Tag Archive for: Local Pre-Approval

Analyzing Your Current Financial Situation

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Long before you make an offer on your dream home, it is important to honestly look at your current financial situation.

Variables such as your credit score, employment history and how much you have saved for a down payment can greatly influence the type of loan that you qualify for. Equally as important, the type of loan you qualify for can impact how viable and attractive your offer is to a potential seller.

It is important for you to analyze your spending habits. If you do not have a budget, you should start one now. This will help you understand you spending habits so that the lifestyle that is important to you will be maintainable as a homeowner.

One of the most important considerations is how comfortable with your monthly payment. For a great app to calculate a payment, click here.

As a rule of thumb, total housing costs should be no more than 25 percent of your net pay. So, if your net monthly household income is $3500 per month, a safe mortgage payment would be $875. No two households have the same expenses, so it is important to honestly look at what your expenditures are when you do a budget.

Note that lenders do not use net income when they calculate your debt to income. They use gross pay.  The formula they use oftentimes (but not always) allows you to borrow more than you may be comfortable with or should spend. I call this giving you enough rope to hang yourself. No one wants to be house poor and feel strapped paying for a mortgage they really can’t afford. That is why knowing your budget, comfort level is so important.

It is also important that you are aware of the expenses prior to closing.

  1. Earnest Money or Good Faith Deposit
  2. Home Inspection
  3. Appraisal Fee
  4. Closing Costs and Pre-Paids

These costs vary and some of them can be paid on your behalf by the seller. Additionally, it is a good idea (and sometimes required by financing) that you have a few months mortgage payments in reserves, any moving costs, furniture, appliances, etc. You can typically estimate how much you will need for these costs by getting pre-approved for a loan by a lender that you trust and is highly recommended to you.

Your credit rating is a primary factor in qualifying for a mortgage.

The type of loan, down payment required and the interest rate you qualify for are all dependent on your credit score. Sometimes you will need funds to pay down credit or pay off derogatory credit.

It is important to  consider all of these variables well in advance of looking for a home to purchase. Make sure you have enlisted a trusted advisor who can guide you through this process so that when the time comes, you will be in tip-top shape to purchase your dream home.

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Mistakes to Avoid When Shopping for a New Home

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Shopping for a new home can be one of the greatest experiences of a lifetime! When you venture out to purchase a home, make sure you set yourself up for success and an amazing experience.

Avoid these common mistakes:

  1. Not having your financing in order when you are ready to make an offer. It is critical to have a pre-approval from a trusted lender. Especially in a low inventory, competitive market, the buyer who has financing in place is ready to write the offer and “win” the home. So, don’t put yourself in the position of falling in love with a home that you aren’t able to bid on quickly!
  2. Not taking the time to educate yourself by window shopping and researching the market. Noel Berg with At Home Realty says, “A critical step in home buying is going to Open Houses, driving through neighborhoods and having a Realtor who educates you on home values so that you feel comfortable and confident when you find THE home! The more properties you can visit, the more confident you feel making an offer!”
  3. Submitting a low-ball offer. Make sure you look at all of the variables before making a low-ball offer. How long has the home been on the market? If it’s a seller’s market, it’s probably off the table. Does the house need updates, making it over priced? Your Realtor can craft an offer that won’t be too aggressive or offensive in the current market.
  4. Including too many contingencies. Contingencies are basically “walk away” clauses. It is important to protect your own interests, but, typically, the more contingencies in your offer, the less enthusiastic the seller may be to deal with you, especially in a seller’s market. Your Realtor will guide you as to which contingencies are the most critical to protect your interests.
  5. Using the seller’s agent. A real estate agent’s loyalties and responsibilities change depending on the transaction. A seller’s agent works for the seller to get the highest amount of money in the shortest period of time. Their fiduciary responsibility is to the seller at all times. The buyer’s agent works with the buyer to teach their clients about the market, to show them houses, and advise them when it comes time to make an offer and negotiate with the seller.
  6. Blindly listening to friends and family members. Though your friends and family have your best interests at heart, unless they are a Realtor, they are simply not experts; often times offering inaccurate and incorrect advice.
  7. Buying a home that is too expensive. Many buyers get their pre-approval letter and set out to look at houses at the top of the price range without thinking it through. It is important to work through a budget, and evaluate your spending habits and the increased cost of owning a home.
  8. Letting your emotions guide you. Purchasing a home will likely be one of the biggest and most important purchases in your lifetime. So, it makes sense that there will be emotions, concerns and questions weighing on you during the process. Make sure you take the top seven guidelines seriously so that you are empowered by logic, market awareness and professional advice!

A professional lender and Realtor will guide you home with confidence and authority.

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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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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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Tips that Make Getting a Mortgage a Breeze in 2019

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Tip #1: Start early. One of the most important mortgage tips you should know before you get started is to understand all of your financial details. This makes the mortgage process go much more smoothly and eliminates surprises throughout the process.

Tip #2: Check your credit report for errors. Review your credit report to ensure that there are no errors such as incorrect addresses, phone numbers, names or accounts that show up. Your mortgage lender can give you the most detailed credit overview. There are multiple online sources that will provide a free credit report as well.

Tip #3: Work with a qualified lender before making repairs to your credit score on your own. A professional will consult you so that you don’t end up inadvertently lowering your score by trying to repair it on your own.

Tip #4: You can avoid private mortgage insurance if you have 20 percent down. If you do not have 20 percent down, there are multiple loan programs available that require a lower down payment. Your credit score and other variables come into play, so it’s not a one-size-fits-all process.

Tip #5: Make sure you can afford the payment comfortably. Most mortgages have a debt-to-income (DTI) ratio requirement. The DTI is the amount of monthly debt payments you have compared to your monthly income. Most mortgages will allow a maximum DTI of 41 percent; however, this number is not the same for every borrower nor for every loan. Ideally, you want to be comfortable and not stretch yourself too thin so you still have cash on reserve.

Tip #6: Know the right kind of loan for your unique situation. There are multiple loan options available. With conventional, FHA, rural development, VA, doctor loans and MSHDA options, as well as the streamlined 203(k) program, there are numerous nuances and options available to meet every borrower’s unique situation. Make sure you work with a knowledgeable loan officer that will take the time to educate you.

Tip #7: Have your documents ready so you don’t slow down the loan process. The mortgage process requires a great amount of paperwork, so having as much documentation beforehand can save time and energy. A loan officer will need to verify your income, tax documents, employment and a slew of other things.

Here is a checklist of some of the documents you may need (not all will apply to your unique situation).

  • Bank statements
  • Tax returns from the previous two years
  • W2s from past and current employers
  • Pay stubs
  • A list of your debts
  • A list of your assets
  • A gift letter if you’re using gift funds
  • Proof of timely rental payments
  • Credit Report
  • Profit and loss statements
  • Signed purchase agreement
  • Proof of additional income
  • Divorce decree
  • Bankruptcy paperwork

Depending on the loan and your credit history, you may need additional documentation not listed above. To better understand the process and be the most prepared, reach out to your trusted loan officer. We’re always here to help.

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How to Save for a Down Payment

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

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

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

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

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

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

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

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

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

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

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Tips to Establish Credit for the First Time

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

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

Not exactly.

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

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

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

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

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

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

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

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

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Why a Doctor Loan?

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

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

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

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

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

Here’s a list of the program highlights.

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

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

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

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

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How is the value of a home appraised?

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

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

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

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

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

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

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

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

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

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

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

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

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

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