Credit Score Requirements for a Kentucky USDA, Fannie Mae, VA, FHA Mortgage Loans

Credit Score Requirements

What’s the Credit Score?

Your credit score is a part of the package of information lenders use to decide whether or not they will lend you money or extend credit. Other factors include things like your employment history and income and their own internal scoring systems.

There are two primary credit scoring models you need to know about: FICO® and VantageScore. Each may be used to determine your creditworthiness: that is, how likely you are to repay your loan. Your score can influence your interest rate, length of loan, and even how much you can borrow.

Your FICO Score is based on information received from the three major credit bureaus, Experian, TransUnion, and Equifax.

Your VantageScore, meanwhile, was actually developed by the three major credit bureaus to compete with FICO.

Calculating Scores

Both scores use a range of 300-850. A higher score indicates to lenders that you are fiscally responsible and the risk of lending to you is low.

Influences on your FICO Score:

FICO Score Ranges

Source: Experian

FICO Fast Facts:

• Is not influenced by current interest rates on loans you already have.

• 45-day window for rate shopping before credit is affected.

• Six months of credit history required to establish a FICO score.

• Has a separate Auto Score specifically for car loans.

Influences on your VantageScore:

VantageScore Ranges

Source: Experian

VantageScore Fast Facts:

• Does not factor in paid-off collections when calculating your score.

• Late mortgage payments are weighted more than other late payments.

• 14-day window for rate shopping before credit is affected.

• Can produce a score just a month or so after credit line is opened.

The average FICO score is 711; the average VantageScore is 688.

What Will My Lender Use?

FICO is used by 90% of lenders, according to myFICO, and has been around since 1989. (VantageScore only hit the scene in 2006.)

If you’re not sure which scoring model a lender will use, just ask!

• USDA loan: Most lenders prefer at least a 620
  The U.S. Department of Agriculture insures for low- to moderate-income homebuyers. The USDA does not set a minimum credit score requirement and does not require a down payment.

• Conventional loan: 620
  Conventional loans aren’t insured by a government agency either, but they are covered by mortgage loan companies Fannie Mae and Freddie Mac. The down payment amount varies.

• VA loan: Most lenders prefer at least a 580
  A Veterans Affairs loan is backed by the U.S. Department of Veterans Affairs and meant for military members and their spouses. These loans don’t require a minimum score or money down.

• FHA loan: 500 (with 10% down payment) or 580 (with 3.5% down payment)
  FHA loans, those guaranteed by the Federal Housing Administration, are for higher-risk borrowers who have poor credit and little money saved for a down payment. The credit requirements can fluctuate based on how much of a down payment you can afford.Most lenders have overlays now wanting a minimum 620 credit score even for FHA loans.

Are you interested in seeing how your current credit score might affect a new mortgage? Let’s take a look together.

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

https://kentuckyloan.blogspot.com/

What is a good FICO Score for Mortgage Loan Approval?

 What is a good FICO Score for Mortgage Loan Approval?

FICO Scores generally range from 300 to 850, where higher scores demonstrate lower credit risk and lower scores demonstrate higher credit risk (note: some types of FICO® Scores have a slightly broader range). 

What’s considered a “good” FICO® Score varies, since each lender has its own standards for approving credit applications, based on the level of risk it finds acceptable. So one lender may offer its lowest interest rates to people with FICO® Scores above 730, while another may only offer it to people with FICO® Scores above 760.

The chart below provides a breakdown of ranges for FICO® Scores found across the U.S. consumer population. Again, each lender has its own credit risk standards, but this chart can serve as a general guide of what a FICO® Score represents.

Student-Loan Freeze Led to Big Credit-Score Gains

 

Student-Loan Freeze Led to Big Credit-Score Gains, N.Y. Fed Says

• Some 30 million student borrowers saw scores rise, study says
• Freeze is set to expire on Aug. 31 but Biden may extend it

Share of Borrowers by Credit Score

Credit scores for student loan borrowers increased dramatically

Here are some key takeaways from the New York Fed report.

Better Credit Scores

The share of student-loan balances held by subprime borrowers fell to 26% in 2021, from 36% in 2019. That’s primarily because loans owed to the federal government that were delinquent before the pandemic were marked as current under the forbearance policy, putting millions of households on a sounder financial footing. 

“The end of forbearance will have impacts on credit scores, borrowing, and household cash flow over the coming year for the 38 million federal borrowers that have benefited from the pause,” the New York Fed researchers wrote. “Some borrowers will enter delinquency or default.”

