Why is my Credit Karma score different than my mortgage credit score?

/0 Comments/in /by

Credit Karma is a great tool when it comes to credit monitoring and fraud alerts, but using the free tool while applying for a mortgage can sometimes raise confusion.

Why is my Credit Karma score different than the credit score my mortgage Loan Officer is using for financing?

This is one of our most commonly asked questions, so we’d like to offer an explanation.

Most people assume that their Credit Karma score is their universal credit score when applying for a home or auto loan. When their true mortgage credit score is pulled by their Loan Officer, shock and anger typically follow. Why are they different? Did the Loan Officer pull the wrong score?

Credit Synergy said this: “The information that was pulled by Credit Karma is the same that their mortgage loan officer pulled…. the only difference is the algorithm being used. Credit Karma utilizes a Vantage scoring model, while the mortgage industry utilizes three FICO algorithms: Beacon 5.0, Classic04, FICO V2. The Vantage algorithm being used by Credit Karma is typically 50 points or so higher than a mortgage FICO score.”

Mortgage FICO scores analyze your payment history, the number of years you’ve had credit, types of credit accounts you have, and more. These tend to be much more detailed than the reports pulled by Credit Karma and other consumer credit reporting companies.

We know it’s confusing. And some of our customers’ first instinct is to reach out to a second mortgage company to compare their credit score.

Rest assured, it doesn’t matter what mortgage company or what Loan Officer pulls your credit score. The scores will always be the same when you’re applying for a mortgage (and will always be different than your Credit Karma score).

If you have more questions about your credit, or would like to apply for a mortgage with one of our experienced Loan Officers, please reach out. We’re here to help in any way we can.

Thank you for trusting us to guide you home!

Old Technology

An Employee’s Perspective: Then vs. Now

/0 Comments/in /by

Reflecting back on technology sometimes shows our age more clearly than wrinkles themselves. To hear someone talk about tech from back in the day gives you more insight into their age than if you had a copy of their actual birth certificate (think Atari video game systems, televisions without remotes and rotary dial phones).

As we celebrate the 25th year of Rob and Dave’s partnership in the mortgage business, let’s take a moment to reflect (and laugh) about how the changes in technology have impacted the mortgage industry.

Michigan Mortgage is currently a leader in cutting-edge technology in the mortgage industry.

One of our biggest strengths, especially with the pandemic we’re still surviving, is our mobility, both for clients and staff. When COVID hit, we didn’t miss a beat with getting our employees the tech to work remotely and changing to virtual appointments with clients and our teams via Zoom.

Our app, Pro Snap, has helped keep us connected with realtors wanting to run proposed housing payments, and clients being able to electronically sign application forms, and upload documents from their phones.

However, such conveniences have not always existed for us. I’ve been working for Rob and Dave for 19 years. When I started, our office was downtown Muskegon in the Noble Building. The tech set up we had there was already a vast improvement from the first few years Rob and Dave worked together, at which time they each had a home phone, a computer, and a fax machine in their basement home offices.

We each had a desktop computer, since back then laptops were a luxury item, and we worked with single monitors (which I shudder to think about). The monitors also took up more space on our desks than was reasonable — no flat screens back then!

The phone system…well, I don’t believe we can call three cordless handsets on one desk a phone ‘system’. To transfer calls to each other literally meant walking the phone down the hallway. There were no voicemails either. Messages were relayed via pink message pads, or after hours via a call-in pager number.

We thought we were so cool when we upgraded to Nextel cell phones. Ignore that they were each the size of a brick. And the constant two-way chirping did get old after a while.

Our many repeat clients have probably noticed improvements in our technology over the years as well. The biggest difference has been going paperless. Instead of having literally hundreds of pages to print for the clients to sign at application and closing, we’ve converted to almost all electronic signatures.

We’ve probably saved more than just a few trees by going paperless. We used to make physical copies of all signed documents, plus all of the borrower documents, appraisals, title commitments, etc. We then had to retain those records for years after closing, so we had a whole room that used to house just our closed files, that we later were able to convert into two office spaces.

Going paperless didn’t affect just us either — the entire industry shifted how we delivered documents to one another. When I started, we had an appraisal company we worked with regularly who had a staff member whose main job it was to drive his motorcycle around West Michigan and deliver physical copies of appraisal reports. Title companies would do the same-drop off copies of commitments to our office. And submitting files to underwriting back then meant we had to either overnight or fax 100+ page loan packages in for review.

All in all, the advances in technology these past two decades has translated to cost savings and more importantly, time savings. Instead of making copies, handwriting loan applications, and juggling up to five physical phones on one desk, we’re now able to focus more attention and service to our clients and realtors.

— Sarah Beahan, Loan Processor

MSHDA DPA Program

MSHDA Announces $10,000 Down Payment Assistance Program for Michigan Home Buyers

/1 Comment/in /by

MSHDA announced a new down payment assistance loan program called MI 10K DPA Loan, which offers $10,000 in assistance to buyers to use towards the required down payment, closing costs and prepaids/escrows. The program is available in 236 Michigan zip codes.

