Loan level price adjustments (LLPAs) are a form of risk-based pricing that mortgage lenders use to determine the interest rate and terms of a loan. The adjustments are based on factors such as the borrower’s credit score & down payment amount.
These adjustments can result in higher or lower interest rates, depending on the borrower’s risk profile.
For potential homebuyers, LLPAs can have a significant impact on the affordability of a mortgage. If a borrower has a lower credit score or a smaller down payment, they may be subject to higher LLPAs, which can increase their interest rate and therefore their monthly mortgage payment. Conversely, borrowers with higher credit scores & larger down payments may be able to qualify for lower LLPAs, which can result in a lower interest rate and monthly mortgage payment.
In addition to affecting the monthly mortgage payment, LLPAs can also impact the overall cost of the loan. A borrower who is subject to higher LLPAs may end up paying more in interest over the life of the loan, while a borrower with lower LLPAs may be able to save money in interest payments.
LLPAs were introduced in 2008 and have changed periodically since.
Overall, LLPAs are an important factor for potential homebuyers to consider when applying for a mortgage. Borrowers should be aware of the factors that can impact their LLPAs and work to improve their credit score & save for a larger down payment to potentially qualify for lower LLPAs.
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Determining how much you can afford to spend on a home depends on various factors, such as your income, debt-to-income ratio, credit score, down payment, and other financial obligations.
Here are some general guidelines to help you estimate a reasonable home price range.
Determine your monthly income.
Start by calculating your monthly income, including all sources of income such as salary, bonuses, and investments.
Calculate your monthly expenses.
Next, calculate your monthly expenses such as car loans, student loans and credit card payments.
Determine your debt-to-income ratio.
Your debt-to-income ratio (DTI) compares your monthly debt payments to your monthly income. A lower DTI generally means you can afford a higher home price. To calculate your DTI, add up all of your monthly debt payments (such as car loans, student loans, and credit card payments) and divide that number by your monthly income. The resulting percentage is your DTI.
Your DTI should not exceed 50% after your mortgage payment is included in your calculations.
Consider your down payment.
A larger down payment will lower your monthly mortgage payments and allow you to afford a more expensive home. Most lenders require a down payment of at least 3% of the home’s purchase price, but there are programs available with 0% down. Ask your Loan Officer which program if best for your unique needs!
Use an affordability calculator.
You can use an online affordability calculator to estimate how much home you can afford based on your income, expenses, and down payment. Our mobile app, Pro Snap, allows you to calculate your potential mortgage payment in the palm of your hand.
Remember that buying a home involves additional costs beyond the purchase price, such as closing costs, property taxes, and homeowner’s insurance. It’s important to consider all of these expenses when determining how much you can afford to spend on a home.
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VA Loans are mortgage loans guarantee by the United States Department of Veterans Affairs (VA) and are available to eligible Veterans, Active-Duty Service Members and surviving spouses.
For more than 70 years, VA Loans have made homeownership possible for millions of Americans.
Here are some of the benefits of a VA Loan.
No down payment required. Qualified borrowers in Michigan can purchase a home up to $417,000 without needing a down payment. This is a significant benefit for those who may not have the funds to make a substantial down payment. In comparison, FHA Loans required 3.5% down and Conventional Loans required 5% down.
No private mortgage insurance (PMI). PMI is required on most loan programs if the borrower is unable to put down 20% of the purchase price. VA Loans are the exception! Since the VA guarantees a portion of the loan, lenders do not require borrowers to purchase private mortgage insurance. This can result in significant savings over the life of the loan.
Competitive interest rates. VA Loans typically offer competitive interest rates which can help the borrower save money over the life of the loan.
Easier qualification. VA Loans have less stringent qualification requirements compared to other loan types, making them easier to qualify for.
Assumable. VA Loans are assumable, which means that if the borrower sells the home, the buyer can take over the loan without having to refinance.
If you have questions about VA Loans and their benefits, please give us a call. We take great pride in guiding our Military Veterans and their families home.
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If you’re in the market for a new home, you’ve likely heard the term Private Mortgage Insurance or PMI. Do you know what it is? And more importantly, how to remove PMI from your mortgage?
We’re here to help.
What is PMI?
From Freddie Mac:For homeowners who put less than 20% down, Private Mortgage Insurance or PMI is an added insurance policy for homeowners that protects the lender if you are unable to pay your mortgage.
It is not the same thing as homeowner’s insurance. It’s a monthly fee, rolled into your mortgage payment, that’s required if you make a down payment less than 20%. While PMI is an initial added cost, it enables you to buy now and begin building equity versus waiting five to 10 years to build enough savings for a 20% down payment.
