Showing posts with label Debt to Income Ratio. Show all posts
Showing posts with label Debt to Income Ratio. Show all posts

Kentucky FHA Home buyers with heavy debt might find it tougher to get a mortgage with FHA in 2019

Homebuyers with heavy debt might find it tougher to get a mortgage:



 Kentucky FHA Home buyers with heavy debt might find it tougher to get a mortgage with FHA in 2019







Here’s what’s happening: For several years, FHA has insured loans to buyers who previously would have been considered too risky or marginal at best. Those applicants often carried crushing monthly personal debts — for credit cards, auto loans, student loans and other obligations — totaling more than half of their monthly incomes. Many also had histories of credit problems that lowered their credit scores. Combined with skimpy down payments of 3.5 percent and minimal bank reserves, these borrowers have a high statistical probability of defaulting on their loans.
To prevent big losses to FHA’s insurance fund, the agency recently informed lenders nationwide that from March 18 onward, it would be applying more stringent standards to applications from high-risk home-buyers. In its letter, FHA documented its reasons for the crackdown. According to FHA Commissioner Brian Montgomery, the agency has been seeing disturbing trends in the quality of loans lenders have been delivering to it:
— Nearly one of every four approved home purchasers had a debt-to-income (DTI) ratio exceeding 50 percent, the worst since 2000. In January, 28 percent of buyers were in that category.
FICO credit scores are tanking. They’ve fallen to the lowest level since 2008 — an industry-low average of 670. In the first quarter of fiscal 2019, more than 28 percent of all new purchase loans had FICOs below 640. In the same quarter, more than 13 percent of new loans had scores under 620 — 19 percent higher than the same period in the previous fiscal year. (FICO scores range from 300 to 850; low scores predict higher risks of nonpayment. Average scores for purchasers at giant mortgage investors Fannie Mae and Freddie Mac average around 750.)
— Borrowers are siphoning equity from their homes at an alarming rate. In fiscal 2018, FHA saw a 60 percent increase in “cash-out” refinancing as a percentage of all refinancings. Cash-outs allow borrowers to convert equity into spendable money.
— Growing numbers of loans have multiple indications of serious future risk of nonpayment — combinations of low credit scores of 640 or less and DTI ratios that exceed 50 percent.
Given these omens, FHA clamped down by amending its automated underwriting system. Lenders must now conduct time-consuming “manual” analysis of every new loan application flagged as high risk. Compared with standard automated underwriting, manual processing is far more intensive and entails higher staffing costs and liabilities for lenders. Many balk at it. Some investors refuse to buy manually underwritten loans. As a result, fewer of them make it through the process.

“Absolutely they’re going to turn a lot of loans down,” said Skeens. Joe Metzler, a loan officer at Mortgages Unlimited in St. Paul, Minnesota, welcomes the stricter standards. “FHA has become the dumping ground for crappy [loan] files with ridiculous DTI allowances and bad scores,” he said. “A lot of it lately has been straight-up subprime. We should not be doing them.”
According to FHA, nearly 83 percent of its home-purchase loans in January went to first-time buyers. Just under 40 percent went to minorities. Those who have the weakest financial profiles — FICO scores under 640 with debt ratios above 50 percent — could be shocked when they go to buy a house this spring. They may have to turn to subprime lenders who charge much higher interest rates, or they may have to simply postpone their purchase until they’re in better financial shape.

 
American Mortgage Solutions, Inc.
10602 Timberwood Circle Suite 3
Louisville, KY 40223
Company ID #1364 | MB73346
 

Text/call 502-905-3708
kentuckyloan@gmail.com
http://www.nmlsconsumeraccess.org/
If you are an individual with disabilities who needs accommodation, or you are having difficulty using our website to apply for a loan, please contact us at 502-905-3708.
Disclaimer: No statement on this site is a commitment to make a loan. Loans are subject to borrower qualifications, including income, property evaluation, sufficient equity in the home to meet Loan-to-Value requirements, and final credit approval. Approvals are subject to underwriting guidelines, interest rates, and program guidelines and are subject to change without notice based on applicant's eligibility and market conditions. Refinancing an existing loan may result in total finance charges being higher over the life of a loan. Reduction in payments may reflect a longer loan term. Terms of any loan may be subject to payment of points and fees by the applicant  Equal Opportunity Lender. NMLS#57916http://www.nmlsconsumeraccess.org/
-- Some products and services may not be available in all states. Credit and collateral are subject to approval. Terms and conditions apply. This is not a commitment to lend. Programs, rates, terms and conditions are subject to change without notice. The content in this marketing advertisement has not been approved, reviewed, sponsored or endorsed by any department or government agency. Rates are subject to change and are subject to borrower(s) qualification.