MSHDA DPA ProgramAccording to MSHDA, “This program was created to offer assistance to purchasers within specific geographic areas where the opportunity to purchase a home is high but the rate of homeownership needs improvement. Homebuyers looking to purchase a home within one of these areas will benefit from additional support to help them achieve homeownership.”

The MI 10K DPA Loan program will provide:

  • $10,000 to use towards the required down payment, closing costs and prepaids/escrows; any additional down payment can be used to buy down the first lien.
  • Maximum financing is not required.
  • Must be combined with a MSHDA MI Home Loan first mortgage (FHA, RD Guaranteed, or Conventional).
  • Minimum 1% borrower contribution.
  • Cash assets are restricted to $20,000.
  • 0% interest and no monthly payments.
  • Loan is due when the home is sold, refinanced, the first mortgage is paid in full, homeownership interest is transferred, or the home ceases to be the primary residence.
  • Available in 236 Michigan zip codes.

The program is available in the following Lakeshore zip codes.
Muskegon County: 49440, 49441, 49442, 49444, 49445
Ottawa County: 49417, 49423, 49424, 49428, 49464

For more information about the MI 10K DPA Loan program, reach out to your Michigan Mortgage Loan Officer. Thank you for trusting us to guide you home!

New Employee Collage

Meet the New Faces at Michigan Mortgage

/0 Comments/in /by

2020 was a wild year. The COVID-19 pandemic changed the way we do business and forced our team to learn new skills.

Historically low interest rates, as well as increased home values, brought new challenges and opportunity. To meet the increased market demand, we added six incredible people to our team.

We’ve introduced them before, but want to make sure they get the recognition they deserve. All six have bright futures at Michigan Mortgage!

Photo of Molly

Molly Fazakerley

Molly joined Team Garrison as a Loan Officer Assistant and assists with purchase and refinance pre-approvals. She came to us with years of customer service experience and a personality that brings so much joy to our office.

Molly is very passionate about lending and helping families achieve their home-buying dreams. She lives for making people smile and laugh and feel loved. She enjoys spending time with her family and friends and being a mom to two of the sweetest boys!

Abbi McIntyre

Abbi joined our team as a Closing Assistant and hit the ground running! Her previous experience in customer service and real estate allowed for a smooth transition.

Abbi graduated from Indiana Wesleyan with a degree in Social Studies Education, but realized she loved helping people through some of the craziest times of their lives and started working with real estate and lending. She is so excited to call Michigan Mortgage home!

Photo of RoseRose Engel

Rose joined our Holland Team as a Loan Officer Assistant after purchasing a new home with one of our talented Loan Officers.

“Michigan Mortgage made the purchasing process so easy and seamless that I knew that joining this team was the perfect opportunity for me,” she said.

She’s brand new to the industry but is eager to learn and loves being able to help people and make sure that they have what they need to be successful.

Jason Horton

Jason joined Team Lehner as a Loan Officer Assistant and hopes to use his customer service skills to guide our customers home. He’s a go-getter!

Jason’s motivation is his incredible family (Kristie, Kennedy and Hudson). He loves playing sports and appreciates the friendships he’s gained through them. Jason has always enjoyed helping people achieve their goals.

“I look forward to helping as many people as possible achieve their home ownership needs,” he said.

Photo of DavidDavid Onofrio

David joined Team Garrison as a Loan Officer Assistant and helps our customers achieve the American Dream. His previous experience, and finance degree from Hope College, brings a much-desired skill set to our team.

David’s greatest passion in life is helping and connecting with people. He enjoys spending time with family and friends and exploring the great outdoors.

“I am very excited to serve my community here at Michigan Mortgage,” David said.

Photo of RoseRose Orleskie

Rose joined Michigan Mortgage as a Processor in 2020.  She enjoys being part of Team Lehner and serving the community through building lasting relationships with clients while making their home-buying experiences enjoyable.

She is a West Michigan native who enjoys running, traveling, and spending time with family and friends.

Photo of HannahHannah Moss

Hannah joined our Processing Team and works diligently to get our customers to the closing table.

She came to us with prior experience in banking and was excited to transition into the mortgage industry. Outside of work, Hannah and her fiancé, Zach, are huge hockey and baseball fans and enjoy traveling. Their goal is to travel to all 30 MLB stadiums. They’ve been to 12!

“I remember how exciting it was to be a first-time homebuyer so to be able to share that same excitement with borrowers is really cool,” she said.

We can’t wait to see what our team can accomplish in 2021!

Moving Boxes

10 Facts Home Buyers Should Know

/0 Comments/in /by

We live in a data-driven society. Numbers tell a story, but not always the full story. In this article, we’ve compiled 10 interesting and insightful home buying and home ownership stats. More importantly, we provide explanations for why the numbers are important and what they tell us. Would-be and existing homeowners can use these insights to make informed buying and borrowing decisions.