Growing Balances

With repayments on hold, about two-thirds of student-debt holders had balances that were growing or flat at the end of 2021, compared with just 48% in 2019. That’s an increase of roughly 3.2 million borrowers.  

There was also a shift in the typical size of debts, with larger loans accounting for a bigger share of the total. At the same time, 5.4 million people who were recorded as having student debt outstanding at the end of 2019 no longer owed anything by the end of 2021.

Loan Shifts

Since the pandemic, larger debts have increased as a share of total loans

Source: Federal Reserve Bank of New York Consumer Credit Panel / Equifax

DC Debt Leader

On average, student borrowers in and around the nation’s capital owed the most at the end of 2021. Washington DC topped the list, with an average debt of $53,769, while Maryland ranked second and Virginia fifth. 

Student Loans by State

Average balances vary widely across states

Source: Federal Reserve Bank of New York Consumer Credit Panel / Equifax

Note: As of Q4 2021, average balance

“Of the ten states (not including D.C.) with the largest median balance, seven belong to the Southern Census region (Georgia, Maryland, Virginia, North Carolina, South Carolina, Alabama, and Tennessee),” the report found.

Top 10 Student Loan Debt

Seven of top-10 largest belong to the Southern Census region

Source: Federal Reserve Bank of New York Consumer Credit Panel / Equifax

Note: Ranked by median loan amount

Once the forebearence period ends, loan amounts are anticipated to rise and delinquency rates across states in the South are expected to have worse outcomes.

 

 

https://www.bloomberg.com/news/articles/2022-08-09/student-loan-freeze-raised-credit-scores-dramatically-ny-fed

Kentucky Mortgage Approval Underwriting Myths Debunked for FHA, VA, USDA and Fannie Mae

 Mortgage Approval Underwriting Myths Debunked

Getting approved for a loan is not as hard as some make it. The 3C approach breaks it down in its simplest form so no need to overthink or complicate with “what if’s” or variable situations and these factors are the same in every state. They all have to line up for your loan to be approved but here there are in order of significance

Capacity - No matter if your credit is in 800’s the ability to afford a loan (capacity aka DTI) is the MOST important C and why most applications either get denied or reduced. Income is EVERYTHING.

To get a conforming (FHA / VA / Conventional) loan you need 2yrs of verifiable Full time income even if it’s pieced together with different employers with 2yrs W2’s and your most recent paystub if you’re an employee and OT and/or bonus cannot be used if you’ve been with your employer for less than 2yrs.

If you have part time employment as well that income cannot be used unless you’ve worked both jobs for at least 2yrs UNLESS your P/T job is the exact same as your F/T job and your hours are not variable then in most cases you can get an exception if you’ve been there for at least 1yr. If you’re self employed 2 most recent tax returns with positive income on line 31 of your schedule C.

If homeownership is your goal, then don’t be cheap and have a certified tax preparer prepare your taxes because it’s likely you’ll need certain docs to get approved only they can provide. Also DO NOT write off all your income to avoid paying the IRS taxes because this will disqualify you from a loan and you’ll have to get a more expensive loan with a bigger down payment.


Credit - many people think this is the most important but it’s not but it is important. With a high enough capacity (low DTI) I’ve seen clients with minimum scores get approved. FHA requires 580, VA does not have a minimum score requirement and while some lenders can do down in the 500’s generally most lenders do not go below 580, and conventional requires 620.

Having said all that just because you meet the minimum score does not mean you’ll get an approval before credit profile (positive tradeline history, collection activity, credit usage) is what matters most. I’ve seen applicants with 680+ get denied for conventional loans because they have a poor credit profile or low capacity (higher DTI).

FHA is a little more forgiving which is why they are easier loans to get than conventional. Obviously the higher the score, the better the chances are for approval but high scores aren’t needed if capacity and collateral are strong.

Collateral - aka down payment. Underwriters request either 1 bank statement for FHA or 2 bank statements for conventional and all they are looking for is verification of cash to close, large deposit (FHA more than 1% of loan amount deposited in 1 deposit) activity and reserves if needed, not spending habits. Large purchases are irrelevant and NSF’s can be explained with an explanation letter. The higher the down payment in percentages (3.5 or 5%, 10%, 15%, 20% etc…) not dollars ($2000 or $5000 more than required) then the lower the risk and higher chance of approval especially for conventional loans. Plus dollars don’t noticeably reduce your monthly payment but percentages do.

