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First-Time Buyer Questions

First-Time Buyer FAQ ⁠— Part 2

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First-Time Buyer QuestionsFor first-time buyers, the mortgage process raises a lot of questions. In part two of this series, we tackle some more of the most common questions we receive from customers.

“How Much Should I Save for a Down Payment?“

The exact dollar amount you should save for a down payment depends on the price of the house you are buying. Most down payment requirements are expressed in percentages. A 5% down payment on a $500,000 house is much greater in raw dollars ($25,000) than 5% on a $200,000 house ($10,000).

In terms of the minimum requirements for different loan types:

  • For USDA or VA loans, no down payment is required.
  • For FHA loans, the minimum down payment is 3.5%.
  • For FannieMae HomeReady loans, the down payment is 3%.
  • On a conventional loan, the minimum down payment will be somewhere between 3% and 5% of the purchase price. Be aware, however, that you will have to pay private mortgage insurance (PMI) if your down payment is less than 20% of the purchase price.

“What Will My Monthly Payment Look Like?“

A mortgage payment consists of two components:

  • Principal
  • Interest

The principal portion goes toward paying off the original amount of money you borrowed. The interest portion covers the cost of borrowing.

Your mortgage payment will be the same amount each month. Early in the life of the loan, more money goes toward interest than principal. Over time, the principal portion will match and then exceed the interest amount. For example, on a 30-year $200,000 mortgage at 4%, your monthly payment is $955. For the first payment, $288 goes toward principal and $667 goes toward interest. It isn’t until the 153rd payment that the interest and principal are roughly equal. Thereafter, more of the monthly payment goes toward principal until, on the very last payment of the schedule, $952 goes to principal and $3 to interest.

Your lender will provide you with an amortization schedule that shows a month-by-month P&I (principal and interest) breakdown for your loan.

For convenience, many people include property tax and insurance payments in their monthly mortgage payment. Technically, these aren’t part of the loan, but the loan servicer can put this money into an escrow account, where it is saved until the taxes and insurance are due. They then make the payments for you. You are not required to include escrow in your monthly payments. If you choose not to, you will just pay your property taxes and insurance annually on your own.

“Which Loans Are Best for First-Time Buyers?“

Along with conventional loans, the following loans offer distinct advantages for first-time buyers.

  • FHA loans. A Federal Housing Administration (FHA) loan is a mortgage that is insured by the Federal Housing Administration (FHA) and issued by an FHA-approved lender such as Mortgage 1. FHA loans are designed for low-to-moderate-income borrowers; they require a lower minimum down payment and lower credit scores than many conventional loans.
  • VA loans. VA loans are offered through the Department of Veterans Affairs. They are available to active and veteran service personnel and their families. VA loans are backed by the federal government and issued through private lenders like Mortgage 1. VA loans have favorable terms, such as no down payment, no mortgage insurance, no-prepayment penalties, and limited closing costs.
  • USDA loans. Rural Development home loans are low-interest, fixed-rate loans provided by the United States Department of Agriculture. The loans do not require a down payment. The loans are financed by the USDA and obtained through private lenders, such as Mortgage 1, and are meant to promote and support home ownership in underserved areas.
  • MSHDA loans. The Michigan State Housing Development Authority (MSHDA) offers down payment assistance to people with no monthly payments. The down payment program offers assistance up to $7,500 (or 4% of the purchase price, whichever is less).

“Can I Complete the Mortgage Process Online?“

Yes! Every Michigan Mortgage loan officer has a Home Snap digital application that allows you to complete the application process online. You can get approved in as little as 15 minutes. The app lets you submit your information, communicate with your loan officer, and track the status of your loan. In these times of COVID and social distancing, Home Snap is the perfect solution.

“What is PMI?“

Private Mortgage Insurance (PMI) is an insurance policy that protects a mortgage lender or title holder if a borrower defaults on payments, passes away, or is otherwise unable to meet the contractual obligations of the mortgage. If you pay 20% or more as a down payment on a conventional loan, you do not need PMI. Once you start paying PMI, it goes away in two ways: (1) once your mortgage balance reaches 78% of the original purchase price; (2) at the halfway point of your amortization schedule. For example, if you have a 30-year loan, the midpoint would be 15 years. At the point, the lender must cancel the PMI then, even if your mortgage balance hasn’t yet reached 78% of the home’s original value. PMI is typically between 0.5% to 1% of the entire loan amount.