Here are 10 facts all home buyers should know.

Moving Boxes#1. On average, buyers spend 10 weeks searching for a home and view an average of 10 houses.

What this tells us: You can’t rush the home buying process. Be patient. Buying a house is a big investment. You may live there 30 years or longer. You will spend a good chunk of money on the home. What does it matter if you look at 10 or even 20 houses, so long as you find that one that’s right for you.

#2. For buyers aged 28 and younger, the median purchase price of a home was $177,000.

What this tells us: Millennials are now the largest home buying segment in America. Buyers aged 22 through 28 are the youngest segment of millennials. To afford a $177,000 house, presuming you put down a 20% down payment ($35,000) on a 4% 30-year fixed-rate mortgage, your annual household income would need to be approximately $30,000.

#3. For buyers aged 29-38, the median purchase price of a home was $274,000.

What this tells us: This data point is proof of the value of owning a home. The median price for this home buying segment is nearly $100,000 higher than the 28 and under age group, meaning that over a ten year span, the average homeowner has accumulated $100,000 in additional wealth, much of it largely attributable to their home.

#4. According to first-time buyers, paying down debt is the number one reason they struggle to afford a home, cited by 26% of home buyers.

What this tells us: Don’t let debt bite you in the butt. When it comes to qualifying for a mortgage, income and debt are the two biggest qualifying criteria. Not enough of one and too much of the other will hurt you. While you cannot directly control how much you make, you can control how much you spend and keep your debt under control.

#5. Median monthly housing costs are $1,566.

What this tells us: This tells us what the median homeowner can expect to pay on a monthly basis for home ownership. These costs include mortgage as well as taxes and insurance. As you begin your home hunting journey, keep this figure in mind to make sure you can afford the home you desire. Using the 28/36 rule, which says you should spend no more than 28% of your monthly income on housing expenses, an annual household income of approximately $67,000 is needed for these expenses.

#6. The average mortgage loan amount in 2019 was $184,700.

What this tells us: Assuming a 20% down payment on a 30-year fixed-rate mortgage at 4%, the monthly payment for this mortgage amount would be $882.

#7. For new, approved, noncommercial mortgages, the average credit score was 732 in 2019.

What this tells us: Credit score matters when it comes to getting a good rate on a mortgage. Do what you can to improve your credit score – pay down debt, pay your bills on time and don’t apply for new credit.

#8. Mortgage rates remain at record lows. Below 3%.

What this tells us: This tells us there are buying and refinancing opportunities. Mortgage rates continue to be crazy low. Last week, mortgage rates fell to yet another record low, for the eleventh time since the beginning of the year. The average interest rate on a 30-year fixed-rate mortgage fell to 2.8%, according to Freddie Mac. That’s the lowest level in the nearly 50 years of the mortgage giant’s survey. The 15-year fixed-rate mortgage dropped to 2.33%.

#9. The running average annual 15-year mortgage rate for 2020 through Sept. was 2.71%.

What this tells us: Rates on 15-year mortgages are usually lower than 30-year loans. If you can afford the little bit higher monthly payments that come with a 15-year mortgage, you will pay less total interest over the life of the loan and you will pay off your loan faster.

#10. For 2020, housing prices have risen approximately 5%.

What this tells us: Owning a home continues to be a road to prosperity. Home values continue to appreciate. Owning a home can be a valuable contributor to your overall wealth.

Go Beyond the Numbers

Looking for a new home or thinking about refinancing? Go beyond the numbers and get the loan that’s right for you. Connect with a Michigan Mortgage Loan Officer to get the process started using our digital mortgage app. It’s fast and easy! It only takes 15 minutes.

 

 

Sources: 1,2,3: National Association of Realtors, 2019; 4: Coldwell Banker, 2019; 5: US Census Bureau, 2018; 6, 7: Federal Housing Finance Agency, 2019; 8: CNN ; 9: Freddie Mac, 2020; 10: Joint Center for Housing Studies, Harvard University, 2020

 

FICO Score

FICO Score: What It Is & Why It Matters

/0 Comments/in , /by

When you apply for a mortgage, your lender runs a credit report. A key component of the report is your credit score. One of the most commonly used credit scores in the mortgage industry is FICO.

In this article, we describe what FICO is, how it is measured, how it is used when approving you for a mortgage, and steps you can take to maintain and improve your credit score.

What is FICO?

FICO is a credit score created by the Fair Isaac Corporation (FICO). The FICO company specializes in what is known as “predictive analytics,” which means they take information and analyze it to predict what might happen in the future.

In the case of your FICO score, the company looks at your past and current credit usage and assigns a score that predicts how likely you are to pay your bills. Mortgage lenders use the FICO score, along with other details on your credit report, to assess how risky it is to loan you tens or hundreds of thousands of dollars, as well as what interest rate you should pay.

Why is FICO Important?

