Appraisal Neighborhood

What is an appraisal and why do you need one?

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One of the most confusing aspects of obtaining a home can be the appraisal process.

Most people think when you buy a house that the selling price is the value of the home.  The truth is, the value of the home is primarily based on other properties that have already SOLD in the same market area.

Appraisal NeighborhoodA real estate appraisal is the process of assigning an objective value for a home.

The buyer is free to pay whatever they like for the home. If the buyer intends on getting a mortgage, then they are required to get some type of home appraisal. The opinion of value (the appraisal) is based on properties (comparable properties) that have sold in the past.

Why Is a Real Estate Appraisal Needed?

Appraisals are an important part of the home buying process. A real estate appraisal establishes a property’s market value—the likely sales price it would bring if offered in an open and competitive real estate market. Lenders require appraisals when buyers use their new homes as security for their mortgages.

What Is Comparable Property?

It is properties with characteristics that are similar to a subject property.  The appraiser is looking for similar square footage, floor plan, the number of rooms, type of rooms and location to name a few.  The best comparable could be the home next door or a few miles away. The best Comparable would be the house next door with the same floor plan, upgrades, view, everything exactly the same as the subject property that closed the day before the appraisal assignment.

When the home next door is not available the appraiser will attempt to find homes as close as possible and make adjustments.  The adjustments are added or subtracted from the comparable property in an attempt to equal the subject being appraised. If one comparable did not have a 2 car garage like the subject. The appraiser would add the approximate value of the garage to the comparable to bring it up to the subject.  If the comparable had a 3 car garage the appraiser would subtract from the subject the value of the extra garage.

Who Does the Appraisal?

Appraisals must be conducted by a licensed, third-party appraiser who has no connection to the buyer, seller or lender. That way, all parties can be sure the determined market value is fair, unbiased and free of any influence from any party that could benefit.

The lender usually orders the appraisal, but the borrower is the one who usually pays for it. The appraisal fee is an upfront, out-of-pocket expense that will not be refunded if either party fails to move forward with the sale.

What Does the Appraiser Look For?

Appraisers look inside and outside your house. They look at the neighborhood, too.

Externally, here’s what they look for:

  • Neighborhood characteristics (i.e., urban, suburban, rural)
  • Percentage of present land use in the neighborhood (one-unit housing, two- to four-unit housing, multifamily, commercial)
  • Zoning classification
  • Lot size
  • Whether the property has public utilities
  • The type of driveway surface and any car storage.

Internally, they look at things like:

  • The home’s square footage
  • Number of bathrooms and bedrooms
  • Remodeled versus updated kitchen/baths
  • Foundation type
  • Whether there’s a full or partial basement, crawl space, or attic
  • Materials used for the walls, floors, and windows

Get Preapproved First

An appraisal is one of the final steps of buying a home. Your first step should be to contact a lender near you to get the process started.

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. 

Increase Home Equity

5 Tips to Increase Home Equity

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Your home is probably the most valuable thing you own. Increasing the equity you have in your home can go a long way toward increasing your overall net worth. Equity is your home’s fair market value minus how much you owe on it.

Rising home prices, combined with falling mortgage rates, have helped homeowners increase their home equity over the past few years. Nationwide, home equity is rising. In the fourth quarter of 2020, the average homeowner gained about $26,300 in equity over the course of the year — the largest average equity gain since the third quarter of 2013. See the image below.

Home equity increases in 20020.

First, let’s define what we mean by home equity.

Home equity is the amount of your home that you actually own. In other words, your home equity is equal to your home’s current market value, minus your remaining mortgage balance. For example, if your home is valued at $300,000 and you owe $175,000 on the mortgage, your equity is $125,000.

Here are five ways to build up home equity.

1. Increase Your Down Payment

The more you put down on a home, the more of it you own right off the bat. Let’s say the home you buy is valued at $200,000. If you make a $10,000 down, you will owe $190,000 on the mortgage and have $10,000 in equity. If, however, you increase your down payment to $20,000, you would owe $180,000 on the mortgage and have $20,000 in equity.

