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How to Save for a Down Payment

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Even if you don’t plan on buying a house for several years, you have probably started thinking about how to save for a down payment. Saving for a down payment means slowly setting aside small amounts of money and there are a number of ways to do that.

1. Plan ahead. Before you begin saving for a down payment for a home, you first need to know approximately how much you will have to save. Plan to sit down with a mortgage lender who will let you know what you qualify for.

In general, your housing expense should not exceed 29 percent of your monthly income. So, if your monthly income is $3,750 you can safely allocate $1,087 to your future house payment.

The $1,087 will include mortgage principal and interest, homeowners insurance, private mortgage insurance (PMI), real estate taxes and homeowners association (HOA) dues, if any. With interest rates at about 5 percent, this will put you into a mortgage loan ranging from $130,000 to $140,000.

To arrive at the amount that you can afford to pay for a house, you’ll have to add the down payment on top of that. So, if you are putting 5 percent down you would be looking at a sales price of about $135,000 to $145,000.

2. Determine your timeframe and budget. You will have to make some room in your budget to make sure that your savings are doable. Managing a tighter budget is a good way to prepare you for managing the type of tighter budget that home ownership requires.

3. Find the best way to save your down payment. Typically, since the money that you are investing will be used in a specific time frame, you should not save in a risk type investment (stocks). Instead, the money should be saved in a safe vehicle like your savings account or short-term CD.

4. Set up an automated savings plan. Set aside a certain percentage of or dollar amount of your regular pay to go directly into a savings account or money market account. This will remove the temptation and ability to spend the money for other purposes.

5. Windfall savings. You can shorten the savings period by including income tax refunds, gifts received, bonuses, and large commission checks and even the sale of personal assets into your down payment savings account.

If you have questions about down payments and costs associated with owning a home, please reach out to your trusted mortgage lender.

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Tips to Establish Credit for the First Time

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Picture this: You live rent-free with a family friend, own your car outright, you are debt free and pay everything in cash and all the while you have been able to save thousands of dollars since starting a new job three years ago.

You’re in the perfect position to buy your dream home. Right?

Not exactly.

“Before applying for a mortgage, clients really need to understand the importance of having established credit and having a good credit score,” said Jill Dobb, loan officer assistant at Michigan Mortgage. “Buying a home requires you to have credit and the better the credit score the better the interest rate you will qualify for.”

“Many believe that just because they don’t have any debt, they are ready and financially capable of financing a home, which oftentimes is not the case.”

Living debt free is a goal for many, but in the eyes of the credit bureaus, debt free sometimes means you’re a credit “ghost,” meaning you’ve been inactive and nothing has reported to the bureaus for six months.

If you’ve had your credit pulled by your trusted mortgage lender and your score comes back 0, Dobb offered a few pieces of advice.

“We suggest that our clients with a zero credit score apply for a credit card or get a secured credit card at any national bank,” she said. “They need to use that card wisely to obtain a good credit score.”

“We recommend keeping all of your credit card balances below 30 percent of your credit limit and make sure all of your payments are made on time.”

If you have absolutely no credit score with all three credit bureaus, it will take a full 6 months to obtain a score with a revolving line of credit.

If you need additional information about credit improvement, or are interested in getting pre-approved for a mortgage, give us a call. We’d be happy to guide you in the right direction.

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When is the right time to lock in your interest rate?

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Interest rates can be tricky. They change often, rising and falling with the market.

We want to make sure you’re getting the best rate possible, and we do that by locking your rate. How and when do we lock? Not all lenders are created equal, as you will see, but we wanted to take some time to explain our thoughts on the issue.

How do we know when to lock?

As interest rates continue to rise and the market becomes more volatile, it is more important than ever that your interest rate is locked at the right time.  So, when is the right time to lock? This article will discuss what goes into deciding when, and under what circumstances your loan should be locked.

There are two timing questions that should be considered.

  1. How far in advance of closing should you lock?
  2. How do you know if the market is getting better or worse?

How far in advance of closing should you lock?  

What many people don’t know is that a shorter lock duration generally gives you better pricing than a longer lock duration. I am not talking about the term (30-year loan v. 15-year loan) but rather the number of days the locked rate is secured before the closing happens. In other words, at any given time of day, if you lock for 15 days it is better pricing then if you lock for 30 days. This is the case regardless of the term of the loan.

One might deduce that it makes more sense to wait as long as you can (just before you close) to lock your rate. That might be a good strategy in a stable market, but not when rates are getting worse.

I think the old saying “pigs get fat and hogs get slaughtered” applies here.