“What Do I Need to Bring to Closing?“

Closing is when you sign the many documents that finalize your purchase. The closing is usually held at a title company’s office. The seller will be there, as will your agent. In terms of what you should bring:

  • Photo ID: The closing agent has to verify that you are who you say you are. A driver’s license or current passport will do.
  • Cashier’s or certified check: This is to cover any down payment and closing costs you owe. Do not bring personal check or cash. Your lender will tell you how much the check should be and who it should be made out to.
  • Proof of insurance: The closing agent needs to see proof that you have the insurance in effect on closing day and a receipt showing you’ve paid the policy for a year. They may have already collected that, but it doesn’t hurt to bring your own copy just to ensure things go smoothly.
  • Final purchase and sales contract: Just in case you need to double-check anything against the actual closing costs.

“What Happens If My Appraisal is Low?“

When determining the size of your loan, lenders use a formula called loan-to-value (LTV). When your mortgage contract is initially written, LTV is calculated using the purchase price. But the final contract is based upon the official appraised value of the house. What happens if the appraised value comes in lower? You have several options.

  • Boost the amount of your down payment. This will allow you to meet the LTV and down payment minimums.
  • The seller can lower the price. The seller can agree to drop the sales price of the house to match the appraised value. This will allow you to meet LTV.
  • Dispute the appraisal and ask for a new one. If you think the appraiser undervalued the house, you can ask for a new appraisal.
  • Cancel the purchase. If a compromise can’t be reached, you can cancel the home purchase agreement.

“What Will Mortgage Rates Be Next Year?“

Ah, if only we had a crystal ball. We can’t predict what mortgage rates will be in a year, but we can say that rates today are near historic lows. The Federal Reserve announced recently that they will be holding short-term interest rates steady for the foreseeable future. While mortgage rates aren’t tied specifically to short-term interest rates, the two generally track closely together. So, while we can’t predict what rates will be in a year, we can say with certainty that today’s rates are at historic lows.

Got Questions? We’ve Got Answers

If you have questions, let us know. At Michigan Mortgage, we specialize in helping first-time buyers understand the mortgage process.

This blog post was written by experts at Mortgage 1 and originally appeared on www.mortgageone.com. Michigan Mortgage is a DBA of Mortgage 1. 

First Time Buyer FAQ

First-Time Buyer FAQ

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For first-time buyers, the mortgage process raises a lot of questions. In this article, we tackle some of the most common questions we receive from customers.

“How Does a Mortgage Work?”

First Time Buyer FAQTechnically speaking, “A mortgage is a debt instrument secured by the collateral of specified real estate property, that the borrower is obliged to pay back with a predetermined set of payments.” (Investopedia.com)

What does that mean in plain English? It means, when you get a mortgage, you are (1) borrowing money from a lender and (2) committing yourself to paying back the money you borrowed in equal monthly payments for the length of the loan.

Because a house can be expensive, mortgage payments are usually spread over 15 or 30 years, making the cost affordable.

Your mortgage payment will consist of principal and interest portions. The principal portion goes toward reducing the amount of money you originally borrowed. The interest portion goes toward paying off the interest, which you can think of as the fee the lender charges to loan you money.

You can make additional payments, if you want, but at the least you need to make your minimum monthly payment each month.

“What Types of Loans Are There?”

Mortgage lenders offer a wide variety of loans designed to meet the needs of buyers. The most common types of loans obtained by first-time buyers are:

  • Conventional loans. This is the most common type of mortgage loan. Conventional loans can be for as long as 30 years or as short as five years, with options in between. They can be fixed-rate or adjustable rate. Conventional loans are provided by banks as well as private mortgage lenders like Mortgage 1. When most people think about home loans, the conventional loan is the one they are thinking of.
  • FHA loans. A Federal Housing Administration (FHA) loan is a mortgage that is insured by the Federal Housing Administration (FHA) and issued by an FHA-approved lender such as Mortgage 1. FHA loans are designed for low-to-moderate-income borrowers; they require a lower minimum down payment and lower credit scores than many conventional loans.
  • VA loans. VA loans are offered through the Department of Veterans Affairs. They are available to active and veteran service personnel and their families. VA loans are backed by the federal government and issued through private lenders like Mortgage 1. VA loans have favorable terms, such as no down payment, no mortgage insurance, no prepayment penalties and limited closing costs.
  • USDA loans. Rural Development home loans are low-interest, fixed-rate loans provided by the United State Department of Agriculture. The loans do not require a down payment. The loans are financed by the USDA and obtained through private lenders, such as Mortgage 1, and are meant to promote and support home ownership in underserved areas.
  • MSHDA loans. The Michigan State Housing Development Authority (MSHDA) offers down payment assistance to people with no monthly payments. The down payment program offers assistance up to $7,500 (or 4% of the purchase price, whichever is less).