Overlays - additional restrictions some lenders have in addition to standard mortgage guidelines. If your lender is telling you anything more is required than what’s posted above it’s because they have overlays which make it more difficult to get approved with them.
Example - Veteran’s United will not take credit scores under 620 = OVERLAY

If you want a personalized answer for your unique situation call, text, or email me or visit my website below:

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

https://kentuckyloan.blogspot.com/

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A Beginner's Guide to Home Mortgage in Kentucky

• Conventional home loans - conventional mortgages are the ones that comply with the loan limits and terms set by government-backed mortgage companies Fannie Mae and Freddie Mac. They usually require a 3-5% down payment and allow you to borrow up to $647,200 (as of 2022). Typical credit score requirements are 620 and up. In reality, if scores are under 720, and with minimal down payment, it is hard to get approved for a conventional loan and best to look at doing a FHA loan. 

• USDA Loans - these mortgages are designed for those buyers looking to invest in rural areas. They are backed by the USDA and don’t require a down payment, but only homes in certain areas might be eligible. No minimum score but 620 to 640 credit score requirement with household income limits for each county in Kentucky.

• VA Loans - these loans are catered to members of the US military and their families. They are backed by the Department of Veterans Affairs and don’t require a down payment or no monthly Private Mortgage Insurance (PMI). No minimum score but 580 and above with most lenders.

• FHA Loans - These are loans backed by the Federal Housing Administration and only require a minimum down payment of 3.5 and a score of 580 and 10% down with a 500 credit score.

• KHC loans with down payment assistance of $7,500 require minimum credit score of 620

 

A Good Credit Score 

Some government-backed loans are accessible with a score no minimum score or 500 to 580, while conventional loans require a minimum credit score of 620.  

Down Payment

Thanks to today’s availability of different loan types, you no longer need to build that infamous 20% down payment, and you can access a loan with a 0-3% down. 

A Debt-To-Income Ratio Below 45%

The debt-to-income (DTI) ratio measures how much of your income is used to repay outstanding debt. 

Disputes on Credit Report and Kentucky Mortgage Loan Approval?

Applying for a Kentucky Mortgage Soon?

Don't Dispute that Account

     Sounds counterintuitive, I'm sure ...

     But until you've talked to me (or your own local Mortgage Originator), don't even think about disputing an account found on your Credit Report.

     Why?  Unknowingly, you can be creating real problems for your Mortgage Application and Approval. 

     Consider this:  A creditor can refuse to change their disputed rating.  Too many disputed accounts on a Credit Report may result in your loan being denied.

     Is that a really a risk you want to run at such an important time?

     A formal dispute placed on a car loan, student loan, credit card, collection ... or even worse, a mortgage loan ... can cause havoc for your new Mortgage Application.  So ...

     Slow down.  Contact me ... and let's talk.  We'll analyze all your options and see what action is appropriate and in your best interest.  

     What is not commonly known:  Credit Bureaus and Automated Underwriting systems now reflect an evolution that has taken place over the last few years regarding credit disputes.  

     Both the Bureaus and Underwriting systems have been re-worked to recognize disputes as a negative impact and rating on a Borrower's "approvability" or "credit-worthiness".  

     But these changes have taken place without much fanfare and public recognition.  And because of that, hopeful Borrowers have all too often been contributing to the issues faced within their Mortgage Process later.     

     Prospective Mortgage Applicants (and the public in general) must be educated to this fact.  The temptation to dispute an account must be avoided, if hoping to finance a home via a Mortgage Loan soon.       

     If a Creditor offers-up a path to formally dispute your account ... just say no!  At least prior to our talking.

     There may be a better course of action available to you.  During our conversation we'll weigh your options and best course as it pertains to your Mortgage and your Approval.  

     But providing solid, written proof and evidence regarding your stance on the account in question, WITHOUT placing a formal "dispute" on said account is often the most prudent course of action ... 

     Remember:  You must have legitimate data and written proof in order to accomplish your goal successfully.  But when you have that proof, your account can be "re-rated" or the derogatory rating can be deleted from your Credit Report. 

     Any "correction" should come from the Creditor (Credit Card company/bank/etc.) and immediately sent to each of the 3 Credit Bureaus (Experian, TransUnion, Equifax).  

     This final step trips-up way too many, as it's assumed that the Creditor(s) will share the new updated information with the 3 Credit Bureaus.  They may or may not.  

     Bottomline:  It remains YOUR responsibility to inform each of the 3 Bureaus.  

     Play it safe and follow through with this important task, as it's in your best interest to see that it's successfully done.   

