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Advantages of Making Extra Mortgage Payments

A house is the biggest purchase most people make in their lifetimes. The mortgage they obtain to finance that house is likely the biggest single investment they will ever make.

Image showing a large home and yardEven with the popularity of shorter terms and creative loans, most mortgages are still the tried-and-true 30-year conventional variety. First-time home buyers staring down the gauntlet of 360 payments spread over the next three decades of their life can feel like there is no end in sight. And for those who dare to look at their amortization schedules, that no-end-in-sight feeling can be even greater.

But there is a way to get ahead of the game: making extra mortgage payments.

Why It Makes Sense to Make Extra Mortgage Payments

Why does it make sense to make extra mortgage payments? Put simply, you will save significant amounts in interest. Most mortgage contracts allow borrowers to make extra payments, and they allow all of the extra money to be applied to the principal amount of your loan. That means you are paying down the real amount of the loan – the money you borrowed – faster. Because the interest part of your loan is calculated on the amount of principal you still owe, reducing your principal amount greatly reduces the interest amount.

According to the web site interest.com, “a $200,000 30-year home loan with an interest rate of 5% would cost $186,512 in interest with the traditional 12 payments a year. Make the equivalent of 13 monthly payments every year, and the loan will be retired in 26 years and you will pay only $153,813 in interest — a savings of $32,699.”

That’s nothing to sneeze at.

How to Make Extra Mortgage Payments

When it comes to making extra payments on your mortgage, there are a variety of tactics that can be used. Each has the same goal in mind: to reduce the principal and, thereby, reduce interest.

The tactics for making extra mortgage payments include the following.

Accelerated Payment Schedule

Rather than making your mortgage payment once per month, or the equivalent of every four weeks, you could make payments every two weeks. This biweekly payment plan results in 26 half-payments, which is the equivalent of 13 full payments for the year. The extra payment each year can shave off eight years from a 30-year loan.

Extra Principal with Each Monthly Payment

If you’re looking to chip away at your mortgage at a more gradual pace, pay a little extra each month. Check with your lender to make sure the additional payment goes directly to the principal. Depending on how much extra principal you pay, you could shorten your loan significantly. And, best of all, because your are shortening the loan duration, you will save significant amounts in interest.

One Additional Payment Per Year

Another tactic is to make one additional, principal-only payment per year. Some people who do this use their income tax refund for this purpose.

One Additional Payment Per Quarter

Making an additional payment each quarter results in four extra payments per year. On a $220,000, 30-year mortgage with a 4% interest rate, you would cut 11 years off your mortgage and save $65,000 in interest.

Lump-Sum Payment

Applying a lump-sum payment toward your principal balance when you come into extra cash — a bonus at work, a sizable inheritance — can shave time from your mortgage. This approach isn’t as consistent as some of the other methods, but, if the lump payment is large enough and depending on where you are in your timeline, it can eliminate many years.

This blog post was written by experts at Mortgage 1. Michigan Mortgage is a DBA of Mortgage 1.

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Reasons to Sell this Summer

It’s (officially) summer in Michigan! The sun is shining and temperatures are rising.

For most of us, our air conditioners are running for the first time in months and we’re gearing up for an exciting 4th of July holiday at our favorite lake hangout.

Selling your home may be the furthest thing from your mind; if you’ve thought about downsizing or moving into a bigger home to fit your growing family, now may be the time.

Interest rates are low, home values are high and houses are moving quick in West Michigan.

Here are four reasons why you should consider selling this summer.

  1. There’s very little competition. If you were to ask any Realtor in the area, they’d tell you the same thing. There are not enough homes for sale to meet buyer demands. According to experts, housing inventory is under the 6-month supply that is needed for a “normal” market.
  2. Buyer demand is high. Buyers are on the hunt for their dream home! At Michigan Mortgage, we have a number of pre-approved buyers that have yet to write an offer. According to the National Association of Realtors (NAR), properties were on the market for an average of 26 days in May and 53 percent of homes sold in May were on the market for less than a month.In West Michigan, homes are going under contract before Open Houses are able to be scheduled. Yard signs are changed to “Sold!” in the matter of days.
  3. The home you hope to buy will continue to appreciate. According to NAR, “The median existing-home price for all housing types in May was $277,700, up 4.8 percent from May 2018 ($265,100). May’s price increase marks the 87th straight month of year-over-year gains.” If you’re looking to move up and into a bigger home, you will need to spend more in 2020.Lawrence Yun, NAR’s chief economist said this: “Though inventory is up, the month’s supply numbers remain near historic lows, which has a direct effect on price. Solid demand along with inadequate inventory of affordable homes have pushed the medium home price to a new record high.”
  4. Interest rates are low. Over the past few months, mortgage interest rates have been on a steady decline. This isn’t expected to change. Not only has this trend transformed renters into buyers, it has benefitted sellers when they purchase their forever home.