FICO scores are used in more than 90% of the credit decisions made in the U.S. Having a low FICO score is a deal-breaker with many lenders. There are many different types of credit scores. FICO is the most commonly used score in the mortgage industry.

A lesser-known fact about FICO scores is that some people don’t have them at all. To generate a credit score, a consumer must have a certain amount of available information. To have a FICO score, borrowers should have at least one account that has been open for six or more months and at least one account that has been reported to the credit reporting agencies over the last six months.

FICO Score Ranges

FICO scores range between 300 and 850. A higher number is better. It means you are less risk to a lender.

Scores in the 670-739 range indicate “good” credit history and most lenders will consider this score favorable. Borrowers in the 580-669 range may find it difficult to obtain financing at attractive rates. Less than 580 and it is difficult to get a loan or you may be charged “loan shark” rates.

The best FICO score a consumer can have is 850. Fewer than 1% of consumers have a perfect score. More than two-thirds of consumers have scores that are good or better.

Here’s a breakdown of scoring ranges and what they mean:

  • Score: <580
    Rating: Poor
    What It Means: Well below average; Indicates to lenders that you’re a risky borrower
  • Score: 580-669
    Rating: Fair
    What It Means: Below average; many lenders will approve loans, but many will not
  • Score: 670-739
    Rating: Good
    What It Means: Average or slightly above average; most lenders will approve loans
  • Score: 740-799
    Rating: Very Good
    What It Means: Above average; shows lenders you are a dependable borrower; nearly all lenders will approve you
  • Score: 800+
    Rating: Exceptional
    What It Means: Well above average; shows lenders you are an exceptional borrower; virtually every lender will approve you

                               Source: Experian 

The 5 Components of a FICO Score

A FICO score take into account five areas to determine the creditworthiness of a borrower:

  • Payment History. Payment history identifies whether you pay your credit accounts on time. A credit reports shows when payments were submitted and if any were late. The report identifies late or missing payments, as well as any bankruptcies.
  • Current Indebtedness. This refers to the amount of money you currently owe. Having a lot of debt does not necessarily mean you will have a low credit score. FICO looks at the ratio of money owed to the amount of credit available. For example, if you owe $50,000 but are not close to reaching your overall credit limit, your score can be higher than someone who owes $10,000 but has their lines of credit fully extended.
  • Length of Credit History. The longer you have had credit, the better your score will be. FICO scores take into account how long the oldest account has been open, the age of the newest account, and the overall average.
  • Credit Mix. Credit mix identifies your variety of credit accounts — retail accounts, credit cards, installment loans, vehicle loans, mortgages, etc. More variety gives a higher score.
  • New Credit. New credit refers to recently opened accounts. If you have opened a lot of new accounts in a short period of time, that will lower your score.

How is FICO Calculated?

To determine credit scores, FICO weighs each category differently:

  • Payment history is 35% of the score
  • Current indebtedness is 30%
  • Length of credit history is 15%
  • Credit mix is10%
  • New credit is 10%
Here are some things that FICO says it does not factor into its scores:
  • Participation in a credit counseling program
  • Employment information, including your salary, occupation, title, employer, date employed or employment history
  • Where you live
  • The interest rates on your credit accounts
  • “Soft” inquiries (requests for your credit report), which include requests you make to see your own credit reports or scores
  • Any information that has not been proven to be predictive of future credit performance

Tips for Improving Your FICO Score

Here are tips for maintaining and improving your FICO score. The time it takes to improve your credit score depends on the reason your score needs boosting in the first place.  If your score is low because you don’t have much credit history, your score can be boosted within months. If your score is low for other reasons, boosting it can take longer.

  • Keep Credit Balances Below Limits. Getting a high FICO score requires having a mix of credit accounts and maintaining an excellent payment history. You should keep your credit card balances well below their limits. Maxing out credit cards, paying late, and applying for new credit all the time will lower FICO scores.
  • Dispute Errors. It’s possible to improve your credit score in a matter of weeks. For example, you could successfully dispute errors on your credit report, pay down credit card debt, or pay off collections accounts. These actions could remove negative information from your credit report or add some positive info, either of which may benefit your credit score.
  • Pay Bills On Time. Realistically, here’s what you need to do: pay your monthly bills on time. A single on-time payment won’t do much to improve your score. Paying your bills regularly on-time will.

Here’s how different actions can negatively affect your credit score and for how long:

Action Avg. Recovery Time Credit Score Impact
Applying for Credit 3 months Minor
Closing an Account 3 months Minor
Maxing Out a Credit Card 3 months Moderate
Missed Payment / Default 18 months Significant
Bankruptcy 6+ years Significant
Source: VantageScore

Have questions about FICO or anything else mortgage-related? Give us a 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. 

First-Time Buyer Questions

First-Time Buyer FAQ ⁠— Part 2

/0 Comments/in /by

First-Time Buyer QuestionsFor first-time buyers, the mortgage process raises a lot of questions. In part two of this series, we tackle some more of the most common questions we receive from customers.