     When a correction is reported to the Bureaus, they will, in turn, update your Credit Report.  While each case is different (and I do not represent that all results will be successful or as hoped for) ... you may head off potential issues with your Mortgage Approval by acting pro-actively.  Consult with a Credit Repair Specialist if uncertain of corrective steps to be taken.

     In the modern Mortgage Process, the experience level of the Mortgage Originator you choose can't be understated.  Successful navigation through the steps of addressing credit disputes and credit analysis is just one example of this fact.

Equifax, Experian and TransUnion will also no longer include medical collection debt under at least $500 on credit reports

 Consumer Reporting Agencies to Remove Most Medical Debt From Credit Reports

The three nationwide credit reporting agencies, Equifax, Experian and TransUnion, announced that effective July 1, 2022, they will no longer include medical debt that was paid after it was sent to collections on consumer credit reports.

The companies’ CEOs provided a joint statement on the decision to change their approach to medical collection debt reporting:

“Medical collection debt often arises from unforeseen medical circumstances. These changes are another step we’re taking together to help people across the United States focus on their financial and personal wellbeing,” said Mark W. Begor, CEO Equifax; Brian Cassin, CEO Experian; and Chris Cartwright, CEO TransUnion. “As an industry we remain committed to helping drive fair and affordable access to credit for all consumers.”

The time period before unpaid medical collection debt would appear on a consumer’s report will be increased from 6 months to one year, according to a press release, “giving consumers more time to work with insurance and/or healthcare providers to address their debt before it is reported on their credit file.”

In the first half of 2023, Equifax, Experian and TransUnion will also no longer include medical collection debt under at least $500 on credit reports.

The changes will remove nearly 70% of medical debt in collections accounts from consumer credit reports.

How to Qualify for a Kentucky FHA, VA, USDA and Conventional Home Loan

 There’s no universal minimum credit score needed for a mortgage, but a better credit score will give you more options. 

If you’re trying to get a mortgage, your credit score matters. Mortgage lenders use credit scores — as well as other information — to assess your likelihood of repaying a loan on time.

Because credit scores are so important, lenders set minimum scores you must have in order to qualify for a mortgage with them. Minimum credit score varies by lender and mortgage type, but generally, a higher score means better loan terms for you.

Let’s look at which loan types are best for different credit scores.

How to qualify for a mortgage

The type of mortgage you’re applying for determines the minimum requirements you’ll have to meet for your down payment, credit score, and debt-to-income ratio.

Find out what type of loan you might qualify for or what aspects of your finances you’ll need to improve to get a better shot at qualifying for a mortgage.

Loan Type	Min. Down Payment	Min. Credit Score	Max DTI	Property Type
Conventional	3%	620	45%	Primary, secondary, investment
VA	0%	none	none	Primary
FHA	3.5%	500	50%	Primary
USDA	0%	none	41%	Primary

Keep in mind: The minimum down payment, minimum credit score, and maximum DTI shown in the table apply to mortgages used to purchase a primary residence. While you can use a conventional loan or a jumbo loan to purchase a home for another purpose, you might need a larger down payment, a higher credit score, more cash reserves, or all three.

Credit score needed to buy a house

Mortgage lending is risky, and lenders want a way to quantify that risk. They use your three-digit credit score to gauge the risk of loaning you money since your credit score helps predict your likelihood of paying back a loan on time. Lenders also consider other data, such as your income, employment, debts and assets to decide whether to offer you a loan.

Different lenders and loan types have different borrower requirements, loan terms and minimum credit scores. Here are the requirements for some of the most common types of mortgages.

Conventional loan

Minimum credit score: 620

A conventional loan is a mortgage that isn’t backed by a federal agency. Most mortgage lenders offer conventional loans, and many lenders sell these loans to Fannie Mae or Freddie Mac — two government-sponsored enterprises. Conventional loans can have either fixed or adjustable rates, and terms ranging from 10 to 30 years.

You can get a conventional loan with a down payment as low as 3% of the home’s purchase price, so this type of loan makes sense if you don’t have enough for a traditional down payment. However, if your down payment is less than 20%, you’re required to pay for private mortgage insurance (PMI), which is an insurance policy designed to protect the lender if you stop making payments. You can ask your servicer to cancel PMI once the principal balance of your mortgage falls below 80% of the original value of your home.

FHA loan

Minimum credit score (10% down): 500

Minimum credit score (3.5% down): 580

FHA loans are backed by the Federal Housing Administration (FHA), a part of the U.S. Department of Housing and Urban Development (HUD). The FHA incentivizes lenders to make mortgage loans available to borrowers who might not otherwise qualify by guaranteeing the federal government will repay the mortgage if the borrower stops making payments. This makes an FHA loan a good option if you have a lower credit score.

