If you want to buy a home in Kentucky in 2019, please check your credit score and see if you will qualify.
Before applying for a loan and certainly before ever making an offer on a house, you should know your credit score. Why is your credit score important? Well, it’s not only the difference between getting a low-interest rate on a home loan versus a high one, but it will also directly impact how much a bank or lender will actually loan you. There are several websites you can use to check your credit score, here are a few to consider: TransUnion, Equifax, Experian.
You can check your own score as much as once a day without affecting your credit, also known as a soft inquiry. Hard inquiries are when financial institutions check your credit score, typically when you’re applying for a loan or credit card. Hard inquiries lower your credit score a few points, so try to keep hard inquiries to a minimum.
Maybe you just checked your credit score and realized it’s not as high as you had expected. Don’t worry, there are a few things you can do now that will help raise your credit score so you can capitalize on a great interest rate.
Though you can easily implement steps to help your credit score, fixing or raising a credit score doesn’t happen overnight. It’s imperative to start now so when you go to apply for a home loan your credit score will (hopefully) be where you want it. Here are three tips to help improve your credit score, and recommended by John Heath, Directing Attorney at Lexington Law:
- Obtain and Closely Review Your Free Credit Report: In order to improve your credit score, you first need to know what information is on your credit report. The Fair Credit Reporting Act (FCRA) gives you the option to obtain a free credit report from each of the three nationwide consumer reporting companies once every twelve months. Your credit report contains information including your current and past residences, how you pay your bills, bankruptcies, foreclosures and more. Obtaining and understanding the information on your credit report will help you know what you may need to address in order to improve your credit score.
- Use a Credit Report Repair Company to Dispute Errors: Your credit history is 35 percent of your FICO score, and according to a 2013 study by the Federal Trade Commission (FTC), more than 40 million Americans have something that is incorrect on their credit report. While a late payment or derogatory mark from a creditor may seem harmless, it can have long-standing consequences, in some instances staying on your report for seven years. If you have errors on your credit report, consider working with a credit repair company, who can navigate the complexities of credit repair, contact the credit bureaus on your behalf and help remove any errors as quickly as possible.
- Spread Credit Card Debt Across Multiple Cards: If any of your credit cards are close to the maximum utilization point, it will be a red flag to lenders, who see this as an indication that you could be having financial issues. If you have multiple cards, spreading the balance out between them could make sense. For example, instead of having one card that is 90 percent maxed out while two other cards have a zero balance, having a 30 percent balance on each card can help your credit score. Reducing overall debt is always the best option, but spreading out your balance can have a positive impact.
“Improving one’s credit score may take time, but it can be done. Bad credit is not irrevocable,” said Heath. “Developing good habits and repairing your credit report will help increase your credit score so you’re able to secure a home loan or a great interest rate with confidence.”
Credit scores are an important part of these Main Kentucky Mortgage programs eligibility criteria, other conditions will apply.
• FHA LOAN Kentucky
Minimum credit score: 500
Loans backed by the Federal Housing Administration (FHA) offer more flexible lending requirements than traditional bank loans. Borrowers with credit scores of 580 and above can get a home loan with a down payment as low as 3.5 percent. Borrowers will need a down payment of at least 10 percent with a credit score between 500 and 579.
FHA loans are available in 15- or 30-year terms, and rates may be fixed or adjustable.
FHA borrowers are required to pay both upfront and annual mortgage insurance. On a typical 30-year mortgage with a base loan amount of less than $625,500, the annual mortgage insurance premium would be 0.85 percent as of this writing. The current upfront mortgage insurance premium is 1.75 percent of the base loan amount.
• VA LOAN Kentucky
Minimum credit score: no minimum score
Veterans with poor credit have an additional option: loans backed by the U.S. Department of Veterans Affairs (VA). VA loans do not have a minimum credit score requirement. Instead, the VA requires a lender to “review the entire loan profile to make a lending decision.” However, because VA loans are offered by VA-approved lenders and not the VA itself, individual lenders may have their own requirements. The full loan can be financed with zero down if the borrower has a 560+ credit score with lender discretion.
