Tag Archive for: First Time Home Buyer

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Can you get a mortgage with no credit?

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

How did those folks get into a home loan?

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

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

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

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

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

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

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

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HELOC vs. Cash-Out Refinance

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

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

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

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

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

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

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

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

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

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

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

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

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Success Story: The Fredricks Family

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As part of our “Success Story” series, we’d like to introduce you to the Fredricks Family, a group of parents, siblings, cousins and friends, that have trusted Michigan Mortgage to guide them home. This is their story.

At Michigan Mortgage, it’s a family affair. We employ husband and wife teams, cousins and life-long friends.

Often times, the families we work with are related too. It’s an honor and a privilege when multiple generations – like members of the Fredricks Family – put their trust in Michigan Mortgage.

It all started many, many years ago. In third grade, in fact. Long before Rob Garrison was a licensed Loan Officer, he spent his days on the playground with Brian Fredricks. A friendship was born and it has lasted for nearly half a century.

“My dad, Brian, originally recommended Rob to me,” said Zach Fredricks. Because Brian had closed a loan with Michigan Mortgage years ago, and the two have been friends for so long, Zach was convinced that Rob and his team were the right fit.

He made the right choice.

“Early in the process, Rob advised us on ways in which to improve our credit score and drop off hundreds of dollars a month in interest making our dream home affordable,” Zach said.

“There were several times Team Garrison saved the deal,” he continued. “During the appraisal, when calculating cash to close. It’s unlikely that we would have been able to make the home sale happen without their expertise.”

After Zach moved into his dream home, his cousin Conor met with Rob to begin the home-buying process for the first time.

“Being a first-time home buyer, I wanted to work with someone I could have an open discussion with about my goals and how to best achieve them,” Conor said. “I trusted Rob to guide me through the process and was always comfortable asking him even the simplest questions.”

“I was purchasing a house from a family friend without a Realtor, so I needed someone to fill in any areas that typically would be handled by an agent and knew Rob would be willing to work with me.”

“I mention Rob anytime I talk with friends or family looking to get into a new place,” Conor said. “At the very least he is a great person to talk to with open questions and he can educate you on parts of the process you may not be familiar with. He knows how to layout your options clearly and help you hit your financial goals.”

The family tree doesn’t stop there. Before Zach and Conor worked with Team Garrison in 2018, they worked with Maury and Karen Fredricks and their daughter, Sandi.

“We initially went to Rob because he is a friend of ours,” said Karen Fredricks. “We had a complex issue and wanted to deal with someone we trusted with our personal information.”

“Rob and his team have a turn key system that is fast and efficient,” Karen said. “He proved to get the job done when others couldn’t.”

“I really couldn’t believe how fast Rob and his team got our deal done, it was within weeks,” she said. “It seemed like everyone had a task to complete the process from start to finish and their response to questions and requests was second to none.”

Team Garrison always found a way for the Fredricks Family, and because of that, they would recommend Michigan Mortgage “a thousand time more” because “they are truly the best.”

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Is there a “perfect” time to buy a home?

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No matter what is happening with home prices and mortgage interest rates, the right time to buy a house is when you are ready to take on the financial and emotional responsibilities of homeownership.

It’s easy to fall in love with a house, but committing to one for the long term can be more challenging.

“Buying a home is a serious investment,” said Loan Officer Rob Garrison. “Before you start shopping home listings, it is important to sit back, do your homework and analyze your personal and financial goals as well as your lifestyle before you take the plunge.”

“Don’t buy just because everyone else is, make sure you are ready.”

Start by answering these questions.

1. Why do you want to buy?
An important first step is to evaluate your reasoning behind wanting to buy. What do you hope to gain from purchasing a home? How does that fit into your short and long term goals? Consider how long you plan on spending time in one place, as it can tie you to that place. It is
important to take your career into consideration as well as the possibility of an expanding family.

2. Do you know what you can afford and still continue to live the lifestyle you are accustomed to?
You will likely need to take out a mortgage. It is important to begin by checking your credit score from three different reporting bureaus to assess whether you are able to obtain a mortgage. Then, there is the question of your down payment. There are zero down government options as well as 3-20 percent options, depending on your situation. Looking at your cash savings is an important first step.

3. Will you be staying there for five years or more?
When you purchase a home, the general rule is that you want to be sure you will be in the same location for at least five years. Otherwise, you are likely to take a hit financially. Of course this depends on the area you live in.

4. Do you have 3-6 months of emergency savings?
A good rule of thumb is that you have 3-6 months of living expenses in an emergency fund for unforeseen events. Home ownership also requires maintenance and repairs, so a slush fund is recommended to pay for repairs as they crop up.