2. Make Extra Mortgage Payments

Since paying off your mortgage helps you build equity, you’ll grow it even faster (and be able to pay off your loan sooner) by making extra payments each month. Many lenders even allow you to set your own recurring schedule, so you can make extra payments at an pace you feel comfortable with. If, for example, you had a 25-year loan for $250,000 at 3.75% interest, your monthly payments would be about $1,285.33. Increasing this by one-twelfth would add $107.11 to each payment. All of that extra payment would go toward the principal, thereby increasing your equity in the home.

3. Make Home Improvements

When you invest in home improvement projects–like an updated kitchen or bathroom–you’re increasing its value and, thus, boosting its equity. Just be sure to choose upgrades that provide the biggest payback. This cost-vs.-value tool can help you figure out which remodeling projects provide the best bang for your buck.

4. Enhance the Curb Appeal

Improving curb appeal can boosts your home’s value by 3-5%. Even simple things like trimming bushes, putting in a garden, painting and power washing can make an impact.

5. Shorten the Loan Term

Refinancing into a short-term loan will increase your equity faster. You will have higher monthly payments, but more of your payment will be going toward the balance, which increases the amount of the home you own.

Home Equity Lines of Credit (HELOC)

One benefit of building equity in your home is that you can tap into that equity with a home equity line of credit (HELOC). A HELOC is a revolving line of credit usually with an adjustable interest rate, which allows you to borrow up to a certain amount over a period of time. HELOCs work in a manner similar to credit cards, where you can continuously borrow up to an approved limit while paying off the balance.

If you have questions, don’t hesitate to give us a call! We’re 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. 

Impact Report

Impacting Our Local Community

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Rob Garrison said it best.

“2020 was quite the year. Between a global pandemic, rioting in our cities and a contentious Presidential election, we know that everyone was tired and frustrated and perhaps ready for 2020 to be over. The uncertainty that the pandemic has placed on so many families is disheartening. We are saddened by the medical, financial and personal suffering that so many have endured in 2020. In that vein, we at Michigan Mortgage have doubled our efforts to make the most impact in areas that we can control: our clients, our employees and the community.”

As we work our way through 2021, we wanted to take a moment to pause and look back on all of the good that happened last year.

Impact ReportHere are a few of our favorite highlights. If you’d like to learn more about 2020 community involvement, click here and flip through our Impact Report.

#MMGivesBack – Honoring Our Local Educators

Prior to the COVID-19 Pandemic, we launched #MMGivesBack – Honoring Our Local Educators to give back to those that give so much to our local community. Three times in 2020, we recognized a West Michigan educator that went above and beyond in the classroom and donated $1,000 to their school.

We surprised the following teachers, delivered a gift basket and thanked them for their dedication to their students.

Rosanne Willard, Oakridge Elementary in Muskegon
Tammie Thompson, Griffin Elementary in Grand Haven
Julie Anderson, Beach Elementary in Fruitport

Each woman (and their school) was deserving of our Outstanding Teacher Award and $1,000 donation!

As part of #MMGivesBack, educators that financed their mortgage – purchase or refinance – with a Michigan Mortgage Loan Officer received $100 worth of school supplies and we donated $50 worth of school supplies to another teacher on their behalf. In total, we donated supplies to 75 classrooms in more than 20 West Michigan school districts.

Michigan Mortgage Service Scholarship

In conjunction with our #MMGivesBack and Service Rewards programs, we launched the Michigan Mortgage Service Scholarship in hopes of recognizing High School Seniors with dreams of pursuing a career in service.

Careers Include:

  • Military
  • Teachers & Educators
  • Government & Politics
  • Police
  • Firefighters
  • First Responders
  • Doctors & Nurses

We will award two $1,000 scholarships to West Michigan Seniors in the coming weeks. Stay tuned!

Dancing with the Local Stars

Our very own Dave Lehner competed in the 2020 Dancing with the Local Stars event in Muskegon. This event was pre-pandemic and one of the last times our community was able to gather for a great cause.

Dave and his team spent hours practicing their routine and gave a flawless performance. We were so happy to be in the audience cheering him on!