Summer is here and it’s time for you – and your family – to start living the life you’ve always dreamed of!

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Five Reasons You Should Consider Refinancing

There are many great reasons to refinance an existing mortgage. Mortgage interest has historically been treated differently than all other debt. In fact, mortgage debt is the only debt eligible for a reduction in federal income taxes.

Done correctly, refinancing can be a good financial move (always consult a financial adviser first, of course). Once you’ve decided to refi, reach out to a Michigan Mortgage professional to get the process going.

Here are 5 reasons to refinance.

Your credit score has improved since the original mortgage closing. Normally just adding a mortgage account that has been paid on time for a year or more can have a significant positive impact on an individual’s credit score. Mortgage rates are discounted for every 20-point increase in borrowers credit score up to 740. Depending on how much higher a consumer’s credit score has improved, the potential savings could be substantial, especially if combined with reason number two.

Your originally purchased with less than 20 percent down and you are paying Private Mortgage Insurance (PMI). Refinancing can be a great way to remove those extra premiums for their monthly payments. Since 1991, home values have increased an average of 3.3 percent each year, according to the Federal Housing Finance Agency’s (FHFA) House Price Index (HPI). Just in the past year, home prices went up an average of 6 percent across the country.

You want to reduce the terms of the loan. When combined with number one and two on this list, a borrower could actually get a similar payment with a big reduction in years left to pay their mortgage. Going from a 30-year to a 15-year mortgage can result in thousands of dollars of interest savings over the life of the loan.

You want to combine high-interest loans to a lower, tax-deductible payment. Student loans, personal loans and auto loans traditionally are secured with higher interest rates than mortgage loans. Refinancing and paying off higher-interest loans can be a great way to simplify the number of payments made each month and reduce overall monthly payments.

You want a low-cost source of cash for home improvements or investments. Home improvements can improve the value of the home and many investments that pay higher than the after-tax cost of can provide a source of income over the cost of a mortgage.

A consumer’s best move to always to sit down with a Michigan Mortgage professional to determine the best course of action and match their mortgage to the consumer’s goals. If you would like to start, just call.

This blog post was written by experts at Mortgage 1 and originally appeared on www.mortgageone.com. Michigan Mortgage is a DBA of Mortgage 1. 

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Mistakes to Avoid When Shopping for a New Home

Shopping for a new home can be one of the greatest experiences of a lifetime! When you venture out to purchase a home, make sure you set yourself up for success and an amazing experience.

Avoid these common mistakes:

  1. Not having your financing in order when you are ready to make an offer. It is critical to have a pre-approval from a trusted lender. Especially in a low inventory, competitive market, the buyer who has financing in place is ready to write the offer and “win” the home. So, don’t put yourself in the position of falling in love with a home that you aren’t able to bid on quickly!
  2. Not taking the time to educate yourself by window shopping and researching the market. Noel Berg with At Home Realty says, “A critical step in home buying is going to Open Houses, driving through neighborhoods and having a Realtor who educates you on home values so that you feel comfortable and confident when you find THE home! The more properties you can visit, the more confident you feel making an offer!”
  3. Submitting a low-ball offer. Make sure you look at all of the variables before making a low-ball offer. How long has the home been on the market? If it’s a seller’s market, it’s probably off the table. Does the house need updates, making it over priced? Your Realtor can craft an offer that won’t be too aggressive or offensive in the current market.
  4. Including too many contingencies. Contingencies are basically “walk away” clauses. It is important to protect your own interests, but, typically, the more contingencies in your offer, the less enthusiastic the seller may be to deal with you, especially in a seller’s market. Your Realtor will guide you as to which contingencies are the most critical to protect your interests.
  5. Using the seller’s agent. A real estate agent’s loyalties and responsibilities change depending on the transaction. A seller’s agent works for the seller to get the highest amount of money in the shortest period of time. Their fiduciary responsibility is to the seller at all times. The buyer’s agent works with the buyer to teach their clients about the market, to show them houses, and advise them when it comes time to make an offer and negotiate with the seller.
  6. Blindly listening to friends and family members. Though your friends and family have your best interests at heart, unless they are a Realtor, they are simply not experts; often times offering inaccurate and incorrect advice.
  7. Buying a home that is too expensive. Many buyers get their pre-approval letter and set out to look at houses at the top of the price range without thinking it through. It is important to work through a budget, and evaluate your spending habits and the increased cost of owning a home.
  8. Letting your emotions guide you. Purchasing a home will likely be one of the biggest and most important purchases in your lifetime. So, it makes sense that there will be emotions, concerns and questions weighing on you during the process. Make sure you take the top seven guidelines seriously so that you are empowered by logic, market awareness and professional advice!