“How Much Should I Save for a Down Payment?“

The exact dollar amount you should save for a down payment depends on the price of the house you are buying. Most down payment requirements are expressed in percentages. A 5% down payment on a $500,000 house is much greater in raw dollars ($25,000) than 5% on a $200,000 house ($10,000).

In terms of the minimum requirements for different loan types:

  • For USDA or VA loans, no down payment is required.
  • For FHA loans, the minimum down payment is 3.5%.
  • For FannieMae HomeReady loans, the down payment is 3%.
  • On a conventional loan, the minimum down payment will be somewhere between 3% and 5% of the purchase price. Be aware, however, that you will have to pay private mortgage insurance (PMI) if your down payment is less than 20% of the purchase price.

“What Will My Monthly Payment Look Like?“

A mortgage payment consists of two components:

  • Principal
  • Interest

The principal portion goes toward paying off the original amount of money you borrowed. The interest portion covers the cost of borrowing.

Your mortgage payment will be the same amount each month. Early in the life of the loan, more money goes toward interest than principal. Over time, the principal portion will match and then exceed the interest amount. For example, on a 30-year $200,000 mortgage at 4%, your monthly payment is $955. For the first payment, $288 goes toward principal and $667 goes toward interest. It isn’t until the 153rd payment that the interest and principal are roughly equal. Thereafter, more of the monthly payment goes toward principal until, on the very last payment of the schedule, $952 goes to principal and $3 to interest.

Your lender will provide you with an amortization schedule that shows a month-by-month P&I (principal and interest) breakdown for your loan.

For convenience, many people include property tax and insurance payments in their monthly mortgage payment. Technically, these aren’t part of the loan, but the loan servicer can put this money into an escrow account, where it is saved until the taxes and insurance are due. They then make the payments for you. You are not required to include escrow in your monthly payments. If you choose not to, you will just pay your property taxes and insurance annually on your own.

“Which Loans Are Best for First-Time Buyers?“

Along with conventional loans, the following loans offer distinct advantages for first-time buyers.

  • FHA loans. A Federal Housing Administration (FHA) loan is a mortgage that is insured by the Federal Housing Administration (FHA) and issued by an FHA-approved lender such as Mortgage 1. FHA loans are designed for low-to-moderate-income borrowers; they require a lower minimum down payment and lower credit scores than many conventional loans.
  • VA loans. VA loans are offered through the Department of Veterans Affairs. They are available to active and veteran service personnel and their families. VA loans are backed by the federal government and issued through private lenders like Mortgage 1. VA loans have favorable terms, such as no down payment, no mortgage insurance, no-prepayment penalties, and limited closing costs.
  • USDA loans. Rural Development home loans are low-interest, fixed-rate loans provided by the United States Department of Agriculture. The loans do not require a down payment. The loans are financed by the USDA and obtained through private lenders, such as Mortgage 1, and are meant to promote and support home ownership in underserved areas.
  • MSHDA loans. The Michigan State Housing Development Authority (MSHDA) offers down payment assistance to people with no monthly payments. The down payment program offers assistance up to $7,500 (or 4% of the purchase price, whichever is less).

“Can I Complete the Mortgage Process Online?“

Yes! Every Michigan Mortgage loan officer has a Home Snap digital application that allows you to complete the application process online. You can get approved in as little as 15 minutes. The app lets you submit your information, communicate with your loan officer, and track the status of your loan. In these times of COVID and social distancing, Home Snap is the perfect solution.

“What is PMI?“

Private Mortgage Insurance (PMI) is an insurance policy that protects a mortgage lender or title holder if a borrower defaults on payments, passes away, or is otherwise unable to meet the contractual obligations of the mortgage. If you pay 20% or more as a down payment on a conventional loan, you do not need PMI. Once you start paying PMI, it goes away in two ways: (1) once your mortgage balance reaches 78% of the original purchase price; (2) at the halfway point of your amortization schedule. For example, if you have a 30-year loan, the midpoint would be 15 years. At the point, the lender must cancel the PMI then, even if your mortgage balance hasn’t yet reached 78% of the home’s original value. PMI is typically between 0.5% to 1% of the entire loan amount.

“What Do I Need to Bring to Closing?“

Closing is when you sign the many documents that finalize your purchase. The closing is usually held at a title company’s office. The seller will be there, as will your agent. In terms of what you should bring:

  • Photo ID: The closing agent has to verify that you are who you say you are. A driver’s license or current passport will do.
  • Cashier’s or certified check: This is to cover any down payment and closing costs you owe. Do not bring personal check or cash. Your lender will tell you how much the check should be and who it should be made out to.
  • Proof of insurance: The closing agent needs to see proof that you have the insurance in effect on closing day and a receipt showing you’ve paid the policy for a year. They may have already collected that, but it doesn’t hurt to bring your own copy just to ensure things go smoothly.
  • Final purchase and sales contract: Just in case you need to double-check anything against the actual closing costs.