Standup for the Cure

This is one of our favorite local events and we were disappointed to miss a fun-filled day at the beach, but our employees stood up and participated at their own homes. Some hiked and explored outdoors while others kayaked, swam and played basketball in their backyards.

Shawn Norden, one of our fabulous Loan Officers, worked hard to raise awareness and get people involved in the 2020 fundraiser. We are always excited to support her and the local food bank and food programs in our area.

“While 2020 was challenging in many ways, it has taught us many lessons that will affect our business for years to come,” Rob said.

Thank you for taking this wild ride with us!

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!

Old Technology

An Employee’s Perspective: Then vs. Now

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Reflecting back on technology sometimes shows our age more clearly than wrinkles themselves. To hear someone talk about tech from back in the day gives you more insight into their age than if you had a copy of their actual birth certificate (think Atari video game systems, televisions without remotes and rotary dial phones).

As we celebrate the 25th year of Rob and Dave’s partnership in the mortgage business, let’s take a moment to reflect (and laugh) about how the changes in technology have impacted the mortgage industry.

Michigan Mortgage is currently a leader in cutting-edge technology in the mortgage industry.

One of our biggest strengths, especially with the pandemic we’re still surviving, is our mobility, both for clients and staff. When COVID hit, we didn’t miss a beat with getting our employees the tech to work remotely and changing to virtual appointments with clients and our teams via Zoom.

Our app, Pro Snap, has helped keep us connected with realtors wanting to run proposed housing payments, and clients being able to electronically sign application forms, and upload documents from their phones.

However, such conveniences have not always existed for us. I’ve been working for Rob and Dave for 19 years. When I started, our office was downtown Muskegon in the Noble Building. The tech set up we had there was already a vast improvement from the first few years Rob and Dave worked together, at which time they each had a home phone, a computer, and a fax machine in their basement home offices.

We each had a desktop computer, since back then laptops were a luxury item, and we worked with single monitors (which I shudder to think about). The monitors also took up more space on our desks than was reasonable — no flat screens back then!

The phone system…well, I don’t believe we can call three cordless handsets on one desk a phone ‘system’. To transfer calls to each other literally meant walking the phone down the hallway. There were no voicemails either. Messages were relayed via pink message pads, or after hours via a call-in pager number.

We thought we were so cool when we upgraded to Nextel cell phones. Ignore that they were each the size of a brick. And the constant two-way chirping did get old after a while.

Our many repeat clients have probably noticed improvements in our technology over the years as well. The biggest difference has been going paperless. Instead of having literally hundreds of pages to print for the clients to sign at application and closing, we’ve converted to almost all electronic signatures.

We’ve probably saved more than just a few trees by going paperless. We used to make physical copies of all signed documents, plus all of the borrower documents, appraisals, title commitments, etc. We then had to retain those records for years after closing, so we had a whole room that used to house just our closed files, that we later were able to convert into two office spaces.

Going paperless didn’t affect just us either — the entire industry shifted how we delivered documents to one another. When I started, we had an appraisal company we worked with regularly who had a staff member whose main job it was to drive his motorcycle around West Michigan and deliver physical copies of appraisal reports. Title companies would do the same-drop off copies of commitments to our office. And submitting files to underwriting back then meant we had to either overnight or fax 100+ page loan packages in for review.

All in all, the advances in technology these past two decades has translated to cost savings and more importantly, time savings. Instead of making copies, handwriting loan applications, and juggling up to five physical phones on one desk, we’re now able to focus more attention and service to our clients and realtors.

— Sarah Beahan, Loan Processor

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!

New Employee Collage

Meet the New Faces at Michigan Mortgage

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2020 was a wild year. The COVID-19 pandemic changed the way we do business and forced our team to learn new skills.

Historically low interest rates, as well as increased home values, brought new challenges and opportunity. To meet the increased market demand, we added six incredible people to our team.

We’ve introduced them before, but want to make sure they get the recognition they deserve. All six have bright futures at Michigan Mortgage!

Photo of Molly

Molly Fazakerley

Molly joined Team Garrison as a Loan Officer Assistant and assists with purchase and refinance pre-approvals. She came to us with years of customer service experience and a personality that brings so much joy to our office.