While the amount you pay for PMI can vary, you can expect to pay approximately between $30 and $70 per month for every $100,000 borrowed.
How can you remove PMI?
Private Mortgage Insurance can be removed from your mortgage under the following circumstances.
You put down 20% (or more) when you purchase your home.
If you plan to stay in the home for many years, ask your Loan Officer about paying for PMI upfront instead of monthly.
PMI is automatically removed by your mortgage loan servicer when your balance reaches 78% of the original purchase price.
Refinance your mortgage when you have 20% equity in the home and PMI will be removed.
Veterans and Active-Duty Service Members who purchase a home with a VA Loan will not be charged PMI (no matter how much money they put down).
When meeting with your Loan Officer, ask which option is best for you. They will help guide you in the right direction.
If you have additional questions about PMI, or the mortgage process in general, give us a call.
Buying a house is one of the most significant financial decisions people make in their lifetime. Whether it’s your first home or a new property to add to your investment portfolio, purchasing a house requires careful consideration of several factors.
Here are the five things people should know before buying a house.
Know Your Budget
Before you start house hunting, it’s crucial to determine how much you can afford to spend on a house. Make sure you factor in all the costs associated with homeownership, such as property taxes, insurance, utilities, and maintenance expenses. You’ll also need to consider your down payment and closing costs. Knowing your budget helps you narrow down your search and ensures you don’t get in over your head with a home you can’t afford.
Location is Key
The location of a property is one of the most important factors to consider when buying a house. The location affects the home’s value, your commute to work, access to amenities, and the quality of the schools. Before you make an offer, research the neighborhood’s crime rates, property values, and proximity to public transportation, shopping centers, and other essential amenities. You’ll also want to consider the property’s proximity to major highways or airports if you travel frequently.
Work with a Local Lender
Local mortgage lenders offer personalized service that can help homebuyers navigate the complex process of obtaining a mortgage. Local lenders are familiar with local market conditions. We know our local neighborhoods, so we know what’s going, what the trends are, and we use that knowledge when helping buyers obtain mortgages. In a competitive market, a pre-approval from a local lender can help your offer stand out among the rest.
Hire a Real Estate Agent
A Real Estate Agent can help guide you through the home buying process, negotiate on your behalf, and offer valuable insights into the local real estate market. A knowledgeable and experienced Real Estate Agent can help you find properties that meet your needs and budget, navigate the home inspection process, and ensure that all the necessary paperwork is completed correctly.
Don’t Skip the Home Inspection
A home inspection is a crucial step in the home buying process. It helps you identify potential issues with the property before you finalize the purchase. A professional home inspector will thoroughly examine the property’s structure, electrical systems, plumbing, and other essential components to ensure everything is in good working condition. If the inspection reveals any problems, you may be able to negotiate with the seller to make repairs or adjust the sale price to account for the necessary fixes.
By knowing your budget, considering the location, hiring a real estate agent, conducting a home inspection, and working with a local lender, you’ll be better equipped to make an informed decision and find the perfect property for your needs.
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Michigan Mortgage offers multiple loan options designed to help first-time home buyers achieve the American Dream.
These loans are backed by the Federal Housing Administration (FHA). This type of loan may be more attractive to someone who has less than perfect credit. They require a down payment of at least 3.5% of the purchase price.
These loans are available to military veterans and active-duty service members (and their families) and are backed by the Department of Veterans Affairs (VA). They do not required a down payment and may have more flexible credit requirements.
These loans are available to buyers in rural areas and are backed by the U.S. Department of Agriculture (USDA). They do not require a down payment so this loan may be perfect for someone with less money saved.
These loans are not back by the government and may have stricter credit and down payment requirements. However, they often have lower mortgage insurance premiums and may be a good option for buyers with good credit and a down payment as low as 3% of the purchase price.
The MI State Housing Development Authority (MSHDA) offers assistance programs for first-time home buyers, including down payment assistance zero-interest loans.
At Michigan Mortgage, we specialize in making the process as easy as possible for first-time buyers. We are Michigan’s leading lender for first-time buyers and are always available outside of “normal” business hours to help guide you home.
To see how we can help you, contact us today!
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Owning a home is a quintessential part of the American dream. Homes give families a sense of security and belonging. Homes are where holidays are celebrated and memories are made.
Homeownership has a variety of practical benefits, too:
Building equity: As you make mortgage payments, you build equity in your home, which is the difference between your home’s market value and how much you owe on your mortgage. As your equity grows, you can borrow against it or use it to secure a second mortgage.
Tax advantages: Homeowners may be able to deduct mortgage interest and property taxes from their federal income taxes. This can result in significant savings over the life of the loan.
Appreciation: Over time, the value of your home may appreciate, or increase in value. This can provide a significant financial benefit if you decide to sell your home in the future.
