Page 13 - How To Buy A Home In Louisville

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FAQs (Continued)

? What is an escrow account?

Sometimes mandatory, sometimes optional, an escrow account is like a savings account for
taxes and insurance. You send in some money every month with your mortgage payment
and the bank saves it for you in a special account and pays the bill when it’s time. If you do
not have an escrow account, you will be responsible for paying your own taxes and insurance
when they are due, usually in one lump sum, once a year. Your lender will tell you if an escrow
account is required for the type of loan you are receiving.

? What mortgage options are there for those with poor credit?

There are lenders available for many people with tarnished credit records. One of the mistakes
commonly made by homebuyers involves their credit report. Some buyers assume that their
credit is worse than it really is. Other buyers are unaware of problems in their credit report and
need to scramble to get the problems resolved. You can avoid many of these hassles by getting
a copy of your credit report up-front and examining it both for errors that need to be corrected
and for accounts that need to be handled.

? What if I don’t have any credit?

If you’ve never had a credit card or car loan in your name, some lenders will accept alternate
credit, like cell phone bills, utility bills, and rent bills paid on time.

? I hear about these different “ratios” when qualifying for a mortgage.
What are “front and back ratios”?

Part of the mortgage application process will be the determination of how much house you
can afford based on your income. The two ratios that will be computed are the front ratio and
the back ratio.

Front Ratio Back Ratio

Total mortgage payment including principal, inter- The total mortgage payment PLUS any car payments,
est, taxes, and insurance (PITI) as well as any con- credit card, and any other loan payments divided by
dominium or homeowner association fees divided your total GROSS income. Traditionally, this must be
by your total GROSS income. Traditionally, this ratio below 36%.
must be below 28%.

The River Valley Realty Group - How to Buy a Home in Louisville, Kentucky 11