If after careful evaluation you aren’t ready to purchase a home, there are great short term options to fit your needs. If you are looking for guidance to get yourself ready to purchase, enlisting a trusted, knowledgeable mortgage advisor is a great first step to realizing your dream,
whenever that might be!

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Should I Hire a Real Estate Agent to Sell My Home?

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There’s a reason nearly 90 percent of sellers use a listing agent: selling a home takes time, knowledge of neighborhood trends, and negotiating skills. So, while eliminating the agent’s commission – 6 percent of the sale price, on average – sounds tempting, try to resist.

According to the National Association of Realtors, 82 percent of real estate sales are the result of agent contacts from previous clients, referrals, friends, family and personal contacts.

The Realtors priority is to help set the right price and then get buyers in the door. Agents have access to the most up-to-date information regarding recent sales of comparable homes and competing homes in your neighborhood. You may know that a home down the street was on the market for $350,000, but an agent will know if that home had upgrades and sold at $285,000 after 65 days on the market and after it fell out of escrow three times.

With a market that can shift weekly, if not daily, it is critical to keep abreast of those changes as they impact your home’s marketability and sale price. Realtors know the market conditions data, such as the average square foot cost of similar homes, median and average sales prices, average days on the market, and ratios of list-to-sold prices, among other criteria, will have a bearing on your home.

Contrary to popular belief, Realtors do much more than put an attractive “For Sale” sign in your front yard. Perhaps the most important exposure is through the MLS because it fans out to so many other sites and reaches most people directly and indirectly through its data feed.
Additionally, the agent will help stage and prepare your home for sale, providing professional quality photos and often videos of your home. Great Realtors promote your property through multiple social media channels such as Facebook, Instagram, Twitter, etc. They will promote open houses, have Realtor walk throughs, and most importantly, vet potential buyers so you only deal with serious prospects.

Once you have found a buyer, the agent will make sure buyers are preapproved and negotiate on your behalf. Your agent will help you evaluate very buyer’s proposal without compromising your marketing position. The initial purchase agreement is only the beginning of a process of appraisals, inspectors, title, financing – a lot of possible pitfalls. Your agent will help you write a legally binding, win-win agreement that will be more likely to make it through to closing.

Before skipping a full service Realtor, think hard about the time and effort you want to spend, particularly if the process drags on. The average home takes about 4 months to sell (six in the slowest cities), according to NAR. If costs are a concern, have a frank conversation with your Realtor about what they expect to be paid.

Considering the relatively small cost of hiring a Realtor and the large potential risk of not haring one, it’s smart to find a professional to sell your home.

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How to Buy Your Dream Home When You Have Student Debt

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Many people new to the workforce are strapped with student loan debt. Some are eager to purchase a home but believe that they cannot because they have not saved for a down payment or they will not qualify because of the debt.

Fortunately, there are loans and programs that are designed to help. Below are a few ways that people in this situation can buy a home.

1. Deferring student loans or getting an income-based repayment plan. Student loans are not designed to hamstring people to the point that they cannot afford to own a home. There are several programs available that allow student loan debt to be temporarily deferred or lower the monthly payment based on income.

Here is a resource for helping you navigate each of these. Note that different loan types treat deferred student loans and income-based repayment differently. You will need to go over these guidelines with your mortgage professional.

2. Co-signers. Some loan types will assign 1 percent of the balance of student loans to the debt to income ratio even if the loans are deferred or they are income-based repayment. For these folks, a viable alternative is a co-signer. Fortunately, most loan types will allow for family members to cosign. Again, it is something a good lender will advise and consult you on.

3. Gifts or low-down loans. Some have been unable to save enough money for a down payment. There are alternatives to this as well. Some loans like the USDA and VA loans do not require a down payment. Other loans, like the MSHDA loan, allow for 1 percent and loans through Fannie Mae or FHA allow folks to come in with 3 percent or 3.5 percent. Your loan officer will know all of the options available to you.

4. Budgeting. Oftentimes a simple budgeting plan can save the day. At Michigan Mortgage, we review all household income and debts with clients to make sure that they can afford a home and still make all of their monthly payments, including student loan debt. In fact, we will help them create a budget if they don’t have one so that they are comfortable with their bill and the payment of a new home.

While student loans can seem daunting and stifling, they should not stop folks from pursuing the dream of home ownership. If you are ready to make homeownership a reality, contact us today for a consultation.

Michigan Mortgage is a division of Mortgage One, Inc. NMLS#129386