I like to lock loans as soon as possible so long as you are willing and able to close within 30 days. Because the market is finicky, I would rather take what is available now rather than risk market shift and a higher rate. If the closing is farther out than 30 days, I usually wait a bit to lock unless there are some very strong indicators of increasing rates. This is because a longer than 30-day lock carries with it a higher rate regardless of what the market does.

Playing the Market

But How do you know if the market is getting better or worse?  The short answer is… you don’t.

After 22 years in the business, I still rely heavily on experts to tell us where the mortgage market is going. We actually subscribe to a service that alerts us to lock our clients’ rates when the market is getting worse and to float when there is evidence it will get better or remain neutral. This is invaluable in a market like we currently have.

For example, in the last few weeks rates have increased four times. Each time before those rates moved, I was able to lock any loans that where floating and where scheduled to close in the next 30 days. Some of them I was able to lock on 15-day lock, thereby saving my clients thousands of dollars.

One last thought.

Clients that use lenders that cannot close within 30 days are at a significant disadvantage. Those that cannot close within 45 are even more vulnerable to a changing market. It is more important than ever to have a lender that can close quickly, watches rates and utilizes all technology available to them to make sure the client gets that best the market has to offer.

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Why a Doctor Loan?

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For a new physician excited about the possibility of buying a home but carrying the weight of heavy student debt, a physician mortgage can be a great springboard for entering the housing market.

The physician loan (also known as a doctor loan) is designed to help a unique population that often has a high amount of student loan debt and minimal savings, as well as a new job contract that is required by lenders.

These loans are available for doctors, dentists, podiatrists, ophthalmologists and veterinarians.

The main advantages of doctor loans are access to financing with little to no money down and no required private mortgage insurance.

For new physicians, doctor loans offer a fast path to home ownership that would not be available otherwise. Last year, 84 percent of graduates from medical school reported having student loan debt; the median amount was $190,000 (according to the American Association of Medical Colleges).

Here’s a list of the program highlights.

  • 15-year fixed
  • No Mortgage Insurance
  • Loan amount up to $650,000
  • Minimum Credit Score: 700
  • Not available for Construction Loans
  • Not available for investment properties, second home or manufactured housing
  • Maximum 50 percent debt-to-income ratios

The perks of doctor loans are appealing for medical professionals who are ready to settle down after the grueling years in medical school and residency.

Physician loans are not a on size fits all option. It is important to sit down with a trusted mortgage professional and consider your individual situation to decide whether or not one is right for you.

For more information about doctor loans, visit www.michmortgage.com or contact one of loan officers. We’re here to help.

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MSHDA $15,000 Down Payment Assistance Program for First-Time Home Buyers

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Note: Funds for this program have expired. Ask us about MSHDA’s $10,000 Down Payment Assistance program!

The Michigan State Housing Development Authority (MSHDA) introduced a new down payment assistance program for eligible, first time home buyers purchasing in the 49442 zip code.

The “Step Forward Down Payment Assistance” program is a $15,000 forgivable loan and is to be used in conjunction with the MSHDA MI Home Loan first mortgage for first time buyers.

We’re happy to introduce the program because, unlike the current MSHDA down payment assistance program, it’s a forgivable loan. In five years, if the borrower still occupies the home as their primary residence, the loan is completely forgiven. The loan is forgiven 20 percent each year until the five-year mark is reached.

Additionally, it’s a complete $15,000 and can be used towards the down payment, closing costs and escrows. If there is money left over, we will use it to reduce the principal loan balance on the new mortgage.

The new program can be used with FHA, Rural Development, VA and Conventional MSHDA MI Home Loans. According to MSHDA, the interest rate is typically lower than the other down payment assistance programs offered.

MSHDA allocated $20 million for the Step Forward Down Payment Assistance program and funds will be distributed on a first come, first served basis. The program is available in 61 eligible zip codes in 10 Michigan counties. The sales price limit follows MSHDA MI Home Loan guidelines and is $224,500 for the entire state. Contact us for a complete list of eligible zip codes.

The Step Forward Down Payment Assistance program will be available for new purchases on or after October 8, 2018. Eligibility is based on credit score, total household income, appraised value of the home available for purchase and more according to MSHDA guidelines.

If you have questions, or to see if you qualify for the Step Forward Down Payment Assistance program, give us a call at 231-799-2606. We’re here to help!

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How is the value of a home appraised?

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You’re pre-approved for a mortgage, you found your dream home and put in an offer. It’s been accepted! Before you can take possession, an appraisal is necessary.

Will you be able to move forward with the purchase? That depends on the loan-to-value of the home you’re pursuing.

Here’s what Eric Ridlington, owner of Prestige Appraisal Service, had to say about the process.