“How Do I Qualify for a Mortgage?”

Different mortgage types have different specific qualification requirements, but the general process of qualifying for a mortgage is the same.

  1. You submit an application with a lender.
  2. You provide the necessary documentation, which includes paycheck stubs, tax statements, bank and asset statements, and identification.
  3. The lender reviews your information. They look at your income, how much debt you have, and they also pull a credit report.
  4. Based upon your status, the lender determines how much money you can afford for a mortgage as well as what interest rate you should receive.

“What Is the Required Minimum Credit Score?”

An important element of qualifying for a mortgage is your credit score. Your lender pulls a credit report to look at your credit score. Different loan types have different qualifying scores:

  • The minimum qualification score for most conventional loans is 620.
  • For FHA loans, the minimum score is 580.
  • For VA loans, the minimum score is 620.
  • For USDA loans, the minimum score is 640.

In addition to credit score, a lender looks at your debt-to-income ratio to make sure you are not overextended.

“How Much House Can I Afford?”

To determine how much house you can afford, follow the 28/36 rule.

Many financial advisers agree that households should spend no more than 28 percent of their gross combined monthly income on housing expenses and no more than 36 percent on total debt. Total debt includes housing as well as things like student loans, car expenses, and credit card payments.

The 28/36 percent rule is the tried-and-true home affordability rule that establishes a baseline for what you can afford to pay each month.

To calculate how much 28 percent of your income is:

  • Multiply 28 by your monthly income. If your monthly income is $7,000, then multiply that by 28. 7,000 x 28 = 196,000.
  • Divide that total by 100. For example, 196,000 ÷ 100 = 1,960.

Do the same for the 36 percent rule, using 36 in place of 28 in the example above.

Got Questions? We’ve Got Answers

Come back next week for part two of this article. In the meantime, if you have questions, let us know. At Michigan Mortgage, we specialize in helping first-time buyers understand the mortgage process.

This blog post was written by experts at Mortgage 1 and originally appeared on www.mortgageone.com. Michigan Mortgage is a DBA of Mortgage 1. 

Calculating mortgage interest rates and payments

Calculating Mortgage Interest Rates and Payments

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For much of American history, home ownership was out of reach for most families. Prior to the 1930’s, mortgages were limited to 50 percent of a property’s market value and the repayment schedule was spread over three to five years, with a balloon payment at the end.

With terms like that, it is no wonder only four in 10 Americans at the time owned homes.

In 1934, the modern mortgage was created by the FHA. Loans from the FHA spread payments across 30 years. In doing so, they made the cost of borrowing lower and home ownership more attainable.

Today, mortgages come in a variety of lengths and terms and, in fact, are the most common type of personal loan held by households.

One thing all mortgages have in common is they charge interest. Understanding what mortgage interest is, how it is calculated, and how it impacts your payments is critical to ensuring you get the best terms possible when you shop for a mortgage.

Calculating Interest

Calculating mortgage interest rates and paymentsInterest is what makes all forms of borrowing possible. Interest is the fee a lender charges for loaning money.

While a person might be willing to lend a family member money without charging interest, in the real world, nobody loans money, especially large amounts, without getting something in return to cover the risk. Interest protects and rewards the lender.

Mortgage interest rates can vary depending on market conditions and the borrower’s credit score. Today, mortgage rates are at historic lows, making home ownership more affordable than ever.

When repaying a loan, interest is the additional payment made on top of the principal. Principal is the original amount you borrowed.

The interest rate is expressed as an annual percentage rate. Calculating interest and the total amount owed is pretty straightforward.

For example, let’s say you borrow $5,000 at a simple interest rate of 3% for five years. You would pay a total of $750 in interest. The formula for calculating amount owed and interest is: P(1 + (R x T)) = A

  • P is the principal amount. This is how much you originally borrowed.
  • R is the rate of interest per year, written in decimal format (e.g., 0.03)
  • T is the total time in years you’ll use to pay off the loan.
  • A is how much you pay over the total life of the loan, including interest.

In this example, the total cost is calculated as follows: $5,000(1+(.03 x 5)) = $5,750. The difference between this number and the original loan amount is the amount of interest ($750).

