Couple Painting

How much can I afford to spend on a home?

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Determining how much you can afford to spend on a home depends on various factors, such as your income, debt-to-income ratio, credit score, down payment, and other financial obligations.

Here are some general guidelines to help you estimate a reasonable home price range.

Couple PaintingDetermine your monthly income.

Start by calculating your monthly income, including all sources of income such as salary, bonuses, and investments.

Calculate your monthly expenses.

Next, calculate your monthly expenses such as car loans, student loans and credit card payments.

Determine your debt-to-income ratio.

Your debt-to-income ratio (DTI) compares your monthly debt payments to your monthly income. A lower DTI generally means you can afford a higher home price. To calculate your DTI, add up all of your monthly debt payments (such as car loans, student loans, and credit card payments) and divide that number by your monthly income. The resulting percentage is your DTI.

Your DTI should not exceed 50% after your mortgage payment is included in your calculations.

Consider your down payment.

A larger down payment will lower your monthly mortgage payments and allow you to afford a more expensive home. Most lenders require a down payment of at least 3% of the home’s purchase price, but there are programs available with 0% down. Ask your Loan Officer which program if best for your unique needs!

Use an affordability calculator.

You can use an online affordability calculator to estimate how much home you can afford based on your income, expenses, and down payment. Our mobile app, Pro Snap, allows you to calculate your potential mortgage payment in the palm of your hand.

Remember that buying a home involves additional costs beyond the purchase price, such as closing costs, property taxes, and homeowner’s insurance. It’s important to consider all of these expenses when determining how much you can afford to spend on a home.

Image of a family hanging up an American flag

Five Benefits of a VA Loan

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VA Loans are mortgage loans guarantee by the United States Department of Veterans Affairs (VA) and are available to eligible Veterans, Active-Duty Service Members and surviving spouses.

For more than 70 years, VA Loans have made homeownership possible for millions of Americans.

Here are some of the benefits of a VA Loan.

Image of a family hanging up an American flagNo down payment required. Qualified borrowers in Michigan can purchase a home up to $417,000 without needing a down payment. This is a significant benefit for those who may not have the funds to make a substantial down payment. In comparison, FHA Loans required 3.5% down and Conventional Loans required 5% down.

No private mortgage insurance (PMI). PMI is required on most loan programs if the borrower is unable to put down 20% of the purchase price. VA Loans are the exception! Since the VA guarantees a portion of the loan, lenders do not require borrowers to purchase private mortgage insurance. This can result in significant savings over the life of the loan.

Competitive interest rates. VA Loans typically offer competitive interest rates which can help the borrower save money over the life of the loan.

Easier qualification. VA Loans have less stringent qualification requirements compared to other loan types, making them easier to qualify for.

Assumable. VA Loans are assumable, which means that if the borrower sells the home, the buyer can take over the loan without having to refinance.

If you have questions about VA Loans and their benefits, please give us a call. We take great pride in guiding our Military Veterans and their families home.

PMI

How to Remove Private Mortgage Insurance (PMI)

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If you’re in the market for a new home, you’ve likely heard the term Private Mortgage Insurance or PMI. Do you know what it is? And more importantly, how to remove PMI from your mortgage?

We’re here to help.

What is PMI?

From Freddie Mac: For homeowners who put less than 20% down, Private Mortgage Insurance or PMI is an added insurance policy for homeowners that protects the lender if you are unable to pay your mortgage.

It is not the same thing as homeowner’s insurance. It’s a monthly fee, rolled into your mortgage payment, that’s required if you make a down payment less than 20%. While PMI is an initial added cost, it enables you to buy now and begin building equity versus waiting five to 10 years to build enough savings for a 20% down payment.

While the amount you pay for PMI can vary, you can expect to pay approximately between $30 and $70 per month for every $100,000 borrowed.

How can you remove PMI?

Private Mortgage Insurance can be removed from your mortgage under the following circumstances.

  1. You put down 20% (or more) when you purchase your home.
  2. If you plan to stay in the home for many years, ask your Loan Officer about paying for PMI upfront instead of monthly.
  3. PMI is automatically removed by your mortgage loan servicer when your balance reaches 78% of the original purchase price.
  4. Refinance your mortgage when you have 20% equity in the home and PMI will be removed.