Forced savings: Making a mortgage payment each month is a form of forced savings, because you are paying into an asset that you own.
Stability and community: Owning a home can provide a sense of stability and a sense of belonging to a community. You can make your house a home, and you have the freedom to decorate and make changes as you wish.
Investment: Owning a home can also be considered as an investment that can appreciate in value over time. It’s one of the most common way of investment on real-estate.
Your Home Can Help You Build Equity
Equity is the value of the property that you own outright. Building equity in a home means increasing the amount of the property that you own outright. When you first purchase a home, the majority of your mortgage payments will go towards paying off interest on the loan, with only a small portion going towards paying off the principal balance. Over time, as you make mortgage payments, you will pay off more and more of the principal balance, which will increase your equity in the home.
Another way to build equity in a home is through property appreciation. If the value of the home increases, your equity will also increase, even if you haven’t made extra payments towards the principal balance. Additionally, making improvements to the home, such as renovations or adding square footage, can also increase the home’s value and your equity in it.
It’s important to note that building equity in a home also means that you are building an asset for yourself. You may be able to borrow against the equity in your home to make other investments or to use it as collateral for a loan. Also, when you sell a home, the equity can be a source of funds, either to buy another home or to use for other financial goals.
It is also worth noting that if you have an adjustable rate mortgage, or ARM, your payments may change over time, and it may take longer to build equity in your home. Furthermore, if the housing market is declining, it may be more difficult to build equity and even your home value may decrease.
Your Home May Provide Tax Savings
There are several tax advantages to owning a home, including deductions for mortgage interest and property taxes.
Mortgage Interest Deduction: The interest paid on your mortgage is tax-deductible, up to certain limits. The limits change periodically and it’s good to check the updated limit based on the Tax reform laws, but for tax year 2021, the mortgage interest deduction limit for a primary residence is $750,000 for mortgages taken out after December 15, 2017, or $1,000,000 for mortgages taken out before December 15, 2017. If you have a second home or rental property, the interest on those mortgages is also tax-deductible, but the limit is $750,000.
Property Tax Deduction: You can also deduct the property taxes you pay on your primary residence or a second home. The limit for property tax deduction is $10,000. Keep in mind that if you are in a high-tax state, it’s more likely to reach this limit, and thus more of your property tax will be tax-deductible.
Capital Gain Exclusion: When you sell your primary residence, the profits made from the sale are generally tax-free, up to a certain limit. For tax year 2021, the limit is $250,000 for single filers and $500,000 for married couples filing jointly. This means that if you sell your home and make a profit, as long as the profit is below the limit, you won’t have to pay taxes on it.
Points Deduction: If you paid “points” or “loan origination fees” to get your mortgage, you may be able to deduct these fees on your tax return.
It is important to keep in mind that these are the general tax benefits, but it’s always best to check with a tax expert or consult IRS website to get the most up-to-date information, and to understand how they may apply to your specific tax situation.
Your Home Might Appreciate in Value
The rate at which a house will appreciate in value can vary greatly depending on a number of factors, such as the housing market, location, and condition of the property.
In general, the national average rate of home appreciation over the past century has been around 3% per year. However, this rate can vary significantly depending on the location and the local housing market.
In some areas of the country, such as in large cities or high-demand areas, homes have appreciated at rates much higher than the national average, sometimes as much as 10% or more per year. In other areas, especially those where the housing market is weak, homes may appreciate at a rate that is lower than the national average, or may even decline in value.
In addition, you should keep in mind that the appreciation of a house is not guaranteed, it can fluctuate depending on the market conditions. As an example, during an economic recession, the housing market may decline, resulting in a decrease of home values, or in some cases, even a negative appreciation.
Your Home Can Serve as an Investment
A home can be considered an investment for a few reasons:
Appreciation: As mentioned earlier, over time, the value of a home can appreciate, which means the home may be worth more in the future than what you paid for it. This appreciation can be considered a return on investment.
Forced savings: Making a mortgage payment each month is a type of forced savings. The money you are spending on your mortgage payments is helping you to pay off an asset, as well as build equity.
Tax benefits: As I’ve also mentioned, the mortgage interest and property taxes are both tax-deductible which can provide a significant tax savings for homeowners, which in turn can increase the return on investment.
Rental income: If you own a home, you may be able to rent out a portion of it or the entire property, this can provide additional income.
Future use: A home can also be considered an investment because it can be used for future financial gain, such as being able to sell it for a profit, or using it as collateral for a loan.
It’s worth noting that like any investment, homeownership has its own set of risks and uncertainty. Market conditions, interest rates, and other factors can affect the value of a home, and there’s no guarantee that a home’s value will appreciate. Therefore, it’s always good to do your own research and consult with professionals before making a decision.
