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:

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.

 

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

 

 

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.

10602 Timberwood Circle 

Louisville, KY 40223

Company NMLS ID #1364

click here for directions to our office

Text/call:      502-905-3708

fax:            502-327-9119
email:          kentuckyloan@gmail.com

https://www.mylouisvillekentuckymortgage.com/

Credit Inquiries--How much do they effect my score?

Credit Inquiries Are A Formal Process

A "credit inquiry" is a formal request to review a person's credit report.

Credit inquires are grouped with other traits into a credit-scoring category called "New Credit". New Credit represents 10 percent a person's complete credit score.  On the scale of 300-850, therefore, credit inquiries represent a tiny portion of a maximum of 85 points to a FICO.

There are many times of credit inquiries, but really only 4 of the set can impact a person's credit score:

1.    A credit check for a mortgage loan

2.    A credit check for an auto loan

3.    A credit check for a credit card application

4.    A credit check for a store credit card, or consumer loan

These 4 types are singled out because, in each case, the inquiry is made by the applicant in order to get access to more debt.  Because extra debt increases the probability of default, credit inquiries can sometimes foreshadow trouble.

Even then, however, the risk of default varies by application type.

For example, credit card applications can be more damaging to a credit score than a mortgage application.  This is because credit card debts tend to revolve higher over time versus a mortgage which eventually pays down to $0.

So, all things equal, a credit card application will harm your credit score more than an application for a home loan.

A Credit Inquiry Lowers Your FICO By 5 Points

When compared to the other credit scoring elements, Credit Inquiries is a relative nothing.

In the official FICO scoring model, Payment History and Credit Utilization account for 65% of a score, combined, and the amount of time during which you've had credit to your name accounts for 15%.  These three areas are over-weighted because the bureaus are more concerned with what you've already done with your credit versus what you might do with more of it.

Your credit past is the best clue to your credit future and it's one of two reasons why it's okay to give your social security number to as many lenders as you want. The impact of a credit inquiry is tiny next to the value of being a Model Credit Citizen.

A mortgage credit inquiry is estimated to lower a credit score by just 5 points.

Unfortunately, we'll never know for sure because the very act of examining the credit score causes it to move. In Chemistry, this is called the Heisenberg Principle.  On MTV, it's called The Jersey Shore Syndrome.  Put a camera on something, and it changes.

The Credit Bureaus Don't Hit Your FICO Twice

The second reason you should shop around with lenders is that -- unlike applying for multiple credit cards -- applying for multiple mortgages won't count as multiple, consumer-initiated inquiries. This is a common thing.

You might apply for 5 credit cards and use them all. You're not going to be approved for 5 mortgages.

As such, the credit bureaus have made it formal policy to permit "rate shopping".  Talk to as many lenders as you want in a 14-day time frame; have your credit checked as often as you'd like; compare rates and fees.  All of the inquiries will be lumped into a single application.

It's good for you and it's good for the bureaus. Your credit scores stay high and TransUnion, Equifax and Experian collect more fees from the banks.

Advice From The Credit Bureaus On Getting Low Rates

To promote rate shopping and to lessen The Fear of Credit Inquiry, the people behind the FICO brand spell out for you the best way to get the best mortgage rates possible:

1.    If you want the best rate, you should "shop around"

2.    Limit rate shopping to 14-day timespan to keep your credit scores high

3.    Mortgage lenders can't give accurate rate quotes without a credit score so give up your social security number

Metaphorically, not letting your lender see your FICO is like not letting your doctor check your blood pressure. You'll get a diagnosis when the appointment is over -- it just might not be the right one.

Joel Lobb

Senior Mortgage Loan Officer

-- 

Joel Lobb
Senior  Loan Officer

(NMLS#57916)

American Mortgage Solutions, Inc.

10602 Timberwood Circle, Suite 3

Louisville, KY 40223

 phone: (502) 905-3708

 Fax:     (502) 327-9119

kentuckyloan@gmail.com

http://www.mylouisvillekentuckymortgage.com/

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Credit Score Information for Kentucky Mortgage Loan Approvals

Credit Score Knowledge Quiz Information for Kentucky Mortgage Loans

 Credit scores are taking an even more important role in qualifying for a Kentucky FHA, VA, Rural Housing and Fannie Mae mortgage today, which makes it vital to maintain a good credit history. See how much you know about credit scores with our Credit Knowledge Quiz and what you need to focus on to better your score.

1. Question 01

   A credit score is:

   
   
   • a. A three-digit number summarizing the state of your credit
   • b. An alphabetical score grading your creditworthiness
   • c. A numerical score reporting how much money you owe
   CORRECT

   The major credit reporting bureaus might report slightly different scores, but all three use a three-digit number to summarize the state of your credit. A credit score is a number that summarizes the historical credit information on a credit report. The number reflects the likelihood that you will become delinquent on a loan or a credit obligation in the future.

