Louisville Home Mortgages
If you read the blogs or listen to the news reports, it seems that getting a Louisville home mortgage has become a near impossible task. Banks and mortgage lenders have enacted tough new regulations, you’ll read. They’re rejecting the loan applications of all but the most financially healthy consumers, you’ll hear.
The truth? Lenders are being more cautious when it comes to approving borrowers for mortgage loans. But this doesn’t mean that qualifying for a loan has become impossible. You’ll need just three things to earn approval for a mortgage loan today: solid credit, low debt-to-income ratios and steady employment.
Your three-digit credit score has become a key number for mortgage providers. This number tells them instantly how well you’ve managed your credit in the past. If you have a history of paying your bills on time, your credit score will usually be higher. If you have a history of missed payments and high credit-card debt, your score will be lower.
Generally, mortgage lenders reserve their lowest interest rates for those borrowers with credit scores of 740 or higher on the popular FICO credit-scoring system. Those borrowers with scores under 620 will struggle to even gain approval from conventional mortgage lenders.
There is hope for those borrowers whose credit scores have been damaged by late payments, past bankruptcy filings or foreclosures: It is possible to improve even the shakiest credit scores. It just requires making sound financial decisions.
Pay your bills on time. Reduce your credit-card debt. Close open credit-card accounts that you no longer use. These steps will help your credit score rise. Just don’t expect overnight results. It takes time to repair a damaged credit score – sometimes years – and it might make financial sense to wait to apply for a mortgage loan until you’ve taken that time.
Lenders will also look at two debt-to-income ratios when deciding whether you are financially healthy enough for the responsibility of a monthly mortgage payment.
Your front-end ratio calculates how much of your gross monthly income – your income before taxes are taken out – that your monthly housing payment, including principal, taxes and interest, consumes. Generally, lenders want your mortgage payment to take up no more than 28 percent of your gross monthly income.
Your back-end ratio looks at how much of your gross monthly income all of your monthly debts – everything from minimum credit-card payments to student-loan payments and car-loan payments – take up. Most lenders prefer to work with borrowers whose total monthly debts equal no more than 36 percent of their gross monthly income.
Lenders want to make sure that your monthly income stream is steady. That’s why they prefer working with borrowers who have worked in the same job, or at least in the same industry, for at least two years. Such borrowers, lenders assume, are less likely to lose their jobs and a major source of their monthly income.
This doesn’t mean that self-employed people or borrowers who have recently changed jobs can’t qualify for a mortgage loan. When you apply for a mortgage loan, lenders will ask for copies of your last two to three years of income tax returns. This will help them determine just how steady your gross monthly income has been over the years.