-- 

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



Debt-to-Income Ratio: What It Is and Why You Should Care for A Kentucky Mortgage Loan




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 w

Debt-to-Income Ratio: What It Is and Why You Should Care for a Kentucky Mortgage Loan for Kentucky Mortgage Loan Approval











American Mortgage Solutions, Inc.
10602 Timberwood Circle Suite 3
Louisville, KY 40223
Company ID #1364 | MB73346

Text/call 502-905-3708
kentuckyloan@gmail.com
http://www.nmlsconsumeraccess.org/
If you are an individual with disabilities who needs accommodation, or you are having difficulty using our website to apply for a loan, please contact us at 502-905-3708.

Disclaimer: No statement on this site is a commitment to make a loan. Loans are subject to borrower qualifications, including income, property evaluation, sufficient equity in the home to meet Loan-to-Value requirements, and final credit approval. Approvals are subject to underwriting guidelines, interest rates, and program guidelines and are subject to change without notice based on applicant's eligibility and market conditions. Refinancing an existing loan may result in total finance charges being higher over the life of a loan. Reduction in payments may reflect a longer loan term. Terms of any loan may be subject to payment of points and fees by the applicant  Equal Opportunity Lender. NMLS#57916http://www.nmlsconsumeraccess.org/
-- Some products and services may not be available in all states. Credit and collateral are subject to approval. Terms and conditions apply. This is not a commitment to lend. Programs, rates, terms and conditions are subject to change without notice. The content in this marketing advertisement has not been approved, reviewed, sponsored or endorsed by any department or government agency. Rates are subject to change and are subject to borrower(s) qualification.

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.




How Much House Can I Afford On A Typical Kentucky Mortgage Loan Preapproval?






-- 


Fill out my form!

Using a Pastor / Minister’s housing Clergy Income for A Mortgage Loan Approval

Using a Pastor / Minister’s housing allowance to qualify for a mortgage


Member of the Clergy Income for A Mortgage Loan Approval 


Where a borrower is a member of the clergy, all of the following will be required to document income: 1) Most recent year full tax return, 2) Most recent pay stubs, 3) W-2s, 4) Contract from the church to determine benefits.

The IRS looks at the housing allowance portion of a pastor’s income as an exclusion from income.  Therefore the housing allowance is not reported on the personal tax returns as taxable income.  Even though it is not reported on the tax returns, a pastor’s housing allowance can be used in qualifying for a mortgage loan to purchase or refinance a home. 

 As long as we can document the receipt of the housing income through a signed letter from the church/employer stating the actual breakdown of the pay and by providing copies of the checks received, we should be able to count the housing allowance as income.  Some employers will even put the housing allowance on the w2 as a nontaxable amount which makes it even easier. 



See guidelines below:

Housing or Parsonage Allowance A non-military housing or parsonage allowance may be considered qualifying income, if the income has been received for the most recent 12 months. The housing allowance may not be used to offset the monthly housing payment. All of the following income documentation is required:

 Written Verification of Employment, letter from employer, or paystubs reflecting the amount of the housing or parsonage allowance
 Terms under which the housing or parsonage allowance is paid.
 Proof of receipt of housing allowance for most recent 12 months. 

Housing or Parsonage allowance may be considered as qualifying income if there is documentation that the income has been received for the most recent 12 months and the allowance is likely to continue for the next three years. 





http://www.emailmeform.com/builder/form/0bfJs9b6bK8TGoc6mQk9hIu


Louisville Kentucky VA Mortgage Requirements for income and debt to income ratios:







Louisville Kentucky VA Mortgage Requirements for income and debt to income ratios:


Kentucky VA lenders  use debt ratios to help determine affordability. The VA Underwriting uses a debt ratio of 41% when approving a Kentucky VA home loan application. That simply means if someone makes $4000 per month, before withholdings, VA loans require mortgage payments plus other revolving and installment debt payments be no greater than $6,000 X .41 = $1640 a month.

Sometimes VA lenders will allow for you to have a debt to income ratio over 41%, but that usually entails you have a credit score of 680 or higher, with at least 6 months reserves.

With most Kentucky VA mortgage Lending tied to the automated underwriting thru Desktop Originator, most Kentucky VA home buyers will get a refer if the score is below 680.

If happen to get a refer eligible on your Kentucky VA loan approval thru DU, then you must make sure your debt to income ratio is not over 41%, and you will have to prove a good payment history on your last 12 months of housing history. 



Significant Increases or Decreases in Income


Increase: When a borrower has experienced a significant increase in income, the higher income may not be used to qualify the borrower, unless there is sufficient documentation to determine that the increase is stable and likely to continue at the level used for qualifying (e.g. that the income in not a one-time incentive payment).

