan-to-value ratio (LTV) is a number lenders use to determine how risky a loan to a potential borrower might be. It measures the relationship between the loan amount and the market value of the property you want to buy, and it can also determine whether mortgage insurance will be required.
All mortgages have a maximum LTV to qualify. However, just like with DTI, the LTV varies depending on the loan. FHA loans, for example, have an LTV of 96.5% since they allow down payments of as little as 3.4%.
Going for an LTV of 80% or less is “ideal” because you get unique benefits as a buyer, but that requires a down payment of 20%. Ultimately, each buyer will need to figure out their own LTV based on how large a down payment they can afford.
Credit History and FICO Score for Kentucky Mortgages
Your credit history is one of the most important factors when it comes to getting a mortgage.
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You don’t need a perfect credit score to buy a house, but those with outstanding scores are usually rewarded with lower interest rates and a greater variety of payment options. Buyers with very poor credit have the option of finding a co-signer who has better credit than them to help secure the loan.
Why Getting Preapproved Is Such a Big Deal
Getting preapproved for a mortgage helps you shop for homes that you can afford and shows you are a serious buyer.
But a letter of preapproval is more than just a way to look good to sellers. It also helps you find the right mortgage lender and provides some flexibility in bargaining or negotiating for a better price range or specific costs, repairs, and improvements to a home.
Getting preapproved makes the entire closing process faster, too. It takes an average of 30 to 45 days to close on a house in Kentucky, and part of that period is due to the process of mortgage approval, title search, appraisal report, home inspections, verifying employment and bank account info along with taxes and w-2s and paystubs to validate the pre-approval.
What are standard continuity of employment requirements?
A borrower will need to verify a two-year cumulative employment history. Less than two year may be
offset via school transcripts; if guaranteed hourly (40) or salaried in nature, the base income
will be allowable. Variable earnings will require at minimum 12 months receipt on current position;
OT, Bonus and commission are considered variable however, must reflect a cumulative two- year
history of receipt.
What income can I use for a traveling nurse?
A minimum 12-month history of contract nursing work is required. Income documentation must
include copies of applicable contracts and WVOE’s for each position. The income will be averaged.
Standard two- year employment history required.
Do we allow one score on a conventional transaction? No score?
Yes! If the borrower has three scores, the middle score is to be used; two scores, the lower score
is to be used; one score, that score is to be used. If no score, only allowable with AUS A/E and
less than 50% of transactional income contributions. We do not average scores.
Can I use part time or secondary income for qualifying purposes?
Yes! Conventional~ secondary employment will require a two- year history of receipt to use in
conjunction with the primary employment earnings. Multiple second jobs over this time frame are
allowable however the borrower may not have a job gap > one month in length. Part time employment
alone will be considered variable in nature and will require a minimum 12- month history; earnings
will be averaged. FHA~ will require an uninterrupted two- year history for utilization.
When must a borrower start a new job in conjunction with future employment?
Conventional requires a start date within 90 days of the Note date. FHA requires a start date
within 60 days of note date. VA max 60 days of note date. Non contingent contract required for each
entity.
What type of income(s) are considered illegal?
Foreign shell banks; medical marijuana dispensaries; any business or activity related to
recreational marijuana-use , growing, selling or supplying- even if permitted by state or local law.
Policy is not limited to owner of business.
Mortgage Loan Officer