Michigan Mortgage: How is the value of a home appraised?

Eric Ridlington: Simply put, an appraisal consists of a comparison of your home to the most similar, recent and nearby sales in a given area. The appraiser will view your home inside and out, and use that for the basis of selecting comparables.

MM: What factors do you look at when appraising a home?

ER: The appraiser should consider all features including – but not limited to – the site, design, quality, condition, size, room count, added features and overall appeal to the market. An appraiser should consider all factors of a home and/or property as the typical buyer would, but also with a professional eye because of their experience in their given market and neighborhood.

MM: Why is the appraisal value so important in the lending process?

ER: The value of your home assists the lender in determining to approve your loan or not, or to what extent to agree to lend. Meaning, how much money to lend you. They’ll use the appraised value to calculate loan-to-value.

MM: Thanks for the great information! If a seller is interested in increasing the value of their home, what updates or upgrades should be made?

ER: The most common updates which impact value are the big items such as siding, kitchens, bathrooms, etc. However, to get a big bang for your buck, flooring, paint and light fixtures go a long way because those items cover such large areas and painting can be done without a professional in most instances, if you’re willing.

Not only is Eric Ridlington an appraisal expert, he’s also a professional member of our Service Rewards program that offers home discounts for honorable service. Why?

“The Service Rewards program appeals to me because it benefits many people who work in the community in careers which help so many people,” he said. “I see it as an opportunity to say thank you for their service.”

If you have questions related to the appraisal of your home, give us a call at 231-799-2606 or visit our website. As always, we’re here to help!

Could an FHA loan be the loan for you?

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What is an FHA loan?

FHA stands for the Federal Housing Administration, which is a government agency. The FHA was created by the Housing and Urban Development Department (HUD) to increase homeownership in the U.S.

This loan was designed to allow more home buyers to qualify for home loans by allowing for lower credit scores and lower down payment requirements. FHA loans only require 3.5 percent down payment and in some circumstances, allow for credit scores as low as 580. The borrowers are required to pay mortgage insurance monthly (calculated at .85 percent of the loan amount) as post of the total payment.

FHA Credit Score Requirements

To qualify for a loan, the FHA may allow for credit scores under 580, but the borrower typically has to put more money down as most lenders do not wish to assume the risk, especially after the housing crisis of 2008. If your credit score is below 580, it is highly recommended that you improve your credit score before applying for a mortgage.

Who are candidates for FHA loans?

  • Borrowers with a low credit rating
  • Borrowers that cannot afford a large down payment
  • Borrowers using a gift for a down payment
  • Borrowers with high debt-to-income ratios
  • First time home buyers

Down Payment Requirements

Perhaps the most significant benefits of an FHA loan is the 3.5 percent down payment requirement. Many conventional programs require down payments ranging from 5 percent to as high as 20 percent.

As an example, if you are purchasing a $200,000 home, a private loan will require no less than 5 percent down, or $10,000. With an FHA loan, at 3.5 percent down, the down payment would be $7,000 for a $200,000 home.

Each home buyer has a unique set of circumstances that impacts the type of loan that will be best. Make sure you work with a local lender that spends the time to educate you so you are able to choose the best loan for your situation.

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Tips for Buyers in a Seller’s Market

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Don’t let your dream home slip through your fingers. A solid pre-approval letter will give you a leg up.

Getting preapproved and having a dependable, air-tight written pre-approval from a respectable lender could never be more important than it is today.

In what is called “a seller’s market” multiple offers are being made days and sometimes hours after a property is listed on the market. We have seen purchase agreements that are tens of thousands of dollars more than list price.

This seller’s market has created some unique challenges that serious buyers need to be prepared for.

1. Standing out among the crowd. Anytime you have a competitive situation, you want your offer to stand out among all the others. The best way to do this is to submit your pre-approval letter with the offer. At a minimum, the pre-approval letter should tell the seller that the lender has reviewed your credit, income and assets.

2. Seller concessions. For a long time, seller concessions (i.e. a clause where the seller contributes to the buyers closing costs and prepaid costs) have been common place. However, in this market, sellers are getting more reluctant to except those terms. Aside from this reducing the net proceeds to the seller, sellers understand that many appraisals are not coming in at the contract price. Until comparable sales catch up with the market, this may prove to be an issue.

3. Large earnest money deposit. Another attractive strategy for buyers is to put down a large earnest money deposit. This says to the seller that you are serious about their house and are willing to put money on the table. If The buyer decides to walk away from this agreement, they would lose those funds. I have also recently seen buyers agree to have an earnest money deposit being non-refundable for any reason if buyer does not obtain financing.