VA loans are available in 15- or 30-year terms, and rates may be fixed or adjustable. VA loans do not require mortgage insurance, although there is a one-time funding fee. The funding fee
varies by the type of veteran and the down payment percentage, but it typically runs from 1.25 to 2.4 percent of the loan amount. Veterans receiving VA disability compensation are exempt from the funding fee. To apply, you’ll need a Certificate of Eligibility (COE).
• USDA LOAN Kentucky
Minimum credit score: 581 minimum score
One of the least known, most misunderstood, yet beneficial mortgages is a U.S. Department of Agriculture (USDA) guaranteed home loan. Many think of USDA Guaranteed Loans for very low income, small purchase prices, and only for properties way out in the country. Not so! Many U.S. properties are eligible and middle-income families often meet income limit requirements. Additionally, USDA loans are flexible when it comes to credit scores.
This program assists approved lenders in providing low- and moderate-income households the opportunity to own a primary residence in eligible rural areas. Eligible applicants may build, rehabilitate, improve or relocate a dwelling in an eligible rural area.
Most lenders underwriting USDA loans require a minimum credit score between 620 and 640 with no significant delinquencies, foreclosures or bankruptcies in the past several years.
• FANNIE MAE HOMEREADY PROGRAM
Minimum credit score: 620
The HomeReady program is offered by Fannie Mae, the largest backer of mortgage credit in America. Typically, the minimum credit score for a HomeReady loan is 620, but the program has special underwriting guidelines for borrowers without a credit score due to a lack of credit history. Down payments can be as low as 3 percent.
In these cases, the underwriter will look at “non-traditional credit sources.” These include rental payments made to a landlord or management company, utilities, medical insurance coverage, auto or renter’s insurance payments, cellphone payments, life insurance policies, medical bills, school tuition, child care, or personal loans obtained from an individual. The underwriter will look at these payments over a 12-month period to determine whether the borrower pays on time.
HomeReady offers fixed- and adjustable-rate mortgages. Fixed-rate mortgages are available in 10-, 15-, 20-, and 30-year terms.
The borrower must meet income limits that vary by property location. There is no income limit for properties in low-income areas as determined by the U.S. Census. For other properties, the income eligibility limit is 100 percent of the area median income. Eligible borrowers are required to complete an education program to help them understand the home buying process and prepare for homeownership.
If the borrower puts less than 20 percent down, they will be required to pay mortgage insurance, but the mortgage insurance requirement can be removed once the loan-to-value ratio reaches 78 percent or less.
Credit Score Minimum Requirement
- Conventional Mortgage minimum credit score
- Most lenders will require between 620
- Be prepared to pay steep mortgage insurance premiums monthly if your scores are below 660 to 680..Higher the score the better on Conventional loans
- FHA Mortgage minimum credit score
- Credit Score is a minimum of 500 if putting 10% down
- Credit Score is a minimum of 580 if not
- Everybody pays the same mortgage insurance on FHA loans so it is not credit score based. It is based on the term of the loan and not how much you put down or your scores.
|FHA Loans||Conventional Loans|
|Credit Score||Usually requires 500+ credit score||Usually requires 620+ credit score|
|Credit History||Shorter wait times after derogatory credit events like foreclosure, short sale, bankruptcy, and divorce||Longer wait times after derogatory credit events, though some lenders may be flexible depending on circumstances|
|Downep Payment||As low as 3.5%||As low as 3%, though there are advantages for a larger payment|
|Mortgage Insurance||Requires both a 1.75% upfront premium and 0.45%–1.05% annual premiums||Either a one-time payment or monthly fees from 0.55%–2.25% depending on credit, though these could be waived with a 20% down payment|
|Interest rate||Tends to have lower interest rates than conventional loans||Tends to have higher interest rates than FHA loans|
|Debt Ratio||Allows higher debt ratios than conventional loans||Allows lower debt ratios than FHA loans|
|Time for Approval||Often takes longer to process||Often takes less time to process|
Mortgage Loan Officer