If you need help with the mortgage process, give us a call!
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Checks and balances – that’s what it’s all about. Lenders require appraisals to ensure their clients are not overpaying (or overborrowing) for a home.
If you’re unfamiliar with the appraisal process, here’s what you need to know.
Appraisers do not work for Loan Officers or Real Estate Agents. Appraisers are neutral parties and evaluate properties based on a strict code of industry guidelines. Appraisers are state licensed and considered an unbiased third party.
Appraisers inspect the property in person. While on location, appraisers consider the home’s location, age, condition, additions or renovations, and recent sales of comparable homes to determine the home’s value.
Appraisals are not free. In most cases, the buyer pays for the appraisal. The cost varies depending on location and loan program, but $500 is a rough estimate.
Appraisals take time. Don’t be surprised if it takes a week, or more during the busy season, for the appraiser to visit your home and prepare the report. It’s a very detailed process!
Appraisals are ordered after you have a signed purchase agreement. Because appraisals take time, your lender will order the appraisal shortly after the purchase agreement is received.
You will receive a detailed report after the appraisal is complete. The appraisal report you receive will offer proof of the valuation given by the appraiser, although it still needs to be reviewed by a mortgage underwriter. The sellers will not receive a copy of this report and will not know the appraised value (unless you share it with them).
If your appraisal report comes back and the appraised value greater than or equal to the purchase price listed on your purchase agreement, you’re in the clear.
What happens if the appraised value is less than the agreed upon purchase price? Negotiations happen and there are three possible outcomes: you walk away, you renegotiate the sales price, or you pay the appraisal gap (the difference between the purchase price and the appraised value).
If negotiations are necessary, rely on your team of experts. Your Loan Officer and Realtor will guide you in the right direction.
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If you’re in the market for a new home, your credit score will determine whether or not you’re eligible. Your score will determine the loan program you qualify for and your interest rate. Your credit score may be the single most important asset you have.
You spend years building your score – here are a few tips to help you maintain it.
Make your payments on time. According to experts, a large portion of your credit score (35 percent, to be exact) is calculated based on payment history. Making your payments on time (within 30 days of the due date), every time can greatly impact your score. This includes credit card bills or any loans you may have, such as auto loans or student loans, your rent, utilities, phone bill and so on.
Consider setting up autopay when it’s available so you don’t run the risk of missing payments.
Keep your balances low. 30%. That’s the magic number! As soon as your credit card balance exceeds 30% of your credit limit, your credit score will decrease. Your score will continue to decrease until you bring your balance below the threshold.
Experts recommend that you pay off your entire balance every month. We know that’s not always realistic, but you should always at least make the minimum payment.
Be cautious when opening new accounts.According to Experian, “Each application can lead to a hard inquiry, which may hurt your scores a little, but inquiries can add up and have a compounding effect on your credit scores. Opening a new account will also decrease your average age of accounts, and that could also hurt your scores.”
There is one exception to this rule. If you’re shopping for a new car or home, it’s OK to shop around and have multiple lenders pull your credit. If these credit pulls occur during the same time frame, they are often ignored by credit bureaus.
Check your credit score regularly. If you practice tips 1 – 3 but forget to do #4, you’re setting yourself up for possible risk. Mistakes are known to happen, and reporting errors can have a negative impact on your score. If someone steals your identity and opens a new line of credit in your name, how will you know if you don’t regularly monitor your score?
If you find a credit reporting error, dispute the mistakes with the appropriate credit reporting agency and your score may improve.
If you have additional questions about your credit score, give us a call! We’re happy to help in any way we can.
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You could tap into your home equity with a cash-out refinance. But what if you already have a low rate on your mortgage?
Consider getting a home equity line of credit (HELOC) instead.
What is a HELOC?
According to Investopedia, “A home equity line of credit, or HELOC, is a set amount of available cash that can be used at the accountholder’s discretion and repaid over time. It works much like a credit card but has a substantially lower interest rate on outstanding balances. The money withdrawn is a loan secured by the borrower’s home mortgage, so a default on a HELOC account can be disastrous.”
With a HELOC, you can hold onto your low mortgage rate and still access funds to help pay for tuition, home renovations, high-interest credit cards, personal loans or whatever else you need it for!
Here are a few things you need to know.
HELOC funds can be withdrawn as needed
Multiple draws are available
Line amount of $10,000 – $500,000
Minimum 680 credit score is required
Flexible payment options
Remember, a HELOC is a variable rate, revolving line of credit that can be secured on your primary residence only.
If you have additional questions, please reach out. We are happy to help in any way we can!
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