Veterans and Active-Duty Service Members who purchase a home with a VA Loan will not be charged PMI (no matter how much money they put down).

When meeting with your Loan Officer, ask which option is best for you. They will help guide you in the right direction.

If you have additional questions about PMI, or the mortgage process in general, give us a call.

Buying a House

Five Things You Should Know Before Buying a House

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Buying a house is one of the most significant financial decisions people make in their lifetime. Whether it’s your first home or a new property to add to your investment portfolio, purchasing a house requires careful consideration of several factors.

Here are the five things people should know before buying a house.

Know Your Budget

Buying a HouseBefore you start house hunting, it’s crucial to determine how much you can afford to spend on a house. Make sure you factor in all the costs associated with homeownership, such as property taxes, insurance, utilities, and maintenance expenses. You’ll also need to consider your down payment and closing costs. Knowing your budget helps you narrow down your search and ensures you don’t get in over your head with a home you can’t afford.

Location is Key

The location of a property is one of the most important factors to consider when buying a house. The location affects the home’s value, your commute to work, access to amenities, and the quality of the schools. Before you make an offer, research the neighborhood’s crime rates, property values, and proximity to public transportation, shopping centers, and other essential amenities. You’ll also want to consider the property’s proximity to major highways or airports if you travel frequently.

Work with a Local Lender

Local mortgage lenders offer personalized service that can help homebuyers navigate the complex process of obtaining a mortgage. Local lenders are familiar with local market conditions. We know our local neighborhoods, so we know what’s going, what the trends are, and we use that knowledge when helping buyers obtain mortgages. In a competitive market, a pre-approval from a local lender can help your offer stand out among the rest.

Hire a Real Estate Agent

A Real Estate Agent can help guide you through the home buying process, negotiate on your behalf, and offer valuable insights into the local real estate market. A knowledgeable and experienced Real Estate Agent can help you find properties that meet your needs and budget, navigate the home inspection process, and ensure that all the necessary paperwork is completed correctly.

Don’t Skip the Home Inspection

A home inspection is a crucial step in the home buying process. It helps you identify potential issues with the property before you finalize the purchase. A professional home inspector will thoroughly examine the property’s structure, electrical systems, plumbing, and other essential components to ensure everything is in good working condition. If the inspection reveals any problems, you may be able to negotiate with the seller to make repairs or adjust the sale price to account for the necessary fixes.

By knowing your budget, considering the location, hiring a real estate agent, conducting a home inspection, and working with a local lender, you’ll be better equipped to make an informed decision and find the perfect property for your needs.

First-Time Buyer

Loan Programs Available for First-Time Buyers

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Michigan Mortgage offers multiple loan options designed to help first-time home buyers achieve the American Dream.

FHA Loans.

First-Time BuyerThese loans are backed by the Federal Housing Administration (FHA). This type of loan may be more attractive to someone who has less than perfect credit. They require a down payment of at least 3.5% of the purchase price.

VA Loans.

These loans are available to military veterans and active-duty service members (and their families) and are backed by the Department of Veterans Affairs (VA). They do not required a down payment and may have more flexible credit requirements.

USDA Loans.

These loans are available to buyers in rural areas and are backed by the U.S. Department of Agriculture (USDA). They do not require a down payment so this loan may be perfect for someone with less money saved.

Conventional Loans.

These loans are not back by the government and may have stricter credit and down payment requirements. However, they often have lower mortgage insurance premiums and may be a good option for buyers with good credit and a down payment as low as 3% of the purchase price.

MSHDA Loans.

The MI State Housing Development Authority (MSHDA) offers assistance programs for first-time home buyers, including down payment assistance zero-interest loans.

At Michigan Mortgage, we specialize in making the process as easy as possible for first-time buyers. We are Michigan’s leading lender for first-time buyers and are always available outside of “normal” business hours to help guide you home.

To see how we can help you, contact us today!

Homeownership

What are the benefits of homeownership?

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Owning a home is a quintessential part of the American dream. Homes give families a sense of security and belonging. Homes are where holidays are celebrated and memories are made.

