Tag Archive for: First Time Home Buyer

Spring Welcome Mat

Tips for Buying a Home This Spring

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The spring homebuying season is upon us! It’s the most popular time to buy a home, but also the most competitive. What do you need to do to be ready for it?

Given the financial commitment that buying a home represents, it’s amazing how many people wade into the process with minimal preparation. Here are six steps to get you ready to tackle the busy spring market and put you in position to get a good deal on a great home.

#1: Check your credit

Yes, you may be tired of hearing it, but checking your credit is the first step you want to take in buying a home. Even if you’re confident that you’ve got excellent credit, undiscovered errors in your report could drag down your score – and result in a higher interest rate on a mortgage. Your credit score will also affect the mortgage rate you can obtain and the cost of the loan as a result.

You’re entitled to a free copy of your credit report once a year from each of the three major credit reporting companies – Equifax, Experian and Transunion. You can order them through the official site at www.annualcreditreport.com. Once you have them, check for any errors in the payment history or status of your credit accounts and follow the instructions for correcting any that you find.

Your free credit reports don’t include your credit scores, which are what lenders use when evaluating you for a mortgage. For those you typically need to pay, either by purchasing them directly from the three companies or by enrolling in a credit monitoring service that includes your credit scores as a free perk.

Spring Welcome Mat#2: Know what you can afford

This can be a deceptively complex problem – it’s not simply a matter of figuring out how much of a mortgage payment you can handle. You also need to take into account property taxes, homeowner’s insurance and – you’re making less than a 20 percent down payment – mortgage insurance as well. All these are typically billed with your mortgage statement.

Then you also have to consider what kind of down payment you can make, the ongoing costs of home maintenance, monthly utility bills and a reserve for unexpected repairs. You’ll probably also want to have something set aside for buying new furniture or appliances, and other purchases/expenses to make the home your own.

The standard rule of thumb is that lenders don’t want to see you spending more than 28 percent of your gross monthly income on your mortgage payment, and no more than 36 percent on loans of all types (auto, credit cards, etc.) though these are flexible. Just as important though, is how much of your earnings you want to spend on housing – 28 percent may be higher than you want to go.

#3: Consider the down payment

Your down payment isn’t just a matter of what you can put together or trying to hit a certain number. To a certain extent, the size of a down payment is a choice you make depending on how much you’re looking to borrow and the mortgage terms you’re willing to accept.

While a 20 percent down payment is considered the gold standard, it isn’t mandatory. Most lenders view 10 percent down nearly as favorably and many will let you go as low as 5. That allows you to buy a higher-priced home, but you will need to buy private mortgage insurance, which is like paying an extra half a percent or more on your mortgage rate.

If you go the FHA route, you can put as little as 3.5 percent down, which maximizes your homebuying ability but means higher fees both up front and for annual mortgage insurance.

If you’re seeking a jumbo loan or have damaged credit, lenders may require that you put at least 30 percent down in order to be approved.

#4: Do Your Research

Browse the real estate listings to see what sort of homes are being offered in your price range and where. Drive by a few of them to get a sense of the home and neighborhood in real life. Go to a few open houses to get a sense of the market and a feeling for prices. Pay particular note to homes that sell almost immediately after being listed – that’s a sign it was attractively priced, while ones that linger are likely overpriced.

You can also check local assessor’s office records online to see what other homes in the area have sold for recently, or use commercial online listings to do the same thing.

#5: Use a Realtor

A Realtor representing your interests as a buyer can be a big help when house hunting. First, they’ll be tuned into the local housing market and can help you cut through the clutter to find the properties that best match your criteria. They can also alert you when new ones are coming on the market.

#6: Be Ready to Buy

Because the spring housing market can be very competitive, you want to be ready to make an offer as soon as you find the right house. If you wait a day or two to think it over, you may find someone else has beat you to it, particularly if it’s an attractive property.

For this reason, you want to be sure to get preapproved for a mortgage before you being home shopping in earnest. Getting preapproved means choosing a lender and submitting all the financial information you need to be approved for a loan. It’s different from being prequalified, which simply means a lender gives you an estimate of what you can borrow based on unverified information you provide.

When you’re preapproved, you can show that to a seller as evidence you’re ready to buy and have the means to do so. That’s an important thing to be able to do when you may be competing with several other offers.

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. 

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

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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!

MSHDA DPA Program

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

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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!