“What Happens If My Appraisal is Low?“

When determining the size of your loan, lenders use a formula called loan-to-value (LTV). When your mortgage contract is initially written, LTV is calculated using the purchase price. But the final contract is based upon the official appraised value of the house. What happens if the appraised value comes in lower? You have several options.

  • Boost the amount of your down payment. This will allow you to meet the LTV and down payment minimums.
  • The seller can lower the price. The seller can agree to drop the sales price of the house to match the appraised value. This will allow you to meet LTV.
  • Dispute the appraisal and ask for a new one. If you think the appraiser undervalued the house, you can ask for a new appraisal.
  • Cancel the purchase. If a compromise can’t be reached, you can cancel the home purchase agreement.

“What Will Mortgage Rates Be Next Year?“

Ah, if only we had a crystal ball. We can’t predict what mortgage rates will be in a year, but we can say that rates today are near historic lows. The Federal Reserve announced recently that they will be holding short-term interest rates steady for the foreseeable future. While mortgage rates aren’t tied specifically to short-term interest rates, the two generally track closely together. So, while we can’t predict what rates will be in a year, we can say with certainty that today’s rates are at historic lows.

Got Questions? We’ve Got Answers

If you have questions, let us know. At Michigan Mortgage, we specialize in helping first-time buyers understand the mortgage process.

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. 

First Time Buyer FAQ

First-Time Buyer FAQ

/0 Comments/in /by

For first-time buyers, the mortgage process raises a lot of questions. In this article, we tackle some of the most common questions we receive from customers.

“How Does a Mortgage Work?”

First Time Buyer FAQTechnically speaking, “A mortgage is a debt instrument secured by the collateral of specified real estate property, that the borrower is obliged to pay back with a predetermined set of payments.” (Investopedia.com)

What does that mean in plain English? It means, when you get a mortgage, you are (1) borrowing money from a lender and (2) committing yourself to paying back the money you borrowed in equal monthly payments for the length of the loan.

Because a house can be expensive, mortgage payments are usually spread over 15 or 30 years, making the cost affordable.

Your mortgage payment will consist of principal and interest portions. The principal portion goes toward reducing the amount of money you originally borrowed. The interest portion goes toward paying off the interest, which you can think of as the fee the lender charges to loan you money.

You can make additional payments, if you want, but at the least you need to make your minimum monthly payment each month.

“What Types of Loans Are There?”

Mortgage lenders offer a wide variety of loans designed to meet the needs of buyers. The most common types of loans obtained by first-time buyers are:

  • Conventional loans. This is the most common type of mortgage loan. Conventional loans can be for as long as 30 years or as short as five years, with options in between. They can be fixed-rate or adjustable rate. Conventional loans are provided by banks as well as private mortgage lenders like Mortgage 1. When most people think about home loans, the conventional loan is the one they are thinking of.
  • FHA loans. A Federal Housing Administration (FHA) loan is a mortgage that is insured by the Federal Housing Administration (FHA) and issued by an FHA-approved lender such as Mortgage 1. FHA loans are designed for low-to-moderate-income borrowers; they require a lower minimum down payment and lower credit scores than many conventional loans.
  • VA loans. VA loans are offered through the Department of Veterans Affairs. They are available to active and veteran service personnel and their families. VA loans are backed by the federal government and issued through private lenders like Mortgage 1. VA loans have favorable terms, such as no down payment, no mortgage insurance, no prepayment penalties and limited closing costs.
  • USDA loans. Rural Development home loans are low-interest, fixed-rate loans provided by the United State Department of Agriculture. The loans do not require a down payment. The loans are financed by the USDA and obtained through private lenders, such as Mortgage 1, and are meant to promote and support home ownership in underserved areas.
  • MSHDA loans. The Michigan State Housing Development Authority (MSHDA) offers down payment assistance to people with no monthly payments. The down payment program offers assistance up to $7,500 (or 4% of the purchase price, whichever is less).

“How Do I Qualify for a Mortgage?”

Different mortgage types have different specific qualification requirements, but the general process of qualifying for a mortgage is the same.

  1. You submit an application with a lender.
  2. You provide the necessary documentation, which includes paycheck stubs, tax statements, bank and asset statements, and identification.
  3. The lender reviews your information. They look at your income, how much debt you have, and they also pull a credit report.
  4. Based upon your status, the lender determines how much money you can afford for a mortgage as well as what interest rate you should receive.

“What Is the Required Minimum Credit Score?”

An important element of qualifying for a mortgage is your credit score. Your lender pulls a credit report to look at your credit score. Different loan types have different qualifying scores:

  • The minimum qualification score for most conventional loans is 620.
  • For FHA loans, the minimum score is 580.
  • For VA loans, the minimum score is 620.
  • For USDA loans, the minimum score is 640.

In addition to credit score, a lender looks at your debt-to-income ratio to make sure you are not overextended.

“How Much House Can I Afford?”