A professional lender and Realtor will guide you home with confidence and authority.

Image showing a family in their new home.

Own a Home with Only 3 Percent Down

Can you really own a home with 3 percent down?

Yes, yes you can!

The 3 percent down payment option is similar to existing conventional loan programs with much higher requirements. This program, however, can better serve first-time homebuyers because of the following.

  • The mortgage provides the security of a fixed-rate loan.
  • The property can be a one-unit single family home or condo.
  • At least one borrower has not owned a home in the last 3 years.
  • The property will be the new owner’s primary residence.
  • The loan amount is below $453,101.

According to the National Association of Realtors, the average home price is around $250,000. The 3 percent down conventional loan is a great way to expand homebuyers purchasing power.

According to Fannie Mae’s Loan Level Price Adjustment (LLPA) graph, borrowers can have a score as low as 620 to qualify.

Interest rates can be appealing as well.

These loans include rates only about one-eighth to one-quarter of one percent higher than rates available to borrowers putting 5-10 percent down.

Is it worth it to try and save more? The time it takes to save an extra 2 percent for a larger down payment could mean higher home prices and tougher qualifying conditions in the long run.

Are you ready to find out your options? Contact one of our Loan Officers to learn more.

This blog post was written by experts at Mortgage 1 and originally appeared on www.mortgageone.com. Michigan Mortgage is a DBA of Mortgage 1. 

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Finding it hard to save for a down payment?

Making small changes to your habits can make a big difference in your ability to save. Saving takes some pre-planning and discipline and a well-executed strategy.

Here are a few ideas to help you save.

  1. Take it right out of your paycheck and transfer a fixed amount into a special savings account. This is probably the most convenient and practical way to save. Take it right out of your paycheck. Make sure you set up an automatic direct deposit into a savings account that is earmarked for your down payment only. Commit to using this money for a down payment and no other purpose.
  2. Take advantage of special programs including down payment assistance programs. Check with your lender to see what type of down payment assistance programs they offer. See if you qualify with the FHA, the U.S. Department of Agriculture Rural Housing Service and the Veterans Administration. Also, check out local housing authorities, such as MSHDA. If the lender doesn’t offer these programs find a knowledgeable, reputable local lender that specializes in these programs.
  3. Skip vacations for a year. Make if a fun goal to forego any large vacations. Plan a staycation, or a night somewhere, and focus on how great it feels to get closer to your goal.
  4. Lower your expenses. Look at your budget to see what small things you can cut per month. Cut out a coffee per week, make your own pizza on Friday night. If you don’t have a budget, sit down and make one and evaluate it quarterly to see how you are doing. Shop at Costco, Aldi and other discount stores.
  5. Sell your stuff on EBAY or Craigslist. If you have Designer clothes, furniture, antiques, art, gaming devices that you barely use, consider selling them and putting the proceeds in your down payment account.
  6. Start a Side Hustle. Commit to a temporary period of time and put all of the money in your down payment account.
  7. Ask for a raise. If you’ve been thinking about a raise, and feel you deserve one, now may the time to talk to your superior about the value you bring to your organization.
  8. Use gift money. Parents or relatives may be able to gift money to help out a first-time home buyer. Gifts can come from your family, spouse or a domestic partner. Be sure to include the amount of the gift on your loan application and check with your lender as the best way to obtain and track this. To be recognized as a “gift” the donor will have to sign a gift letter saying there’s no expectation of repayment, interest, or anything else.
  9. Be wise with your money. Think about your purchases before you make them. Are there cheaper brands at the grocery store that are the same quality as the premium brand? Are there restaurants that offer the same quality and experience that are a little less expensive? Do you need another tan sweater? Be mindful about your purchases and avoid impulse purchases.
  10. Use your tax refund. Set aside a percent of your tax refund to deposit into your down payment savings account.