2. Question 02

   What is the number-one contributing factor to a good credit score?

   
   
   • a. Length of credit history
   • b. Amounts you owe
   • c. Payment history
   CORRECT

   Paying bills on time is generally the single most important contributor to a good credit score. Being late on any bill, for any length of time, is a possible indication of future nonpayment of debt and is almost always viewed negatively by lenders. Any late payments will remain on your credit report for up to seven years.

3. Question 03

   Does each consumer have just ONE generic credit score?

   
   
   • a. Yes
   • b. No
   • c. Don't Know
   CORRECT

   The answer is "no." Most Americans have many generic scores reflecting the use of the scoring system and the source of the credit report—Experian, Equifax, or TransUnion. One of the most common myths about credit scores is that there is only one credit score. Web sites or financial advisers who claim there is only one "real" credit score either are misinformed or are being misleading. In fact, there are many different credit scores used by lenders (according to some estimates, more than 1,000), although some scores are used more than others. While there are many credit scores on the market, VantageScore® is the first credit score developed jointly by Experian and the other national credit reporting companies, TransUnion and Equifax.

4. Question 04

   Your credit score affects?

   
   
   • a. Whether you can get a loan
   • b. Your interest rate
   • c. Both A and B
   CORRECT

   In addition to using your credit score to help decide whether it's a good idea to give you money, lenders use the score to determine your rate. In general, the better the score, the lower the rate – and the lower your payments.

5. Question 05

   Who collects the information on which credit scores are most frequently based?

   
   
   • a. FICO and VantageScore
   • b. Three main credit bureaus – Experian, Equifax, and TransUnion
   • c. Individual lenders
   • d. Federal government
   CORRECT

   The answer is the "three main credit bureaus," which collect information on the credit use of more than 200 million Americans and make it available in credit reports. FICO and VantageScore have developed the most popular scoring systems for using credit reports to compute credit scores.

6. Question 06

   Lenders look at credit scores when deciding whether to extend which type of credit?

   
   
   • a. Credit cards
   • b. Mortgages
   • c. Loans
   • d. All of the above
   CORRECT

   Banks, credit card companies, auto dealers, retail stores and other lenders decide if you get your loan. Most businesses that issue credit or loans use credit scores to quickly summarize a consumer's credit history, saving the need to manually review an applicant's credit report and providing a better, faster decision. Although many additional factors are used in determining whether or not you receive the credit you applied for — such as an applicant's income versus the size of the loan — a credit score is a leading indicator of one's basic creditworthiness. Credit reporting agencies do not make lending decisions.

7. Question 07

   How important is it to check the accuracy of your credit reports at the three main credit bureaus?

   
   
   • a. Very Important
   • b. Somewhat Important
   • c. Not Very Important
   • d. No Big Deal
   CORRECT

   The correct answer is "very important." Lenders may have provided inaccurate information, or failed to add accurate information, about your payment history to your credit reports. And, since many consumers have similar names, even accurate information may have been added to the wrong file. Fortunately, a federal law requires the three main credit bureaus—Experian, Equifax, and TransUnion—to provide on request a free copy of your credit report once a year. An easy way to get these reports is to visit www.annualcreditreport.com or call 877-322-8228.

8. Question 08

   Which of the following actions helps a consumer raise a low score or maintain a high one?

   
   
   • a. Make all loan payments on time
   • b. Avoid opening several credit card accounts at the same time
   • c. Use a credit card keeping the balance under 25% of the credit limit
   • d. All of the above
   CORRECT

   The correct answer is "all of the above," though it takes much longer to raise a low score than lower a high one. For example, someone with a good score may lose 100 points if they miss payments on two credit cards. But they may gain only 50 of these points back by making all mortgage, car, and credit card payments on time for six months.

9. Question 09

   After paying off a high-interest credit card, you should:

   
   
   • a. Continue using it occasionally
   • b. Close the account
   • c. Use the full amount of available credit every month
   INCORRECT

   You may be tempted to close old accounts you're not using, but that won't help your credit scores and may actually hurt them. It reduces the amount of your available credit, which can lead to lower scores.

10. Question 10

    Which of the following does a credit score MAINLY indicate?

    
    
    • a. Knowledge of consumer credit
    • b. Amount of consumer debt
    • c. Risk of not repaying a loan
    • d. Financial resources to pay back loans
    CORRECT

    The answer is "risk of not repaying a loan." The other factors may influence this risk, but it is the risk itself that a credit score tries to measure.

11. Question 11

    How long can negative items on your credit history impact your score?