Types of Mortgage Interest

There are two primary types of interest that are assigned to mortgages: fixed interest and variable interest.

Fixed Interest

The monthly payment remains the same for the life of this loan. The interest rate is locked in and does not change. Loans have a repayment life span of 30 years; shorter lengths of 10, 15 or 20 years are also commonly available.

Variable Interest

With a variable interest loan, often called ARM (“adjustable rate mortgage”), the interest rate is not locked in and monthly payment for this type of loan will change over the life of the loan. Most ARMs have a limit or cap on how much the interest rate may fluctuate, as well as how often it can be changed. When the rate goes up or down, the lender recalculates your monthly payment so that you’ll make equal payments until the next rate adjustment occurs.

What is APR?

APR stands for “annual percentage rate.” It’s a true, all-encompassing measurement of the cost of borrowing money. The APR could include fees associated with the loan. That makes the APR slightly higher than the actual base interest rate of the loan.

To calculate APR:

  • Add the fees and the interest paid over the entire life of the loan
  • Divide that by the loan amount
  • Divide that by the number of days you’ll be paying back the loan
  • Multiply that by 365
  • Multiply again by 100

Consider this example: You borrow $5,000 at 3% over 5 years and there’s a $150 administration fee for the loan. The APR is calculated as follows.

  • $150 + $750 = $900
  • 900/5000 = 0.18
  • (0.18/1825) x 365 = 0.042
  • .042 x 100 = 4.2

The APR for this loan is 4.2%.

The Amortization Schedule

Mortgage payments are made on a monthly basis. Each month, you pay back a portion of the principal plus the interest accrued for the month. Your monthly payment remains the same for the life of the loan.

The lender will provide you with an Amortization Schedule that lists how much principal and how much interest you are paying each month. Early in the life of the loan, you will pay more interest than principal. Over time, the amount of principal paid each month increases.

For example, a $100,000 loan with a 6 percent interest rate carries a monthly mortgage payment of $599.55. For the first payment, $500 each goes toward the interest; $99.55 goes toward principal. Each month, slightly more goes toward principal; see the table below. Not until year 18 does the principal payment exceed the interest.

Payment Principal Interest Principal Balance
1 $99.55 $500.00 $99,900.45
12 $105.16 $494.39 $98,772.00
180 $243.09 $356.46 $71,048.96
360 $597.00 $2.99 $0

The advantage of amortization is that you can slowly pay back the interest on the loan, rather than paying one huge balloon payment at the end. The downside of spreading the payments over 30 years is that you end up paying $215,838 for that original $100,000 loan.

The total cost of a mortgage loan depends on the interest rate, as well as the length of the mortgage. The longer you finance for, the more you’ll pay if all other factors are the same. Consider the examples below.

  • $100,000 mortgage at 3.92 interest for 30 years equals a total cost of $170,213 and a monthly payment of $473
  • $100,000 mortgage at 3.92 interest for 15 years equals a total cost of $132,423 and a monthly payment of $736

If you have questions about mortgage interest rates or payments, don’t hesitate to reach out! We are experts at guiding buyers through the home buying process and are here to help in any way we can.

This blog post was written by experts at Mortgage 1 and originally appeared on www.mortgageone.com. Michigan Mortgage is a DBA of Mortgage 1. 

Get Top Dollar When Selling a Home

How to Get Top Dollar When Selling a Home

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If you are considering making a move, here are 10 ways to get top dollar when selling a home.

Remove personal photos and items. 

Get Top Dollar When Selling a HomeBuyers need to be able to imagine their own photos on the walls, and most cannot do that if sellers have personal photos up. Don’t make any buyer ask,“I wonder what kind of people live in this home?”

Americans collect an amazing amount of stuff and prior to listing their home, they should de-clutter.

If home sellers have not used something in over a year it is time to consider selling it on E-bay/craigslist or donating it.

    • Remove almost all books from bookcases and coffee tables.
    • Store all knickknacks.
    • Kitchen counters need to be completely clean and polished.
    • Anything you need on a daily basis should be stored behind a cabinet door.

Sellers will be moving anyway and now is a great time to get a start on the move.

All cabinets & closets need to be reorganized and remove ½ of what is normally inside. 

Buyers will open all the closet and cabinet doors. If the buyer sees a clean organized space then they are more likely to see themselves living there.

    • Organize the pantry.
    • Carefully stack dishes and glasses.
    • Hang shirts together, buttoned and facing the same direction paints by color and type.
    • Line up shoes and remove all but two pairs for each family member.
Get the extra stuff off the property.