For more ways to save for a down payment, reach out to our team at Michigan Mortgage. We’re here to help in any way we can.

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Home Maintenance Checklist: Leave Buyers with a Great Impression

First impressions matter!

According to the National Association of Realtors, the average home buyer will look at 10 homes before making an offer. When a potential homebuyer walks in to your home, how will your home make a positive and lasting impression?

Most buyers are looking for a move-in ready home that appears to be well maintained, with ample storage, and it’s the little things they notice when assessing the over-all condition.

Make sure you inspect your home through the eyes of these potential buyers, then fix the most obvious items. Take inventory of all repairs and get to work.

  • Make sure all door hardware is in working order and replace if necessary.
  • Do all windows open easily and have a secure window lock?
  • Reglaze bathtubs if needed. This is a very easy, inexpensive but important fix.
  • Make sure caulking is clean and applied well in bathrooms and kitchen.
  • Repair any cracks in ceilings and walls.
  • Fill in any holes left by picture hangers and wall art.
  • Touch up painting in all rooms.
  • Replace shower head with a new, clean one.
  • Repair any leaking faucets or supply valves.
  • Make sure all outlets and light switches are working.
  • Replace old, dirty and paint covered electrical covers with new ones.
  • Put the correct bulbs in light fixtures and make sure there are no bulbs burned out.
  • Buyers are looking for neutral colors, so if there are boldly colored rooms, repainting in neutral tones will be helpful.

Cleaning and Decluttering

  • Remove clutter. Picture frames, accessories, files, books, small appliances should be removed from counters.
  • Scrub all surfaces.
  • Make sure your home is free of all smells including animals, food, cigarette smoke, etc.
  • Clean all baseboards.
  • Clean all light fixtures and ceiling fans.
  • Clean windows and sills inside and out.
  • Clean all closets and keep them tidy and clean.
  • Have carpets professionally cleaned and/or replaced if necessary.
  • Hardwood floors should be mopped and oiled.
  • Dust blinds.
  • Replace old, moldy shower curtains.
  • Remove grease and grime from kitchen cabinets and appliances.
  • Make sure cupboards and drawers are wiped out and clutter free.
  • Make sure garage can house cars not boxes and junk.

Enlisting a reputable Realtor will insure that your home is in tip top shape to sell. Your local Realtor knows what homebuyers in your area are looking for!

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Can you get a mortgage with no credit?

Sometimes young clients who have not established credit are interested in getting home financing. Other times, clients who have never taken out any credit and pay cash for everything decide it is time to buy but don’t have enough cash.

How did those folks get into a home loan?

With most sub-prime loans going by the wayside, options for these people are limited but not completely closed.

FHA has a no credit loan when a borrower has no credit score but can prove a 12-month pay history on three lines of non-traditional credit.

For example, if someone has utility bills, car insurance, rent, or even something like Netflix, they may be able to get financing. We simply have to get the pay history from the creditor to show they have been on time for 12 months. Note that if they have any derogatory credit like collections, they can negate this option.

Oftentimes, clients with no score also have no non-tradition credit they can add. These clients will need to establish a score. This is not as difficult as it sounds.

If they cannot get a traditional credit card, they may be able to get a secured credit card. Most banks and credit unions will give a credit card that is secured by cash. There may be a minimum amount required, but usually $300 deposited with the bank can secure a card. The consumer then uses that card just like any other credit card to establish credit. This will take about six months and will be good credit for them as long as the balance is under 30 percent of the high credit limit when credit is pulled.

Pitfalls: Many people think that paying off derogatory credit (like collections) or closing out accounts with late payments is s good thing. While this may be the right thing to do, it may not help their score. Having new activity on a derogatory account can often LOWER the score!

Every situation is unique. That is why a consultation with a knowledgeable advisor is the best course of action. Call us for more details on how to establish credit and what is not advisable given your situation.

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Success Story: Laura McCarthy

As part of our “Success Story” series, we’d like to introduce you to Laura McCarthy, a woman that doubted her ability to achieve the American Dream of homeownership but trusted Michigan Mortgage to guide her home. This is her story.

Homeownership is a dream for many, especially for those looking to provide a safe and stable environment for their children.

Some know the dream is in reach while others question their ability to make the large purchase at every turn. Laura McCarthy was one of those people. She thought homeownership was something she may never achieve.

“As a single mom, to be honest, I did not think I would be able to purchase a home given my past credit history,” Laura said. “I was renting and my money was going nowhere with nothing to show for it. I was hesitant and extremely nervous and thought the people at Michigan Mortgage would laugh me out of their office.”

