Why Kentucky Mortgage Loans Are Denied

How Credit Score, Bankruptcy, Income Ratio, Work History, and Foreclosure affect Kentucky Mortgage loan approval rates and why you may get denied for a Kentucky Mortgage Loan

When applying for a Kentucky mortgage loan, several factors play a crucial role in the approval and denial process. 

Understanding why Kentucky mortgage loans may not get approved due to credit score, bankruptcy, income ratio, work history, and foreclosure is essential for prospective homebuyers. 

Credit Score of 620 or below:

A credit score reflects an individual's creditworthiness. Lenders use this score to assess the risk of lending money. A lower credit score, typically below 620, can raise concerns for lenders. It may indicate past financial challenges, missed payments, or high levels of debt. To improve mortgage approval chances, borrowers should aim for a higher credit score by paying bills on time, reducing debt, and fixing any errors on their credit report.

Bankruptcy less than 2 years or foreclosure less than 3 years:


Bankruptcy can significantly impact mortgage approval. Depending on the type of bankruptcy (Chapter 7 or Chapter 13) and how long ago it occurred, lenders may view it as a red flag. 

Bankruptcies stay on credit reports for 10 years, affecting credit scores and indicating financial instability. Lenders may require a waiting period after bankruptcy before considering a mortgage application.

 
Chapter 7

If you have filed a Chapter 7  Bankruptcy, the mortgage waiting periods begin after the discharge date:

Fannie Mae (conventional) loan – 4 years from discharge date
FHA loan – 2 years from discharge date
VA loan – 2 years from discharge date
USDA loan – 3 years from discharge date

Chapter 13 Bankruptcy

On the other hand, if you have filed a Chapter 13 Bankruptcy, the mortgage waiting periods are shorter:

Fannie Mae (conventional) loan – 2 years from discharge date, and also 4 years from the dismissal date.
FHA loan – 1 year from the payout period. However, you also need court permission, and proof of satisfactory bankruptcy payment and performance.
VA loan – 1 year from the payout period. Also, court permission, and proof of satisfactory bankruptcy payment and performance.
USDA loan – 1 year of the payout must elapse and payment performance must be satisfactory. In addition, you need court permission to borrow again.

After Short Sale/Deed-in-Lieu of Foreclosure

The mortgage waiting periods after a short sale begin after the completion date:Fannie Mae (conventional) loan – 4 years
FHA loan – 3 years
VA loan – 2 years
USDA loan – 3 years



Debt to Income Ratio over 50% 

Lenders assess income ratios to determine if borrowers can afford mortgage payments. The debt-to-income ratio (DTI) compares monthly debt payments to gross monthly income. A high DTI suggests financial strain and may lead to loan denial. Lenders typically prefer a DTI below 50% for conventional loans. Increasing income or reducing debt can help improve this ratio and enhance loan approval chances.


Work History less than 2 years with job gaps: 

2 year Stable employment and consistent income are vital for mortgage approval. Lenders evaluate work history to ensure borrowers have a reliable source of income to repay the loan. Job changes, gaps in employment, or irregular income can raise concerns. Ideally, borrowers should demonstrate a steady work history with consistent or increasing income over time.











Joel Lobb Mortgage Loan OfficerAmerican Mortgage Solutions, Inc.
10602 Timberwood Circle
Louisville, KY 40223
Company NMLS ID #1364

Text/call: 502-905-3708
fax: 502-327-9119
email: kentuckyloan@gmail.com


http://www.mylouisvillekentuckymortgage.com/










NMLS 57916 | Company NMLS #1364/MB73346135166/MBR1574



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 view of my employer. Not all products or services mentioned on this site may fit all people.
NMLS ID# 57916, (www.nmlsconsumeraccess.org).

The reasons you will get turn down for a mortgage loan in Kentucky.