Homes show better with less furniture, keep the minimum amount needed. Reduce the size of your dining room table by removing extra leaves. Leave just enough furniture in each room to feature the room’s purpose but with plenty of room to move around.

Remove/Replace sentimental items.

If the seller intends to take window coverings, built-in appliances or fixtures with them they should, remove them before showing the home. Any heirloom fixtures should be removed and replaced.

Make minor repairs.
    • Replace cracked floors or counter top tiles and any holes in the walls.
    • Fix leaky faucets and doors that don’t close properly.
    • Consider painting your walls neutral colors, there is no greater homeowner repair that increases home values than a neat repainting.
    • Replace burned-out light bulbs and get new linens for the beds.
Make the house look brand new with an extensive cleaning.
    • Wash windows inside and out and power wash all outside services.
    • Re-caulk tubs, showers, and sinks.
    • Polish chrome faucets and mirrors.
    • Clean out the refrigerator and keep it ½ full and organized.
    • Vacuum daily and wax all floors.
    • Dust furniture, ceiling fan blades, light fixtures and light switches.
    • Bleach dingy grout and replace worn rugs.
    • Hang up fresh towels in the bathroom.
    • Air out and sanitize any musty smelling areas.
    • Clean and organized the garage to remove any oil stains.
Look at the Home with new eyes.
    • Go outside and open the front door. Is it inviting? Does the home welcome you?
    • Stand in the doorway of every single room and imagine how the house will look to a potential buyer.
    • Carefully consider how furniture is arranged and move pieces if necessary.
    • Make sure window coverings hang level.
    • Tune in to the room’s statement and its emotional pull. Does it have impact and pizzazz?
    • Does it look like nobody lives in this house? You’re almost finished.
Check curb appeal.

If a buyer won’t get out of her agent’s car because she doesn’t like the exterior of your home, you’ll never get her inside.

    • Keep the sidewalks cleared.
    • Mow the lawn and keep it weed free.
    • Paint faded window trim.
    • Plant yellow flowers or group flower pots together. Yellow evokes a buying emotion. Marigolds are inexpensive.
    • Trim your bushes.
    • Make sure visitors can clearly read your house number.
Clean out your garage and get your cars parked inside.
    • Remove 90 percent of what is currently inside.
    • Add a fresh paint
    • Remove any oil stains.

We wish you lots of luck! And we hope this list helps you get top dollar when selling a home.

Buying a Vacation Home

Tips for Buying a Vacation Home

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August is the traditional vacation month for many Americans.

In Michigan, vacationers go “up north” for relaxation and fun. Some own waterfront cottages or cabins in the woods. Others may spend time at a lakeside rental.

For those who do not own a place, the experience of getting away for a week or two inspires dreams of buying a vacation home.

If you fall into this category, this article is for you. We’ve assembled tips for buying the vacation home of your dreams.

These guidelines apply whether you want a place on the Great Lakes in Michigan, near Put-in-Bay in Ohio, on Florida’s Gulf Coast, in California’s Napa Valley, or on the outer banks of Texas.

Buying a Vacation HomeThe Benefits of Owning a Vacation Home

We’ve already alluded to one of the benefits of owning a vacation home: having a place to call your own.

There are other benefits, too.

  • If you vacation often, you could save money in the long run. Vacation rentals during peak seasons like summer or the winter ski season can get expensive. They might equal or exceed the cost of annual mortgage payments on a place you own outright.
  • You could generate income by renting out your vacation home.
  • Your vacation home may appreciate in value over time, providing you with an investment that builds wealth.
  • There could be tax advantages to owning a vacation home. (Consult your tax advisor.)
  • You have a place to potentially retire to.
  • You have a place you can go to anytime, year-round, to relax and get away.
  • You have a place to entertain family and friends and start new traditions.

The Realities of Owning a Vacation Home

As with most things in life, owning a vacation home does have its flip side. None of these are insurmountable, but you should be aware that when you own a vacation home:

  • Depending on the location, vacation homes can be expensive to buy. A condo or small cabin in woods is within many people’s reach, but waterfront property on a sandy beach might not be.
  • You will be paying a mortgage, property tax, insurance, utilities, and maintenance expenses for two homes.
  • Real estate isn’t as liquid an asset like stock or bonds. While real estate generally appreciates over time, there are occasions where prices drop. If you need to sell during a market or economic downturn, you may have to take a reduced price.
  • In some places, you may not be able to rent your property. Or, there are restrictions on how often and how long you can rent.