Much to her surprise, that wasn’t the case at all. It was far from it, actually.

“Dave Lehner and I are old high school chums,” she said. “I knew he would be willing to help me and be able to tell me if my dream was a possibility. He instantly put my fears aside explaining my options and being honest in what I should do with what I could afford.”

Laura knew she was in the right place. Not only did she trust the guidance offered by Dave and his team, she worked with a Realtor that was also a friend.

“I chose to work with Amy Rudholm because of her expertise in the field, her patience, her knowledge and willingness to help me find exactly what I needed and to be sure I was making the right decision,” Laura said.

“Amy told me many times ‘it’s my job to get you exactly what you want’ and she went above and beyond in making that happen,” she continued. “We looked at many homes and she gave me her honest opinion and we kept moving forward. The home I chose was for sale by owner and Amy did not hesitate to work with the sellers and was diligent in making sure I got exactly what I wanted!”

“The inspection process was a bit overwhelming, but once again, Amy was there every step of the way and put my mind at ease.”

Dave and his team made sure to be available anytime Laura needed a little help.

“I had lots of questions every day and no one from the Michigan Mortgage office ever made me feel like I was crazy or bothering them at any time,” she said. “They answered all of my questions and kept me updated daily with emails that were encouraging.”

“Jill, Ronda and Team Lehner were amazing to work with and treated me like family.”

When we received the final clear-to-close, it was a celebration for all!

“It was smooth and quick and before I knew it, we were closing and celebrating,” Laura said. “I happened to be out of town the day I could get the keys and move in, so thanks to my family and Amy’s connections, they made it happen so that I came home to my new house ready to move in!”

Laura, Taylor and Lindsay (her two beautiful children!) have had nothing but fun in their new home. It’s the only place they want to be.

“I cannot thank Michigan Mortgage enough,” Laura said. “Top notch, stellar organization and would (already have) recommend them to anyone looking to purchase a home that needs a little extra help and guidance along the way like I did.”

Laura can’t thank Amy and Dave enough for helping make her dream home a reality.

Image showing an updated kitchen

HELOC vs. Cash-Out Refinance

The mortgage industry has one flaw: There is no built-in way to access equity.

For many home owners who want to use their equity to pay off debt, start a business, invest in the market, or just use the money for purchases, they cannot unless they take out another loan. The two most popular ways to do this is with a home equity line of credit (HELOC) or a cash-out refinance.

A HELOC is a second mortgage secured by your home. A cash-out refinance is a first lien mortgage that “cashes out” some of your equity in your home. Which is better depends on your situation, the market and your goals.

Here are a few factors that might help make the decision easier for you and your family.

1. Take a look at your current interest rate. If your mortgage interest rate is low compared to the current market and you are borrowing a low amount compared to what is owed on your first mortgage, a HELOC maybe you best option. Why? Although the equity line is higher interest, it is only on a relatively low amount and you can keep your low rate on your first mortgage.

If current rates are lower than your first mortgage or if you are borrowing an amount approaching 50 percent of the current amount owed on the mortgage, it may be better to do a cash-out refinance. This is because the equity line interest is generally higher than the current market rate could make your payment higher. Additionally, because the equity line is generally adjustable, there is a risk that volatility will make your payment unpalatable.

2. Analyze payment vs. interest savings vs. risk. If your ultimate goal is to keep your payment as low as possible, an equity line might be a good choice. Remember, the equity lines are usually interest only and therefore the monthly payment stays relatively low. However, there is a risk in them because they are also adjustable.

If you’re goal is to pay your mortgage off as quickly as possible and pay the least amount of interest, a cash-out refinance is often times better. Again, this is because you pay both principal and interest on cash-out refinances and they are fixed rates.

3. Pay attention to costs. If the up-front costs are a determining factor, the equity line is the way to go. HELOCs are generally free, whereas, a cash-out refinance will add principal to your current mortgage.

4. Keeping it all in one loan. Many people do not like the idea of having two different loans. Even if the equity line is with your first mortgage servicer, there will be two different loans with two different payments and two different statements. These will also have different terms and most likely different rates. On a cash-out refinance there will all be one loan, one term and one rate.

When determining whether to do an equity line or the cash-out refinance it is important to determine long term goals, what your current needs are, and which option will put you in a better position in the long run.

Talk to a trusted advisor to help you navigate your best options.