 There are several reasons why people in Kentucky might get turned down for a mortgage loan. These reasons can be broadly categorized into issues with the borrower or the property:

Borrower-related reasons:

• Credit score: Low credit scores (generally below 620) are a major factor in loan denials. Having a history of late payments, delinquencies, or collections can negatively impact your score.
• Debt-to-income ratio (DTI): This ratio compares your monthly debt payments to your gross income. A high DTI (generally above 50%) indicates you have a lot of debt compared to your income, making it harder to afford a mortgage payment.
• Employment history: Lenders prefer borrowers with stable employment and income. Recent job changes, gaps in employment, or insufficient income documentation can raise concerns.
• Down payment: A smaller down payment increases the loan amount and loan-to-value ratio (LTV), making the loan riskier for lenders. In Kentucky, FHA loans require a minimum 3.5% down payment, while conventional loans typically require 20%.
• Insufficient assets: While not always a disqualifier, having limited savings or assets can weaken your application by reducing your financial cushion.

Property-related reasons:

• Appraisal value: If the appraised value of the property is lower than the purchase price, it creates a high LTV, making the loan riskier for lenders.
• Property condition: Major repairs or structural issues with the property could require significant investment before closing, which lenders may not be comfortable with.
• Location: Properties in floodplains or other high-risk areas may be ineligible for certain loan types or require additional insurance.

Here are some resources that can help:

• Reasons loan denied in Kentucky https://www.mylouisvillekentuckymortgage.com/2010/10/get-approved-for-mortgage-or-home-loan.html

Joel Lobb  Mortgage Loan Officer

American Mortgage Solutions, Inc.
10602 Timberwood Circle
Louisville, KY 40223
Company NMLS ID #1364

Text/call: 502-905-3708
fax: 502-327-9119
email: kentuckyloan@gmail.com

http://www.mylouisvillekentuckymortgage.com/

Variable Income for A Mortgage Loan Approval in Kentucky

How to get approved for a Kentucky FHA, VA, USDA and Fannie Mae Mortgage loan with Variable Income 

 Variable INCOME if your borrower is not hourly at 40 hours a week or salary do you fall within VARIABLE INCOME?? Yup we all dislike that is calculated by an averaging method..

Examples of income of this type include income from hourly workers with fluctuating hours, or income that includes commissions, bonuses, or overtime.

History of Receipt: Two or more years of receipt of a particular type of variable income is recommended; however, variable income that has been received for 12 to 24 months may be considered as acceptable income, as long as the borrower’s loan application demonstrates that there are positive factors that reasonably offset the shorter income history.

Frequency of Payment: us as a lender must determine the frequency of the payment Examples:
If a borrower is paid an annual bonus on March 31st of each year, the amount of the March bonus should be divided by 12 to obtain an accurate calculation of the current monthly bonus amount.

Note that dividing the bonus received on March 31st by three months produces a much higher, INACCURATE monthly average.

If a borrower is paid overtime on a biweekly basis, the most recent paystub must be analyzed to determine that both the current overtime earnings for the period and the year-to-date overtime earnings are consistent and, if not, why.

There are legitimate reasons why these amounts may be inconsistent yet still eligible for use as qualifying income. For example, borrowers may have overtime income that is cyclical (transportation employees who operate snow plows in winter, package delivery service workers who work longer hours through the holidays).

We must investigate the difference between current period overtime and year-to-date earnings and document the analysis before using the income amount in the trending analysis.

Income Trending: After the monthly year-to-date income amount is calculated, it must be compared to prior years’ earnings using the borrower’s W-2’s or signed federal income tax returns (or a standard Verification of Employment completed by the employer or third-party employment verification vendor).

If the trend in the amount of income is stable or increasing, the income amount should be averaged.

 If the trend was declining, but has since stabilized and there is no reason to believe that the borrower will not continue to be employed at the current level, the current, lower amount of variable income must be used.

If the trend is declining, the income may not be stable.

Additional analysis must be conducted to determine if any variable income should be used, but in no instance may it be averaged over the period when the declination occurred.

Joel Lobb  Mortgage Loan Officer

American Mortgage Solutions, Inc.
10602 Timberwood Circle
Louisville, KY 40223
Company NMLS ID #1364

Text/call: 502-905-3708
fax: 502-327-9119
email: kentuckyloan@gmail.com

http://www.mylouisvillekentuckymortgage.com/

NMLS 57916  | Company NMLS #1364/MB73346135166/MBR1574
Get Approved Now Click Here

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 view of my employer. Not all products or services mentioned on this site may fit all people.
NMLS ID# 57916, (www.nmlsconsumeraccess.org).