To determine how much house you can afford, follow the 28/36 rule.

Many financial advisers agree that households should spend no more than 28 percent of their gross combined monthly income on housing expenses and no more than 36 percent on total debt. Total debt includes housing as well as things like student loans, car expenses, and credit card payments.

The 28/36 percent rule is the tried-and-true home affordability rule that establishes a baseline for what you can afford to pay each month.

To calculate how much 28 percent of your income is:

  • Multiply 28 by your monthly income. If your monthly income is $7,000, then multiply that by 28. 7,000 x 28 = 196,000.
  • Divide that total by 100. For example, 196,000 ÷ 100 = 1,960.

Do the same for the 36 percent rule, using 36 in place of 28 in the example above.

Got Questions? We’ve Got Answers

Come back next week for part two of this article. In the meantime, if you have questions, let us know. At Michigan Mortgage, we specialize in helping first-time buyers understand the mortgage process.

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. 

Calculating mortgage interest rates and payments

Calculating Mortgage Interest Rates and Payments

/0 Comments/in /by

For much of American history, home ownership was out of reach for most families. Prior to the 1930’s, mortgages were limited to 50 percent of a property’s market value and the repayment schedule was spread over three to five years, with a balloon payment at the end.

With terms like that, it is no wonder only four in 10 Americans at the time owned homes.

In 1934, the modern mortgage was created by the FHA. Loans from the FHA spread payments across 30 years. In doing so, they made the cost of borrowing lower and home ownership more attainable.

Today, mortgages come in a variety of lengths and terms and, in fact, are the most common type of personal loan held by households.

One thing all mortgages have in common is they charge interest. Understanding what mortgage interest is, how it is calculated, and how it impacts your payments is critical to ensuring you get the best terms possible when you shop for a mortgage.

Calculating Interest

Calculating mortgage interest rates and paymentsInterest is what makes all forms of borrowing possible. Interest is the fee a lender charges for loaning money.

While a person might be willing to lend a family member money without charging interest, in the real world, nobody loans money, especially large amounts, without getting something in return to cover the risk. Interest protects and rewards the lender.

Mortgage interest rates can vary depending on market conditions and the borrower’s credit score. Today, mortgage rates are at historic lows, making home ownership more affordable than ever.

When repaying a loan, interest is the additional payment made on top of the principal. Principal is the original amount you borrowed.

The interest rate is expressed as an annual percentage rate. Calculating interest and the total amount owed is pretty straightforward.

For example, let’s say you borrow $5,000 at a simple interest rate of 3% for five years. You would pay a total of $750 in interest. The formula for calculating amount owed and interest is: P(1 + (R x T)) = A

  • P is the principal amount. This is how much you originally borrowed.
  • R is the rate of interest per year, written in decimal format (e.g., 0.03)
  • T is the total time in years you’ll use to pay off the loan.
  • A is how much you pay over the total life of the loan, including interest.

In this example, the total cost is calculated as follows: $5,000(1+(.03 x 5)) = $5,750. The difference between this number and the original loan amount is the amount of interest ($750).

Types of Mortgage Interest

There are two primary types of interest that are assigned to mortgages: fixed interest and variable interest.

Fixed Interest

The monthly payment remains the same for the life of this loan. The interest rate is locked in and does not change. Loans have a repayment life span of 30 years; shorter lengths of 10, 15 or 20 years are also commonly available.

Variable Interest

With a variable interest loan, often called ARM (“adjustable rate mortgage”), the interest rate is not locked in and monthly payment for this type of loan will change over the life of the loan. Most ARMs have a limit or cap on how much the interest rate may fluctuate, as well as how often it can be changed. When the rate goes up or down, the lender recalculates your monthly payment so that you’ll make equal payments until the next rate adjustment occurs.

What is APR?

APR stands for “annual percentage rate.” It’s a true, all-encompassing measurement of the cost of borrowing money. The APR could include fees associated with the loan. That makes the APR slightly higher than the actual base interest rate of the loan.

To calculate APR:

  • Add the fees and the interest paid over the entire life of the loan
  • Divide that by the loan amount
  • Divide that by the number of days you’ll be paying back the loan
  • Multiply that by 365
  • Multiply again by 100

Consider this example: You borrow $5,000 at 3% over 5 years and there’s a $150 administration fee for the loan. The APR is calculated as follows.

  • $150 + $750 = $900
  • 900/5000 = 0.18
  • (0.18/1825) x 365 = 0.042
  • .042 x 100 = 4.2

The APR for this loan is 4.2%.

The Amortization Schedule

Mortgage payments are made on a monthly basis. Each month, you pay back a portion of the principal plus the interest accrued for the month. Your monthly payment remains the same for the life of the loan.

The lender will provide you with an Amortization Schedule that lists how much principal and how much interest you are paying each month. Early in the life of the loan, you will pay more interest than principal. Over time, the amount of principal paid each month increases.