FHA loans come in 15- or 30-year terms with fixed interest rates. Unlike conventional mortgages, which only require PMI for borrowers with less than 20% down, all FHA borrowers must pay an up-front mortgage insurance premium (MIP) and an annual MIP, as long as the loan is outstanding.

VA loan

Minimum credit score: N/A

VA loans are mortgages backed by the U.S. Department of Veterans Affairs (VA). The VA guarantees loans made by VA-approved lenders to qualifying veterans or service members of the U.S. armed forces, or their spouses. This type of loan is a great option for veterans and their spouses, especially if they don’t have the best credit and don’t have enough for a down payment.

VA loans are fixed-rate mortgages with 10-, 15-, 20- or 30-year terms.

Most VA loans don’t require a down payment or monthly mortgage insurance premiums. However, they do require a one-time VA funding fee, that ranges from 1.4% to 3.6% of the loan amount.

USDA loan

Minimum credit score: N/A

The U.S. Department of Agriculture guarantees loans for borrowers interested in buying homes in certain rural areas. USDA loans don’t require a minimum down payment, but you have to meet the USDA’s income eligibility limits, which vary by location.

All USDA mortgages have fixed interest rates and 30-year repayment terms.

USDA-approved lenders must pay an up-front guarantee fee of up to 3.5% of the purchase price to the USDA. That fee can be passed on to borrowers and financed into the home loan. If the home you want to buy is within an eligible rural area (defined by the USDA) and you meet the other requirements, this could be a great loan option for you.

What else do mortgage lenders consider?

Your credit score isn’t the only factor lenders consider when reviewing your loan application. Here are some of the other factors lenders use when deciding whether to give you a mortgage.

• Debt-to-income ratio — Your debt-to-income (DTI) ratio is the amount of debt payments you make each month (including your mortgage payments) relative to your gross monthly income. For example, if your mortgage payments, car loan and credit card payments add up to $1,800 per month and you have a $6,000 monthly income, your debt-to-income ratio would be $1,800/$6,000, or 30%. Most conventional mortgages require a DTI ratio no greater than 36%. However, you may be approved with a DTI up to 45% if you meet other requirements.
• Employment history — When you apply for a mortgage, lenders will ask for proof of employment — typically two years’ worth of W-2s and tax returns, as well as your two most recent pay stubs. Lenders prefer to work with people who have stable employment and consistent income.
• Down payment — Putting money down to buy a home gives you immediate equity in the home and helps to ensure the lender recoups their loss if you stop making payments and they need to foreclose on the home. Most loans — other than VA and USDA loans — require a down payment of at least 3%, although a higher down payment could help you qualify for a lower interest rate or make up for other less-than-ideal aspects of your mortgage application.
• The home’s value and condition — Lenders want to ensure the home collateralizing the loan is in good condition and worth what you’re paying for it. Typically, they’ll require an appraisal to determine the home’s value and may also require a home inspection to ensure there aren’t any unknown issues with the property.

How is your credit score calculated?

Most talk of credit scores makes it sound as if you have only one score. In fact, you have several credit scores, and they may be used by different lenders and for different purposes.

The three national credit bureaus — Experian, Equifax and TransUnion — collect information from banks, credit unions, lenders and public records to formulate your credit score. The most common and well-known scoring model is the FICO Score, which is based on the following five factors:

• Payment history (35%) — A history of late payments will drag your score down, as will negative information from bankruptcies, foreclosures, repossessions or accounts referred to collections.
• How much you owe (30%) — Your credit utilization ratio is the amount of revolving credit you’re using compared to your total available credit. For example, if you have one credit card with a $2,000 balance and a $4,000 credit limit, your credit utilization ratio is 50%. Credit scoring models view using a larger percentage of your available credit as risky behavior, so high balances and maxed-out credit cards will negatively impact your score.
• Length of credit history (15%) — This factor considers the age of your oldest account, newest account and the average age of all your credit accounts. In general, the longer you’ve been using credit responsibly, the higher your score will be.
• Types of accounts (10%) — Credit scoring models favor people who use a mix of credit cards, installment loans, mortgages and other types of credit.
• Recent credit history (10%) — Lenders view applying for and opening several new credit accounts within a short period as a sign of financial trouble and it’ll negatively impact your score.

Ready to shop around for a mortgage?

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

https://kentuckyloan.blogspot.com/