Moving Boxes

10 Facts Home Buyers Should Know

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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

 

First-Time Buyer Questions

First-Time Buyer FAQ ⁠— Part 2

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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

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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

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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. 

A First-Time Buyer’s Guide

A First-Time Buyer’s Guide

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Next to having a child or getting married, buying a house might be the biggest event in most people’s lives. Purchasing a home is an exhilarating symbol of independence. It is the embodiment of the American Dream.

For first-time buyers, the home buying process can seem daunting. Thankfully, Michigan Mortgage is here to help. We assembled this 10-step home buying guide to help first-timers understand the home-buying process.

  • Buying a homeStep 1: Check Your Credit Score
  • Step 2: Save for a Down Payment
  • Step 3: Calculate What You Can Afford
  • Step 4: Choose a Mortgage Lender
  • Step 5: Get Preapproved
  • Step 6: Find a Real Estate Agent
  • Step 7: Find a House
  • Step 8: Make an Offer
  • Step 9: Get an Inspection
  • Step 10: Closing

Step 1: Check Your Credit Score

Your credit score is critical to determining whether you will be approved for a mortgage, as well as the rate you will pay, so it is worth checking your credit score and taking steps to improve it.  Buyers with higher credit scores usually get better interest rates. To obtain a conventional mortgage, you’ll need a credit score of 620 or higher. For FHA loans, the minimum credit score requirement is 580.

Step 2: Save for a Down Payment

When it comes to a down payment, the general rule of thumb is that the down payment on a mortgage should be 20 percent of the home’s price. Putting 20 percent down helps you avoid extra fees such as mortgage insurance.

If you can’t put 20 percent down, don’t worry. A mortgage down payment can be as low as 10 percent, 5 percent, or even 0 percent for certain types of mortgages, such as VA loans or USDA loans.

In addition to the down payment, you will need to save money for closing costs. These are fees related to the processing of your loan. You can expect closing costs to be 3 and 6 percent of the home purchase price.

Step 3: Calculate What You Can Afford

Your mortgage lender will ultimately tell you how much money you qualify for. But even before you speak with a mortgage lender, you can calculate how much house you can afford to make sure you don’t overextend yourself.

When calculating how much house you can afford, use the 28/36 percent rule, which says:

  • Do not not spend more than 28 percent of your gross monthly income (your salary before taxes) on housing expenses
  • Do not spend more than 36 percent of your gross monthly income on monthly debt payments (mortgage, car payments, subscription services, credit cards, etc.)

The calculations are as follows:

  • Maximum Monthly Housing Expenses = (Gross Monthly Income X 28) / 100
  • Maximum Total Monthly Debt Payments = (Gross Monthly Income X 36) / 100

Step 4: Choose a Mortgage Lender

Just as you choose your own real estate agent, you choose your own mortgage lender. Many buyers use lenders based upon the recommendations of their real estate agents, but you can choose whichever lender you want.

When comparing lenders, each one will provide you a Loan Estimate, which defines the loan terms, expected payments, and closing costs for your mortgage. You will be able to compare the estimates to see the differences between what each lender offers.

Step 5: Get Preapproved

Getting preapproved by a lender can be helpful when you are putting in offers on houses. When you are preapproved, sellers will have more confidence that your offer on their house will pass final approval.

Preapproval involves a lender pulling your credit information and assessing your financial situation. The lender will provide you with a letter that indicates the amount the lender is willing to lend you.

Step 6: Find a Real Estate Agent

Real estate agents take the stress out of the home buying experience. Your agent is your chief advocate, confidante and hand-holder in the process, so you want to find a good fit. Agents provide knowledge of the housing market and they have skills in the negotiation process. A real estate agent will represent you throughout the home buying process to ensure that you find the right home, ask the right questions and make the right offer. Agents have the power to negotiate on your behalf and serve as your buyer. Agents are only paid a commission if you close on a new home. The commission they receive is paid by the seller through the purchasing price of the house.

Step 7: Find a House

As you shop for houses, you’ll find that the more houses you see, the more they all start to blend together. So, try to be organized and make sure that you talk to your agent about your likes and dislikes about each one.

When visiting each listing, pay attention to the neighborhood that the home is in, as well as the home itself. Drive around the area. Consider what your commute will be like. Research the schools your kids would go to and figure out how long it would take them to get there. Find out where the closest grocery store and pharmacy is located. Make sure the area fits your style.

When touring each house, take photos and make notes. Make sure each home meets your needs. Think about the style of the home: Does it fit your lifestyle? Are there enough bedrooms? Enough bathrooms? A big enough garage and yard?