Decrease: When the borrower has experienced a significant decrease in income, the income cannot be averaged using a previous higher level unless there is documentation of a one-time occurrence (e.g., injury) that prevented the borrower from working or earning full income for a period of time and proof that the borrower is back to the income amount that they previously earned. The underwriter must focus the analysis on the most recent earnings and the income that is most likely to be received at the level used for qualifying.



Residual Income for A  Kentucky VA Loan 


Residual income is the amount of net income remaining (after deduction of debts and obligations and monthly shelter expenses) to cover family living expenses such as food, health care, clothing and gasoline. See tables below for residual income requirements.



Count all members of the household (without regard to the nature of the relationship) when determining "family size," including:

An applicant's spouse who is not joining in title or on the note, and
Any other individuals who depend on the applicant for support. For example, children from a spouse's prior marriage who are not the applicant's legal dependents.
Reduce the residual income figure (from the following tables) by a minimum of 5 percent if:
The applicant or spouse is an active-duty or retired serviceperson, and
There is a clear indication that he or she will continue to receive the benefits resulting from use of military-based facilities located near the property.

Use 5 percent unless the VA office of jurisdiction has established a higher percentage, in which case, apply the specified percentage for that jurisdiction.






 

Mortgage Programs available to Louisville Kentucky Home buyers. USDA, FH...

Non-reimbursed Business Expenses for a Kentucky Mortgage Loan

Non-reimbursed  Business  Expenses for a Kentucky Mortgage Loan 

When a borrower has unreimbursed business expenses, such as classroom supplies, uniforms, meals, gasoline, automobile insurance, and/or automobile taxes, the underwriter must determine the borrower’s recurring monthly debt obligation for such expenses by developing a 24-month average of expenses, using information from the borrower’s IRS Form 1040 including all schedules (Schedule A & IRS Form 2106) and net out any automobile depreciation claimed on IRS Form 2106.

Consequently, when calculating the total debt-to-income ratio, the 24-month average for non-reimbursed expenses should be subtracted from the borrower’s stable monthly income, unless such expenses are automobile lease payments or automobile loan payments, in which case they are to be considered part of the borrower’s recurring monthly debt obligations. If there is not a 24-month history of such expenses, the underwriter should develop an annualized monthly average for the expenses and add this calculated amount to the borrower’s monthly debt obligations










-- 
Joel Lobb (NMLS#57916)
Senior  Loan Officer
502-905-3708 cell





Fill out my form!

Debt-to-Income Ratio: What It Is and Why You Should Care for a Kentucky Mortgage Loan Approval


Debt-to-Income Ratio: What It Is and Why You Should Care for A Kentucky Mortgage Loan

 Debt-to-Income Ratio: What It Is and Why You Should Care for a Kentucky Mortgage Loan Approval




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 when determining our eligibility for financing (e.g., credit score, etc.), your DTI is an important determinant that you should be aware of. By working to improve it, you can make yourself a better credit risk, and thus get more favorable treatment from lenders.
Two obvious ways to improve DTI are to increase your income and/or decrease your debt. Both are solid goals.

Debt-to-Income Ratio: What It Is and Why You Should Care for a Kentucky Mortgage Loan for Kentucky Mortgage Loan Approval


Call us today for a free pre-qualification for your next mortgage loan in Kentucky. We are available 7 days a week to take your call..502-905-3780 or email us at kentuckyloan@gmail.com















Fill out my form!

How to determine how much house can you afford


Fill out my form!

Understanding the Calculation of Debt to Income Ratio for FHA Loans

Understanding the Calculation of Debt to Income Ratio for FHA Loans





One of the main pieces of an FHA loan approval is the borrower’s debt to income calculation. It is important that home buyers understand how this number is calculated and what they can do to improve their chances of getting approved.
Payments Included in Debt Ratios
Certain payments must be considered as part of a person’s overall debt when calculating the ratios. Items such as:
  • Payments for car loans
  • Payments on credit cards
  • Payments on unsecured loans
  • Child support payments
  • Alimony
Items Excluded from Debt Ratios
There are also some items not included in the debt to income ratio for FHA loans. Common examples would be:
  • Current rent payment
  • Money spent on entertainment
  • Expenses paid for child care
How to Overcome High Debt to Income Ratios
If a borrower has a compensating factor, it is possible for people with ratios higher than the proposed guidelines to get an approval for an FHA loan. Here are some examples of compensating factors:
  • Paying more than 10% of the purchase price as a down payment
  • Using income and expense records from the past two years to demonstrate that you have the ability and discipline to pay the housing expense
  • Having a large balance in a savings, investment or retirement account
For people that have a high debt to income ratio, it is possible to reduce the numbers. Paying off debt, such as credit cards or car loans can help. Sometimes it may be necessary to sell an expensive vehicle and get a cheaper payment in order to qualify for a loan.



Fill out my form!