Sunday, March 26, 2017

Four things to know about qualifying and closing a mortgage loan for Kentucky First Time Home Buyers

Kentucky First Time Home Buyers Questions Answered Below:


1.  Do Mortgage Interest Rates Change Daily?

Just like the gas prices at the pump,  mortgage rates can change daily or throughout the day.  Typically mortgage rates are published at 10-11 am daily by most lenders and you can lock up through the close of business which is usually around 6-7 PM.  Mortgage rates can change up or down throughout the day based on various financial, economics, and geopolitical news in the US Financial markets and World markets. Generally speaking, good economic news is bad for rates and vice versa, bad economic news is good for mortgage rates. 

The good news is this: Once you find a home and get it under contract, you can lock your mortgage loan rate. Typically it takes about 30-45 days to close a mortgage loan in Kentucky, so the typical lock is for 30-60 days. If rates get better you may be able to negotiate a better rate with your lender, but they usually have to improve by at least 25 basis points (.25) to do that. Not all lenders offer this option. The longer you lock the loan, the greater the costs. It is usually free to lock in a loan for up to 90 days without having to pay a fee.

What a lot of lenders are experiencing now is that some loans don't close on time for various reasons. You can always extend the lock on the loan but it will costs you usually .125 basis points to do so. If you let the lock expire on the loan, then you have to take worse case pricing on that day when you go to relock. It is usually best to extend the lock on your loan. 


2. What kind of Credit Score Do I need to qualify?

When applying for a mortgage loan, lenders will pull what they call a "tri-merge" credit report which will show three different fico scores from Transunion, Equifax, and Experian. The lenders will throw out the high and low score and take the "middle score" For example, if you had a 614, 610, and 629 score from the three main credit bureaus, your qualifying score would be 614. Most lenders will want at least two scores. So if you only have one score, you may not qualify. Lenders will have to pull their own credit report and scores so if you had it ran somewhere else or saw it on a website or credit card you may own, it will not matter to the lender, because they have to use their own credit report and scores. 
Most lenders will pull your credit report for free nowadays so this should not be a big deal as long as your scores are high enough. 
The Secondary Market of Mortgage loans offered by FHA, VA, USDA, Fannie Mae, and KHC all have their minimum fico score requirements and lenders will create overlays in addition to what the Government agencies will accept, so even if on paper FHA says they will go down to 580 or 500 in some cases on fico scores, very few lenders will go below the 620 threshold. 
If you have low fico scores it may make sense to check around with different lenders to see what their minimum fico scores are for loans. 
The lenders I currently deal with have the following fico cutoffs for credit scores:
FHA--620 minimum score
VA----620 minimum score
Fannie Mae--620 minimum score
USDA--640 minimum score
KHC with Down Payment Assistance --640 minimum score.
As you can see, 620 is the minimum score with most lenders for a FHA, VA, or Fannie Mae loan, and 640 is required for the no down payment programs offered by USDA and KHC in Kentucky for First Time Home Buyers wanting to go no money down.

3. What are the down payment requirements?


The most popular programs for Kentucky First Time Home Buyers usually involves one of the following housing programs outlined in bold below:
FHA:

FHA will allow a home buyer to purchase a house with as little as 3.5% down. If your credit scores are low, say 680 and below, a lot of times it makes sense to go FHA because everyone pays the same mortgage insurance premiums no matter what your score is, and the down payment can be gifted to you. Meaning you really don't have to have any skin into the game when it comes to down payment. They even allow down payment assistance through eligible parties (government grants or non-profits). Lastly, FHA will allow for higher debt to income ratios with sometimes getting loan pre-approvals up to 55% of your total gross monthly income. 
Fannie Mae:
Fannie Mae requires just 3% down with their new Home Possible Program, but if you use their traditional mortgage loan, then 5% is the Fannie Mae Standard. Fannie Mae will o down to a 620 score, but if your scores are below 680, I would look seriously at the FHA loan program because Fannie Mae has steep increases to the interest rate and the mortgage insurance premiums if your scores are low. 
A couple of good things about Fannie Mae is that you can buy a larger priced home and have a large loan amount due to FHA only allowing most Kentucky Home Buyers a maximum mortgage loan amount of $275-to $287k price range while Fannie Mae will go up to Conforming loan limits of $410k.
Lastly when it comes to mortgage insurance, FHA mortgage insurance premiums are for life of loan while Fannie Mae mortgage insurance premiums drop off when you develop 80% equity position in your house. 
But as a tell most people, nobody has a loan for 30 years, and the average mortgage is either refinanced or home sold within the first 5-7 years. 
VA Loans- 

VA loans offer eligible Veterans and Active Duty Personnel to buy a home going no money down with no monthly mortgage insurance. This is probably the best no money down loan out there since the rates are traditionally very low on comparison to other government insured mortgages and no monthly mortgage insurance. The VA loan can be used anywhere in the state of Kentucky with the maximum VA loan limit being $417k
USDA Loans- 

USDA loans offer people buying a home in rural areas (typically towns of $20k or less) to buy a home going zero down. You cannot currently own another home and there is household income limits of $75,000 for a household family of four, and up to $99,000 for a household of five or more. You search USDA website for eligible areas and household income limits below at the yellow highlighted link :
KHC or Kentucky Housing-
Kentucky First Time Home Buyers typically use KHC for their down payment assistance. KHC currently offers $4500 to $6000 for down payment assistance and sometimes throughout the year they will offer low mortgage rates on their mortgage revenue bond program. The down payment assistance usually never runs out because you have to pay it back in the form of a second mortgage. It helps a lot of home buyers that want to buy in urban areas that cannot utilizer the USDA program in rural areas. Most of the time the first mortgage is a FHA loan tied with the 2nd mortgage fore down payment assistance.  All KHC programs require a 640 score and rates are locked for 45 days. Max income limits are usually set around $112k for a household with the max loan being $283,000 currently. 


4. What if I have had a bankruptcy or foreclosure in the past? 



FHA and VA are the easiest on previous bankruptcies. FHA and VA both require 2 years removed from the discharge date on a Chapter 7. If you are in the middle of a Chapter 13, FHA will allow for financing with a 12 month clean history payment to the Chapter 13 courts, and with trustee permission

VA requires 2 years removed from a foreclosure (sheriff sale date of home) and FHA requires 3 years. 

USDA requires 3 years removed from both a foreclosure and bankruptcy, but on the foreclosure they do not go off the sale date. This may save you a little time if you had a previous foreclosure. 

Fannie Mae (Conventional Loan)

Fannie Mae is by far the strictest. They require 4-7  years out of a foreclosure or bankruptcy 


If you have questions about qualifying as first time home buyer in Kentucky, please call, text, email or fill out free prequalification below for your next mortgage loan pre-approval.












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 views of my employer. Not all products or services mentioned on this site may fit all people