Step 8: Make an Offer

For most buyers, this is when the excitement peaks. Once you’ve found a home you want, your agent will work with you to write a purchase offer. The listing price is only a starting point. Your agent will understand the market and help guide you to make the best offer. Once you’ve submitted the offer, the seller will respond with a yes or no or a counteroffer. If your offer is accepted – congratulations, you are one your way to becoming a homeowner!

Step 9: Get an Inspection

If your offer is accepted, you have the right to have the home inspected. Your real estate agent can recommend a professional home inspector. The home inspection will identify areas where repairs or renovations are needed. If significant repairs are needed, you can request that the seller complete them before the closing. If the seller declines or you feel uncomfortable purchasing the house because of what the inspection found, you can most likely withdraw your offer.

Step 10: Closing

This is the big day. The closing is when you gather around a table with the seller and their agent, your agent, and representatives from the title company. You’ll read and sign a slew of papers that finalize your home purchase. It’s an exciting experience, especially for first-time buyers. Once the closing is done, you are now, officially, a proud homeowner!

At Michigan Mortgage, we specialize in helping first-time buyers navigate the mortgage process. We guide you along the way and work to get you the best rate and terms possible.

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. 

The Benefits of Working with a Local Mortgage Lender

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Buying a home might be the single biggest purchase you make in your life. You want it to go right. That is why the mortgage lender you choose is critical to making sure your homeownership dreams come true and the experience is hassle-free.

Whether you are a first-time buyer needing assistance through the lending process or you are an existing homeowner seeking to refinance or purchase a vacation home, it pays to go with a local lender as opposed to a big-name national bank or brand.

Here’s how a local mortgage lender can help guide you home.

1. Personalized Service

A local mortgage lender gives you the chance to to work face-to-face with an expert, if need be. The growth of digital mortgages, like our Home Snap app, has eliminated the need for as much face-to-face meeting in the past, but as a home buyer it can be reassuring to know that your loan officer is right around the corner as opposed to across the country or overseas.

A local lender gets to know you. Your messages won’t sit in a voicemail box unanswered for weeks on end. With Michigan Mortgage, you’ll get a cell number for your loan officer and can call or text them at a moment’s notice to get your questions answered.

Local Loan Officers have an incentive to provide you with excellent service because they want you to be a source of referrals for future business. Our loan officers know that whether you have a great experience or a bad one, your friends and relatives are going to hear about it. Our loan officers live and work in your neighborhood. They want the best for you and the community. They have a vested interest in having each and every loan close as smoothly and efficiently as possible.

2. Local Expertise

Another advantage of local lenders is their familiarity with local market conditions. Local lenders know their local neighborhoods, so they know what’s going, what the trends are, and they use that knowledge when helping buyers obtain mortgages.

For example, a national lender with no roots in the local community may be reluctant to approve a mortgage for an atypical property, such as an original farmhouse on acreage that’s now covered by a subdivision. A local lender will know the history of the area and the changing demographics and economic trends and may be more comfortable underwriting such a loan.

Local lenders also have their finger on the pulse of the local or regional economy, and have a better sense of the lending risks in the area. What looks to a big lender like a dilapidated section of town might actually be an up-and-coming area where properties re increasing in value. Local lenders will know this.

Local lenders may also be more attractive to some home sellers and real estate agents who want an efficient and timely closing. Reputation matters. In situations where several offers are on the table, having a local, trusted lender could be the difference between closing or not closing.

3. Realtor Relationships

Local lenders invest a lot of time and effort building relationships with local Realtors. Realtors and lenders are the yin and yang of real estate. Michigan Mortgage Loan Officers are on a first-name basis with most of the real estate agents in their local areas.

Many local loan officers have extended hours, allowing borrowers and Realtors to contact them during the evenings and weekends. If you see a house you love on a weekend, chance are you can reach your loan officer and get an approval quickly.

Also, with everyone on your team – the Realtor, the lender, you– working in proximity, a closing can happen quickly and without hassle. The final stage of home buying is sometimes the most stressful. Having a unified team that is familiar and comfortable with each other can make the process quick and painless.

4. Varied and Specialized Products

Local lenders have a better understanding of property values and the local economy. When you work with Michigan Mortgage, you’re paired with a licensed loan officer and team of professionals who are experts in your region. Our loan officers help you choose the right type of loan for your circumstance and we keep you updated along the way. We have in-house tools and resources to expedite a loan, ensuring everything is taken care of in a timely manner.