Homeownership has a variety of practical benefits, too:

  • HomeownershipBuilding equity: As you make mortgage payments, you build equity in your home, which is the difference between your home’s market value and how much you owe on your mortgage. As your equity grows, you can borrow against it or use it to secure a second mortgage.
  • Tax advantages: Homeowners may be able to deduct mortgage interest and property taxes from their federal income taxes. This can result in significant savings over the life of the loan.
  • Appreciation: Over time, the value of your home may appreciate, or increase in value. This can provide a significant financial benefit if you decide to sell your home in the future.
  • Forced savings: Making a mortgage payment each month is a form of forced savings, because you are paying into an asset that you own.
  • Stability and community: Owning a home can provide a sense of stability and a sense of belonging to a community. You can make your house a home, and you have the freedom to decorate and make changes as you wish.
  • Investment: Owning a home can also be considered as an investment that can appreciate in value over time. It’s one of the most common way of investment on real-estate.

Your Home Can Help You Build Equity

Equity is the value of the property that you own outright. Building equity in a home means increasing the amount of the property that you own outright. When you first purchase a home, the majority of your mortgage payments will go towards paying off interest on the loan, with only a small portion going towards paying off the principal balance. Over time, as you make mortgage payments, you will pay off more and more of the principal balance, which will increase your equity in the home.

Another way to build equity in a home is through property appreciation. If the value of the home increases, your equity will also increase, even if you haven’t made extra payments towards the principal balance. Additionally, making improvements to the home, such as renovations or adding square footage, can also increase the home’s value and your equity in it.

It’s important to note that building equity in a home also means that you are building an asset for yourself. You may be able to borrow against the equity in your home to make other investments or to use it as collateral for a loan. Also, when you sell a home, the equity can be a source of funds, either to buy another home or to use for other financial goals.

It is also worth noting that if you have an adjustable rate mortgage, or ARM, your payments may change over time, and it may take longer to build equity in your home. Furthermore, if the housing market is declining, it may be more difficult to build equity and even your home value may decrease.

Your Home May Provide Tax Savings

There are several tax advantages to owning a home, including deductions for mortgage interest and property taxes.

  • Mortgage Interest Deduction: The interest paid on your mortgage is tax-deductible, up to certain limits. The limits change periodically and it’s good to check the updated limit based on the Tax reform laws, but for tax year 2021, the mortgage interest deduction limit for a primary residence is $750,000 for mortgages taken out after December 15, 2017, or $1,000,000 for mortgages taken out before December 15, 2017. If you have a second home or rental property, the interest on those mortgages is also tax-deductible, but the limit is $750,000.
  • Property Tax Deduction: You can also deduct the property taxes you pay on your primary residence or a second home. The limit for property tax deduction is $10,000. Keep in mind that if you are in a high-tax state, it’s more likely to reach this limit, and thus more of your property tax will be tax-deductible.
  • Capital Gain Exclusion: When you sell your primary residence, the profits made from the sale are generally tax-free, up to a certain limit. For tax year 2021, the limit is $250,000 for single filers and $500,000 for married couples filing jointly. This means that if you sell your home and make a profit, as long as the profit is below the limit, you won’t have to pay taxes on it.
  • Points Deduction: If you paid “points” or “loan origination fees” to get your mortgage, you may be able to deduct these fees on your tax return.

It is important to keep in mind that these are the general tax benefits, but it’s always best to check with a tax expert or consult IRS website to get the most up-to-date information, and to understand how they may apply to your specific tax situation.

Your Home Might Appreciate in Value

The rate at which a house will appreciate in value can vary greatly depending on a number of factors, such as the housing market, location, and condition of the property.

In general, the national average rate of home appreciation over the past century has been around 3% per year. However, this rate can vary significantly depending on the location and the local housing market.

In some areas of the country, such as in large cities or high-demand areas, homes have appreciated at rates much higher than the national average, sometimes as much as 10% or more per year. In other areas, especially those where the housing market is weak, homes may appreciate at a rate that is lower than the national average, or may even decline in value.

In addition, you should keep in mind that the appreciation of a house is not guaranteed, it can fluctuate depending on the market conditions. As an example, during an economic recession, the housing market may decline, resulting in a decrease of home values, or in some cases, even a negative appreciation.