Molly is very passionate about lending and helping families achieve their home-buying dreams. She lives for making people smile and laugh and feel loved. She enjoys spending time with her family and friends and being a mom to two of the sweetest boys!

Abbi McIntyre

Abbi joined our team as a Closing Assistant and hit the ground running! Her previous experience in customer service and real estate allowed for a smooth transition.

Abbi graduated from Indiana Wesleyan with a degree in Social Studies Education, but realized she loved helping people through some of the craziest times of their lives and started working with real estate and lending. She is so excited to call Michigan Mortgage home!

Photo of RoseRose Engel

Rose joined our Holland Team as a Loan Officer Assistant after purchasing a new home with one of our talented Loan Officers.

“Michigan Mortgage made the purchasing process so easy and seamless that I knew that joining this team was the perfect opportunity for me,” she said.

She’s brand new to the industry but is eager to learn and loves being able to help people and make sure that they have what they need to be successful.

Jason Horton

Jason joined Team Lehner as a Loan Officer Assistant and hopes to use his customer service skills to guide our customers home. He’s a go-getter!

Jason’s motivation is his incredible family (Kristie, Kennedy and Hudson). He loves playing sports and appreciates the friendships he’s gained through them. Jason has always enjoyed helping people achieve their goals.

“I look forward to helping as many people as possible achieve their home ownership needs,” he said.

Photo of DavidDavid Onofrio

David joined Team Garrison as a Loan Officer Assistant and helps our customers achieve the American Dream. His previous experience, and finance degree from Hope College, brings a much-desired skill set to our team.

David’s greatest passion in life is helping and connecting with people. He enjoys spending time with family and friends and exploring the great outdoors.

“I am very excited to serve my community here at Michigan Mortgage,” David said.

Photo of RoseRose Orleskie

Rose joined Michigan Mortgage as a Processor in 2020.  She enjoys being part of Team Lehner and serving the community through building lasting relationships with clients while making their home-buying experiences enjoyable.

She is a West Michigan native who enjoys running, traveling, and spending time with family and friends.

Photo of HannahHannah Moss

Hannah joined our Processing Team and works diligently to get our customers to the closing table.

She came to us with prior experience in banking and was excited to transition into the mortgage industry. Outside of work, Hannah and her fiancé, Zach, are huge hockey and baseball fans and enjoy traveling. Their goal is to travel to all 30 MLB stadiums. They’ve been to 12!

“I remember how exciting it was to be a first-time homebuyer so to be able to share that same excitement with borrowers is really cool,” she said.

We can’t wait to see what our team can accomplish in 2021!

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

 

FICO Score

FICO Score: What It Is & Why It Matters

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When you apply for a mortgage, your lender runs a credit report. A key component of the report is your credit score. One of the most commonly used credit scores in the mortgage industry is FICO.

In this article, we describe what FICO is, how it is measured, how it is used when approving you for a mortgage, and steps you can take to maintain and improve your credit score.

What is FICO?

FICO is a credit score created by the Fair Isaac Corporation (FICO). The FICO company specializes in what is known as “predictive analytics,” which means they take information and analyze it to predict what might happen in the future.

In the case of your FICO score, the company looks at your past and current credit usage and assigns a score that predicts how likely you are to pay your bills. Mortgage lenders use the FICO score, along with other details on your credit report, to assess how risky it is to loan you tens or hundreds of thousands of dollars, as well as what interest rate you should pay.

Why is FICO Important?

FICO scores are used in more than 90% of the credit decisions made in the U.S. Having a low FICO score is a deal-breaker with many lenders. There are many different types of credit scores. FICO is the most commonly used score in the mortgage industry.

A lesser-known fact about FICO scores is that some people don’t have them at all. To generate a credit score, a consumer must have a certain amount of available information. To have a FICO score, borrowers should have at least one account that has been open for six or more months and at least one account that has been reported to the credit reporting agencies over the last six months.

FICO Score Ranges

FICO scores range between 300 and 850. A higher number is better. It means you are less risk to a lender.