    
    
    • a. 1 year
    • b. 3 years
    • c. 5 years
    • d. 7 years
    CORRECT

    Negative items generally affect your score for up to seven years, but, as time goes by, their impact lessens. If you pay your bills, keep account balances low and don't open a lot of new accounts, your score can rebound surprisingly quickly.

12. Question 12

    Are missed payments a factor used to calculate a credit score?

    
    
    • a. Yes
    • b. No
    • c. Maybe
    CORRECT

    Paying bills on time is generally the single most important contributor to a good credit score. Being late on any bill, for any length of time, is a possible indication of future nonpayment of debt and is almost always viewed negatively by lenders. Any late payments will remain on your credit report for up to seven years.

13. Question 13

    Which of the following is NOT considered when calculating your FICO score?

    
    
    • a. Your payment history
    • b. The types of credit you are using
    • c. The amount of debt you owe
    • d. Your income
    CORRECT

    Your FICO score consists of 35% Payment History, 30% Amounts Owed, 15% Length of Credit History, 10% New Credit, 10% Types of Credit used. Credit scores use information from three key areas of your credit report: account information (such as credit cards, auto loans, student loans, mortgages and rent), public records (such as tax liens or bankruptcies) and inquiries (requests by lenders to view your credit). Information such as race, gender, where you live and marital status are not used in credit scores.

14. Question 14

    Applying for credit cards in order to just receive a free sign-up gift (t-shirt, mugs, etc.) has no impact on my credit profile?

    
    
    • a. True
    • b. False
    INCORRECT

    Opening an account to get freebies such as filling out a credit card application just to get a free t-shirt, goofy hat, or official university credit card isn't worth the risk. Most students don't realize that applying for multiple credit cards in a short period of time may cause the credit bureaus to regard this as very risky behavior, which in turn drives their credit scores down.

15. Question 15

    Is marital status a factor used to calculate a credit score?

    
    
    • a. Yes
    • b. No
    • c. Maybe
    CORRECT

    Marital status is not one of the factors used to calculate a credit score. If you hold a joint credit account, have cosigned a loan or have authorized use of another person's credit, these items could affect a score if they appear on your credit report. It's important that joint account holders or authorized users understand that their credit behavior does affect the other joint account holder or main account holder.

16. Question 16

    Does a cell phone company use a credit score to decide whether a person can buy a service and/or what price they'll pay?

    
    
    • a. Yes
    • b. No
    • c. Maybe
    CORRECT

    Cell phone companies may use credit scores to decide whether you can buy a service or if a deposit will be required.

17. Question 17

    Does a mortgage lender use a credit score to decide whether a person can get credit and what interest rate they'll pay?

    
    
    • a. Yes
    • b. No
    • c. Maybe
    CORRECT

    Mortgage lenders use credit scores to help them decide if you can get credit and what interest rate you'll pay.

18. Question 18

    Does a landlord use a credit score to decide whether a person can rent a property and/or what price they'll pay?

    
    
    • a. Yes
    • b. No
    • c. Maybe
    CORRECT

    Landlords use credit scores to decide whether you can rent a property and/or what price you'll pay.

19. Question 19

    Does an electric utility use a credit score when establishing service for a consumer?

    
    
    • a. Yes
    • b. No
    • c. Maybe
    CORRECT

    Electric utilities may use credit scores as they evaluate whether or not to require a deposit.

20. Question 20

    Your credit card company just increased the spending limit on your card. Will this help or hurt your credit score?

    
    
    • a. Help
    • b. Hurt
    CORRECT

    As long as you don't borrow more money, the higher limit improves your credit utilization ratio, which is the percentage of your available credit that you've used. Lenders like you to use only a small percentage of your available credit so you don't appear to be maxing out your cards. Charging $3,000 when you have a $10,000 limit, for example, looks a lot better than charging $3,000 when your limit is only $5,000.

21. Question 21

    In regards to a married couple purchasing a home, the mortgage lender uses which credit score when more than one borrower is applying together?

    
    
    • a. The highest score between both people
    • b. The lowest middle score between both people
    • c. The average of all scores
    • d. The median score between both people
    CORRECT

    Both you and your spouse have individual FICO scores. When you apply for credit stating your joint income, lenders will usually look at both of your FICO scores when evaluating your loan application. For example if your FICO scores are 750, 730, 700, your middle score is 730. If your spouse has FICO scores of 640, 600, 650, your spouse's middle score is 640. The lender will then take the lower of the two middle scores. So in this example your score is 640 which may lead to higher rates.

Joel Lobb
Mortgage Loan Officer

Individual NMLS ID #57916

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/

Text/call 502-905-3708 kentuckyloan@gmail.com

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#57916 http://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.

Fill out my form!