Your Home Can Serve as an Investment

A home can be considered an investment for a few reasons:

  • Appreciation: As mentioned earlier, over time, the value of a home can appreciate, which means the home may be worth more in the future than what you paid for it. This appreciation can be considered a return on investment.
  • Forced savings: Making a mortgage payment each month is a type of forced savings. The money you are spending on your mortgage payments is helping you to pay off an asset, as well as build equity.
  • Tax benefits: As I’ve also mentioned, the mortgage interest and property taxes are both tax-deductible which can provide a significant tax savings for homeowners, which in turn can increase the return on investment.
  • Rental income: If you own a home, you may be able to rent out a portion of it or the entire property, this can provide additional income.
  • Future use: A home can also be considered an investment because it can be used for future financial gain, such as being able to sell it for a profit, or using it as collateral for a loan.

It’s worth noting that like any investment, homeownership has its own set of risks and uncertainty. Market conditions, interest rates, and other factors can affect the value of a home, and there’s no guarantee that a home’s value will appreciate. Therefore, it’s always good to do your own research and consult with professionals before making a decision.

If you need help with the mortgage process, give us a call!

Appraisals

Everything You Need to Know About Appraisals

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AppraisalsChecks and balances – that’s what it’s all about. Lenders require appraisals to ensure their clients are not overpaying (or overborrowing) for a home.

If you’re unfamiliar with the appraisal process, here’s what you need to know.

  • Appraisers do not work for Loan Officers or Real Estate Agents. Appraisers are neutral parties and evaluate properties based on a strict code of industry guidelines. Appraisers are state licensed and considered an unbiased third party.
  • Appraisers inspect the property in person. While on location, appraisers consider the home’s location, age, condition, additions or renovations, and recent sales of comparable homes to determine the home’s value.
  • Appraisals are not free. In most cases, the buyer pays for the appraisal. The cost varies depending on location and loan program, but $500 is a rough estimate.
  • Appraisals take time. Don’t be surprised if it takes a week, or more during the busy season, for the appraiser to visit your home and prepare the report. It’s a very detailed process!
  • Appraisals are ordered after you have a signed purchase agreement. Because appraisals take time, your lender will order the appraisal shortly after the purchase agreement is received.
  • You will receive a detailed report after the appraisal is complete. The appraisal report you receive will offer proof of the valuation given by the appraiser, although it still needs to be reviewed by a mortgage underwriter. The sellers will not receive a copy of this report and will not know the appraised value (unless you share it with them).

If your appraisal report comes back and the appraised value greater than or equal to the purchase price listed on your purchase agreement, you’re in the clear.

What happens if the appraised value is less than the agreed upon purchase price? Negotiations happen and there are three possible outcomes: you walk away, you renegotiate the sales price, or you pay the appraisal gap (the difference between the purchase price and the appraised value).

If negotiations are necessary, rely on your team of experts. Your Loan Officer and Realtor will guide you in the right direction.

HELOC

What is a HELOC?

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You could tap into your home equity with a cash-out refinance. But what if you already have a low rate on your mortgage?

Consider getting a home equity line of credit (HELOC) instead.

What is a HELOC?

According to Investopedia, “A home equity line of credit, or HELOC, is a set amount of available cash that can be used at the accountholder’s discretion and repaid over time. It works much like a credit card but has a substantially lower interest rate on outstanding balances. The money withdrawn is a loan secured by the borrower’s home mortgage, so a default on a HELOC account can be disastrous.”

With a HELOC, you can hold onto your low mortgage rate and still access funds to help pay for tuition, home renovations, high-interest credit cards, personal loans or whatever else you need it for!

Here are a few things you need to know.

  • HELOC funds can be withdrawn as needed
  • Multiple draws are available
  • Line amount of $10,000 – $500,000
  • Minimum 680 credit score is required
  • Variable rate
  • Flexible payment options

Remember, a HELOC is a variable rate, revolving line of credit that can be secured on your primary residence only.

If you have additional questions, please reach out. We are happy to help in any way we can!

Fall Stoop

How do interest rates impact your home buying power?

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If you’re researching mortgages, you know that they come with interest rates. What exactly is a mortgage interest rate, and how much does it impact your buying power? What can you do to improve the interest rate you’re offered? We answer those questions in this article.

Your mortgage interest rate has a direct impact on how much house you can afford. What exactly is a mortgage interest rate?