4. Quick close date. Buyers are offering to close their transaction faster than other offers. This is attractive to a seller that is trying to purchase another property. Unfortunately, those promises are dependent on more than just the lender. To get from start to finish on a closing, there must be cooperation from appraisers, title companies, realtors, borrowers, sellers, as well as the lender. Nevertheless, in this market it has never been more important to have a lender that has all of their ducks in a row so that the buyer can get to the closing table as quickly as possible.

5. The added phone call. For many of my clients, I will personally call the listing agent after I send a pre-approval letter to let them know that this buyer is good to go. It’s amazing how far that will go to get your offer excepted.

6. Out of town or unknown lender. I’ve heard multiple realtors tell me that they do not except pre-approval letters from lenders they are not familiar with. Right or wrong, this is an important reason to get approved from a local reputable lender.

In a market where your pre-approval is more important than ever, it is imperative that borrowers connect early and thoroughly with the right lender. We’re here to help!

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Rewarding Home Discounts for Honorable Service

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Over the past 20 years, we have had the honor and pleasure to work with many clients that we consider local heroes.

There are those professions, the ones that attract a special kind of person, that make a positive different in our communities and our country.

To honor those heroes and to show our gratitude, we have designed a program to give savings to police officers, firefighters, first responders, government employees, veterans, military personnel and teachers.

At Michigan Mortgage, we are committed to maximizing what our heroes can save on a home.

“This program is special and something we believe in,” said Dave Lehner, loan officer and co-branch manager. “We are committed to our Service Rewards program because the people that go above and beyond to help, protect, teach and serve deserve a break. It takes a special person to sacrifice for our country, protect us from harm and teach our children without asking for anything in return.”

“Giving back is a small ‘thank you’ for all they do or have done for our community and we owe it to them.”

When you register with our Service Rewards program, you are eligible to receive the following discounts associated with purchasing a home.

  • Realtor Fees
  • Mortgage Closing Costs
  • Appraisals
  • Title Fees
  • Home Inspections
  • Home Cleaning, Restoration and Moving

We have partnered with local professionals that feel it is important to pass along savings to these heroes.

“We are so grateful and appreciative to our local partners for their commitment to the Service Rewards program,” said Rob Garrison, loan officer and co-branch manager. “Their discounts are a clear recognition of the sacrifices and value that service heroes bring to our nation and community.”

The process is quite simple. Visit our website, register as a Service Rewards member and we will put you in contact with a local realtor participating in the program.

If you’d rather, give us a call at 231-799-2606 and we can guide you through the process.

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Everything you need to know before shopping for homeowners insurance

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Long before you’re “clear to close,” your loan officer will request information related to homeowners insurance. Have you done the leg work to find the best coverage for the best rate?

We sat down with Ryan Hendrickson, owner and agent with Farm Bureau Insurance, to help guide you through the process to home ownership.

Michigan Mortgage: Buyers must obtain homeowners insurance before securing a mortgage. When in the process should they start getting quotes from local agencies?

Ryan Hendrickson: I would recommend getting a quote as soon as an offer has been accepted. When purchasing a home, especially in this seller’s climate, a speedy close is often a requirement of the offer. If you’re able to finalize your homeowners insurance early in the process, you will insure that it will not cause any unnecessary delays in your loan closing.

MM: Should home owners shop around and compare rates?

RH: Absolutely! It is always smart to compare rates. Your homeowners insurance is a large determination in what your “cash to close” is going to be. When you are purchasing a home, money can be tight. Saving even a little money can go a long way.

MM: That’s good to know. Thank you! After the home is purchased, how often should homeowners shop around for new rates?

RH: Price is obviously an important factor when determining or keeping your insurance with a company. I would recommend checking around if you ever notice a significant increase to your rates.

Remember, there are determinations other than price. You also have to look at convenience, coverage and customer service. Simply stated; would you ever buy a car by just looking at cost? Or adversely; buy a car without looking at cost? You’re likely not going to be happy either way. With homeowners insurance you need to be sure you are taking coverage and cost into consideration. When you do have a claim, you want to be sure that you have a good policy and are not only looking for a 15 minute, 15 percent discount.

MM: Why is it important for buyers to work with a local agent as opposed to a national branch or call center?

RH: Everyone has a different level of understanding when it comes to home and auto insurance. Most of the time it is a bit confusing. When working with a national branch or call center there are many facets of Michigan insurance law that they might not be familiar with. I would always recommend going local for two reasons: Your dollars stay in your community and we know Michigan insurance.

If you have more questions about homeowners insurance and its impact on the home buying process, your Michigan Mortgage Loan Officer is here to help.