For example, a $100,000 loan with a 6 percent interest rate carries a monthly mortgage payment of $599.55. For the first payment, $500 each goes toward the interest; $99.55 goes toward principal. Each month, slightly more goes toward principal; see the table below. Not until year 18 does the principal payment exceed the interest.

Payment Principal Interest Principal Balance
1 $99.55 $500.00 $99,900.45
12 $105.16 $494.39 $98,772.00
180 $243.09 $356.46 $71,048.96
360 $597.00 $2.99 $0

The advantage of amortization is that you can slowly pay back the interest on the loan, rather than paying one huge balloon payment at the end. The downside of spreading the payments over 30 years is that you end up paying $215,838 for that original $100,000 loan.

The total cost of a mortgage loan depends on the interest rate, as well as the length of the mortgage. The longer you finance for, the more you’ll pay if all other factors are the same. Consider the examples below.

  • $100,000 mortgage at 3.92 interest for 30 years equals a total cost of $170,213 and a monthly payment of $473
  • $100,000 mortgage at 3.92 interest for 15 years equals a total cost of $132,423 and a monthly payment of $736

If you have questions about mortgage interest rates or payments, don’t hesitate to reach out! We are experts at guiding buyers through the home buying process and are here to help in any way we can.

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. 

Get Top Dollar When Selling a Home

How to Get Top Dollar When Selling a Home

/0 Comments/in /by

If you are considering making a move, here are 10 ways to get top dollar when selling a home.

Remove personal photos and items. 

Get Top Dollar When Selling a HomeBuyers need to be able to imagine their own photos on the walls, and most cannot do that if sellers have personal photos up. Don’t make any buyer ask,“I wonder what kind of people live in this home?”

Americans collect an amazing amount of stuff and prior to listing their home, they should de-clutter.

If home sellers have not used something in over a year it is time to consider selling it on E-bay/craigslist or donating it.

    • Remove almost all books from bookcases and coffee tables.
    • Store all knickknacks.
    • Kitchen counters need to be completely clean and polished.
    • Anything you need on a daily basis should be stored behind a cabinet door.

Sellers will be moving anyway and now is a great time to get a start on the move.

All cabinets & closets need to be reorganized and remove ½ of what is normally inside. 

Buyers will open all the closet and cabinet doors. If the buyer sees a clean organized space then they are more likely to see themselves living there.

    • Organize the pantry.
    • Carefully stack dishes and glasses.
    • Hang shirts together, buttoned and facing the same direction paints by color and type.
    • Line up shoes and remove all but two pairs for each family member.
Get the extra stuff off the property.

Homes show better with less furniture, keep the minimum amount needed. Reduce the size of your dining room table by removing extra leaves. Leave just enough furniture in each room to feature the room’s purpose but with plenty of room to move around.

Remove/Replace sentimental items.

If the seller intends to take window coverings, built-in appliances or fixtures with them they should, remove them before showing the home. Any heirloom fixtures should be removed and replaced.

Make minor repairs.
    • Replace cracked floors or counter top tiles and any holes in the walls.
    • Fix leaky faucets and doors that don’t close properly.
    • Consider painting your walls neutral colors, there is no greater homeowner repair that increases home values than a neat repainting.
    • Replace burned-out light bulbs and get new linens for the beds.
Make the house look brand new with an extensive cleaning.
    • Wash windows inside and out and power wash all outside services.
    • Re-caulk tubs, showers, and sinks.
    • Polish chrome faucets and mirrors.
    • Clean out the refrigerator and keep it ½ full and organized.
    • Vacuum daily and wax all floors.
    • Dust furniture, ceiling fan blades, light fixtures and light switches.
    • Bleach dingy grout and replace worn rugs.
    • Hang up fresh towels in the bathroom.
    • Air out and sanitize any musty smelling areas.
    • Clean and organized the garage to remove any oil stains.
Look at the Home with new eyes.
    • Go outside and open the front door. Is it inviting? Does the home welcome you?
    • Stand in the doorway of every single room and imagine how the house will look to a potential buyer.
    • Carefully consider how furniture is arranged and move pieces if necessary.
    • Make sure window coverings hang level.
    • Tune in to the room’s statement and its emotional pull. Does it have impact and pizzazz?
    • Does it look like nobody lives in this house? You’re almost finished.
Check curb appeal.

If a buyer won’t get out of her agent’s car because she doesn’t like the exterior of your home, you’ll never get her inside.

    • Keep the sidewalks cleared.
    • Mow the lawn and keep it weed free.
    • Paint faded window trim.
    • Plant yellow flowers or group flower pots together. Yellow evokes a buying emotion. Marigolds are inexpensive.
    • Trim your bushes.
    • Make sure visitors can clearly read your house number.
Clean out your garage and get your cars parked inside.
    • Remove 90 percent of what is currently inside.
    • Add a fresh paint
    • Remove any oil stains.

We wish you lots of luck! And we hope this list helps you get top dollar when selling a home.