Local lenders are where you’ll find the specialized loans the big lenders won’t bother with. Maybe you want an adjustable-rate mortgage with a 15-year lock? Or you want to buy a vacation property that lacks a furnace? Or you want to buy or refinance a home for less than $100,000, an amount too small to be of interest most lenders? Or you want a jumbo loan?

Local lenders are have more flexibility. Big banks need process large numbers of loan applications. To do that, they have rigid guidelines about who they will and won’t lend to. Big banks are more about volume than customer service.

At Michigan Mortgage, we have been Michigan’s leading MSHDA first-time buyer lender for 7 straight years. We are also a recognized USDA rural development leader.

5. Reliable, Responsive & Flexible

Local lenders are better at closing loans on a timely basis. If the closing of a loan has to be extended by a week, local lenders are more flexible than big banks who have corporate mandates to crank out the volume.

Local lenders, along with local real estate agents, have an incentive to provide you with excellent service because they want you to be a referral source for future business. They stake their reputation on each and every customer.

With a local lenders, you are much closer to the decision makers with the authority to approve your mortgage. You aren’t dealing with a corporate bureaucracy.

Local loan officers are more likely to get personally involved in qualifying you for a mortgage, as opposed to big banks.  Often, it’s a matter of the getting to know you. Perhaps you are self-employed with irregular income. Or you have poor credit due to a financial crisis, but have good income and low debt.

Michigan Mortgage Loan Officers are better suited to be responsible and flexible for borrowers like these.

At Michigan Mortgage, you will never be just a name or number on a loan application. We manage every step of the mortgage process, from application to underwriting to closing, to make the process easy. We have been financing the American homeownership dream for nearly 25 years. We can do the same for you.

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. 

Doctor Loans: What You Need to Know

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The Doctor Loan has a long history in the United States. First offered to attract new physicians to growing towns in the Wild West, they have evolved over the year. Today, 18,000 new physicians graduate from medical school every year. New physicians can have very specific credit and income profiles that represent a different kind of risk, not reflected in a normal borrower profile.

Image of a doctor reading someone's blood pressureWhat Is a Physician Mortgage Loan?

A physician mortgage loan is a low down payment mortgage available to physicians, dentists and other eligible medical professionals. They do not require mortgage insurance and are often considered jumbo mortgages as they allow higher loan balances than conventional and FHA mortgage loans. These doctor home loans have fewer restrictions for borrowers than conventional loans because lenders generally trust doctors to be responsible borrowers.

At Michigan Mortgage, we’ve made it easy for doctors to get a physician mortgage.

The Michigan Mortgage Physician Mortgage Loan Program

That is why Michigan Mortgage has a very specific program designed for that type of individual. Physicians of all types can benefit from our “Doctor Loans.” Features of the program include:

  • Available for new residents, new attending (7-10 years out of residency), or to physicians at any stage of their career.
  • Flexible down payment options.
  • Private mortgage insurance (PMI) is not required.
  • Rather than looking for past income, we will consider an employment contract as documentation of future earnings (instead of pay stubs.
  • The loan amount can go all the way up to $2 Million.
  • Can be used for primary or second home.
  • Certain programs allow new Physicians to use gift money for a down payment, for required reserves, or for closing costs.
  • Often doesn’t calculate student loans the same way as standard underwriting. Student loans are not counted as part of debt-to-income ratio (DTI).

Other than a doctor loan, physicians are also available for other loan types.

Conventional Mortgage: Often this is the best choice for borrowers. Conventional loans generally offer the most term options and lowest fees, with the lowest rates. Conventional loans do require proof of earnings and a substantial sum of money (20% of mortgage amount) to put down.

FHA Loan: This loan can have higher fees and rates than a conventional mortgage. FHA mortgages can have a smaller required down payment, and a monthly mortgage insurance premium. This loan requires the lender to use the credit report amount of the student loan payment, or if none listed, 1 percent of the outstanding balance unless the borrower can provide documentation that the loan is in deferral. The interest rate could be slightly lower than a Doctor Loan but could wind up costing more because of PMI costs.

VA Loan: This loan requires that you qualify for VA benefits. There is no down payment or mortgage insurance requirement. Rates are similar to FHA rates, but the funding fee is slightly higher.

Ready to get started with a Doctor Loan? Give us a call and we will guide you through the 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.