Scores in the 670-739 range indicate “good” credit history and most lenders will consider this score favorable. Borrowers in the 580-669 range may find it difficult to obtain financing at attractive rates. Less than 580 and it is difficult to get a loan or you may be charged “loan shark” rates.

The best FICO score a consumer can have is 850. Fewer than 1% of consumers have a perfect score. More than two-thirds of consumers have scores that are good or better.

Here’s a breakdown of scoring ranges and what they mean:

  • Score: <580
    Rating: Poor
    What It Means: Well below average; Indicates to lenders that you’re a risky borrower
  • Score: 580-669
    Rating: Fair
    What It Means: Below average; many lenders will approve loans, but many will not
  • Score: 670-739
    Rating: Good
    What It Means: Average or slightly above average; most lenders will approve loans
  • Score: 740-799
    Rating: Very Good
    What It Means: Above average; shows lenders you are a dependable borrower; nearly all lenders will approve you
  • Score: 800+
    Rating: Exceptional
    What It Means: Well above average; shows lenders you are an exceptional borrower; virtually every lender will approve you

                               Source: Experian 

The 5 Components of a FICO Score

A FICO score take into account five areas to determine the creditworthiness of a borrower:

  • Payment History. Payment history identifies whether you pay your credit accounts on time. A credit reports shows when payments were submitted and if any were late. The report identifies late or missing payments, as well as any bankruptcies.
  • Current Indebtedness. This refers to the amount of money you currently owe. Having a lot of debt does not necessarily mean you will have a low credit score. FICO looks at the ratio of money owed to the amount of credit available. For example, if you owe $50,000 but are not close to reaching your overall credit limit, your score can be higher than someone who owes $10,000 but has their lines of credit fully extended.
  • Length of Credit History. The longer you have had credit, the better your score will be. FICO scores take into account how long the oldest account has been open, the age of the newest account, and the overall average.
  • Credit Mix. Credit mix identifies your variety of credit accounts — retail accounts, credit cards, installment loans, vehicle loans, mortgages, etc. More variety gives a higher score.
  • New Credit. New credit refers to recently opened accounts. If you have opened a lot of new accounts in a short period of time, that will lower your score.

How is FICO Calculated?

To determine credit scores, FICO weighs each category differently:

  • Payment history is 35% of the score
  • Current indebtedness is 30%
  • Length of credit history is 15%
  • Credit mix is10%
  • New credit is 10%
Here are some things that FICO says it does not factor into its scores:
  • Participation in a credit counseling program
  • Employment information, including your salary, occupation, title, employer, date employed or employment history
  • Where you live
  • The interest rates on your credit accounts
  • “Soft” inquiries (requests for your credit report), which include requests you make to see your own credit reports or scores
  • Any information that has not been proven to be predictive of future credit performance

Tips for Improving Your FICO Score

Here are tips for maintaining and improving your FICO score. The time it takes to improve your credit score depends on the reason your score needs boosting in the first place.  If your score is low because you don’t have much credit history, your score can be boosted within months. If your score is low for other reasons, boosting it can take longer.

  • Keep Credit Balances Below Limits. Getting a high FICO score requires having a mix of credit accounts and maintaining an excellent payment history. You should keep your credit card balances well below their limits. Maxing out credit cards, paying late, and applying for new credit all the time will lower FICO scores.
  • Dispute Errors. It’s possible to improve your credit score in a matter of weeks. For example, you could successfully dispute errors on your credit report, pay down credit card debt, or pay off collections accounts. These actions could remove negative information from your credit report or add some positive info, either of which may benefit your credit score.
  • Pay Bills On Time. Realistically, here’s what you need to do: pay your monthly bills on time. A single on-time payment won’t do much to improve your score. Paying your bills regularly on-time will.

Here’s how different actions can negatively affect your credit score and for how long:

Action Avg. Recovery Time Credit Score Impact
Applying for Credit 3 months Minor
Closing an Account 3 months Minor
Maxing Out a Credit Card 3 months Moderate
Missed Payment / Default 18 months Significant
Bankruptcy 6+ years Significant
Source: VantageScore

Have questions about FICO or anything else mortgage-related? Give us a call!

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.