Fall StoopA mortgage is a loan, and like other bank loans, it comes with an interest rate – it’s how lenders make enough money to stay in business. This is usually a percentage of the loan amount, and you pay it off alongside the principal. Usually, this makes up your monthly mortgage payment, along with things like private mortgage insurance (PMI), property taxes, and perhaps homeowner insurance.

How Your Mortgage Interest Rate Affects You

As the interest rate is part of your monthly mortgage payment, it directly affects how much of a loan you can afford. Even a small change in your interest rate can add quite a bit. For example, let’s say you bought one of Michigan’s average-priced houses for $210,000.

You managed a 10% down payment and got a conventional 30-year loan. At a 4% interest rate, you’re paying 1,264.40 per month. At 5% interest, this payment increases to $1,376.68. That’s $112 more per month – and 10 more PMI payments.

So, it’s pretty obvious how much your budget is impacted by mortgage interest rates. But what factors affect the interest rates themselves?

What Affects Mortgage Interest Rates?

Banks calculate interest rates based on many things, including the overall economic and market picture and the qualifications of each prospective borrower. We’ve already talked about factors that influence mortgage interest rates elsewhere in this blog, so let’s just do a quick overview of some of the factors you can influence:

  1. Your credit score and credit history.
  2. Your income and debt.
  3. Your down payment amount.
  4. The type of loan you choose.

Although a lot has been said about the Federal Reserve rate rising, it’s important to realize that this doesn’t directly affect your mortgage interest rate. (It does affect other types of loans, like credit cards.) However, the Fed is a good indicator of where the economy is heading, so it doesn’t hurt to keep an eye on it.

Home

10 Things to Do Before You Buy a House

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Are you ready to start shopping for your first home? Before you begin, take a look at these 10 tips to make your home-buying journey successful!

Few things are as exciting as making a real estate purchase – and few things cause more stress! To help you out, we’ve compiled a list of 10 tips to help you navigate the process of buying your first (or second, or third) home. These won’t just reduce some of the anxiety, they’ll also help you avoid costly mistakes!

10 Tips for New Home-Buyers

  1. Know where and why you want to buy. The answers to these questions will help you understand what factors should be most important in your decision. For example, is your choice of neighborhood determined by your work, being close to family, or just that you fell in love with the area? Is this going to be a starter house that you’ll want to upgrade in a few years, or are you in for the long haul? Clarity here will help you make a purchase that’s in tune with the other parts of your life.
  2. Give yourself a financial health checkup. Start saving and paying off as many outstanding bills as you can. Check your credit report and get any errors removed. If you do this now, you’ll have a better understanding of what your budget really is – and a jumpstart on the mortgage preapproval process.
  3. Research neighborhoods, prices, real estate agents, and mortgage lenders. While the first two are a given, doing your homework on real estate agents and mortgage lenders is just as important.
  4. Plan your budget and down payment. Once you’ve gotten a clear idea of your financial status, figure out how much home you can afford and how much of a down payment you’ll need – and can manage. Hint: Down payment assistance is often available through state and other agencies.
  5. Understand how the mortgage and home-buying process works. We’ve covered this quite a lot in this blog. See our posts on mortgage underwriting and the path to home ownership for more details.
  6. Get pre-approved. We’ve covered mortgage pre-approval and why it’s so important elsewhere in this blog. Suffice it to say that you can make a stronger offer on a home when your mortgage is pre-approved.
  7. Prepare yourself mentally and emotionally. This is a very hot real estate market. Competition is intense, so be prepared to deal with sticker shock and maybe some disappointment if some other buyer beats you to a house. Be flexible and don’t give up. And know that it’s not just you; most home-shoppers are dealing with the same things.
  8. Review mortgage paperwork and requirements. Yes, there are mortgage professionals who will be reviewing these documents. But look them over yourself; not only will you be legally committing yourself to the terms, any mistakes you correct now will mean one fewer potential snag later.
  9. Verify all information in the listing. Make sure the house you are purchasing is all that the sellers claim. Make sure all the features and amenities, all the room sizes, are as advertised.
  10. Get a home inspection. This is different from a home appraisal, which is mostly about verifying the value of the house and any property. A home inspection looks for potentially costly building, health, and safety issues, and you don’t want to skip that.

Finally, remember that the mortgage provider you choose will have a big impact on your decision. Make sure you’re working with one like Michigan Mortgage that will help you explore all your lending options and choose the one that’s right for you!