Buying a Vacation Home

Financing a vacation home is different than financing your primary home. How so?

  • If you already have a primary home mortgage, the vacation property mortgage will be considered a “second home” mortgage.
  • Second home mortgages sit between primary home mortgages and investment property mortgages.
  • Second home mortgages are a bit tougher to qualify for. Lenders often want larger down payments. And the interest rate may be higher. Why? The reason is, a vacation home represents a larger risk to the lender. If a homeowner is having trouble making the payments on their vacation home vs. their primary home, most owners will make their primary mortgage payments. This puts the second home at greater risk. Lenders want larger down payments to ensure borrowers have more skin in the game.
  • If you have a primary home mortgage, your income needs to be high enough to justify both the primary and secondary mortgage payments.

Vacation Home vs. Investment Property

One thing in your favor when it comes to financing a vacation property home is, if you plan to use the property as a true second home, it’s less expensive than if you plan to use it as an investment property.

Tips for Buying a Vacation Home

Here are tips for getting your dream vacation home:

  • Be familiar with the area in which you want to purchase.
  • Find a local real estate agent in the area.
  • Start saving now. Down payments on vacation homes can be as much as 30% higher than on primary residences.
  • Go with a lender you can trust. For a vacation home, while you should use a local real estate agent, you can use whichever lender you are comfortable with.
  • Get pre-approved.

Are you considering a vacation home? Do you have questions? Give us a call at 231-799-2606.

This blog post was written by experts at Mortgage 1 and originally appeared on www.mortgageone.com. Michigan Mortgage is a DBA of Mortgage 1. 

A First-Time Buyer’s Guide

A First-Time Buyer’s Guide

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

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

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

Step 1: Check Your Credit Score

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

Step 2: Save for a Down Payment

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

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

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

Step 3: Calculate What You Can Afford

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

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

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

The calculations are as follows:

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

Step 4: Choose a Mortgage Lender

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

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

Step 5: Get Preapproved

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

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

Step 6: Find a Real Estate Agent

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

Step 7: Find a House

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

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

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

Step 8: Make an Offer

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

Step 9: Get an Inspection

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

Step 10: Closing

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

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

This blog post was written by experts at Mortgage 1 and originally appeared on www.mortgageone.com. Michigan Mortgage is a DBA of Mortgage 1. 

The Benefits of Working with a Local Mortgage Lender

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

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

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

1. Personalized Service

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

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

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

2. Local Expertise

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

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

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

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

3. Realtor Relationships

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

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

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

4. Varied and Specialized Products

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

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

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

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

5. Reliable, Responsive & Flexible

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

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

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

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

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

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

This blog post was written by experts at Mortgage 1 and originally appeared on www.mortgageone.com. Michigan Mortgage is a DBA of Mortgage 1. 

Doctor Loans: What You Need to Know

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

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

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

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

The Michigan Mortgage Physician Mortgage Loan Program

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

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

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

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

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

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

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

This blog post was written by experts at Mortgage 1 and originally appeared on www.mortgageone.com. Michigan Mortgage is a DBA of Mortgage 1. 

Buying a Home with Zero Down

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What is a “Zero-Down” Loan?

A zero-down home loan is a no-down-payment mortgage offered by the United States Department of Agriculture (USDA) for eligible rural and suburban home buyers.

You might be thinking, “but I don’t live in a rural area.” That’s OK. While the purpose of the USDA loan program is to boost home ownership in rural areas, the USDA’s definition of “rural” is wide ranging and includes many villages, small towns, suburbs and exurbs of major U.S. cities.

These loans are issued through the USDA Rural Development Guaranteed Housing Loan Program. USDA loans have been available since 2007. They are generally intended for low- or moderate-income borrowers.

What Are the Benefits of a USDA Loan?

USDA loans offer many benefits over traditional mortgage loans.

  • $0 down payment. This is the obvious benefit.
  • Competitive interest rates. USDA loans typically offer some of the lowest interest rates on the market. Interest rates on USDA loans are determined by several contributing factors, however the primary factor is your credit profile, as is the case with all mortgage options. Those with higher credit scores often receive the most competitive rates, although borrowers with less than stellar credit may still qualify for a low rate due to the USDA guarantee.
  • Low monthly mortgage insurance
  • Lenient requirements. USDA loans are designed to provide homebuyers with lenient eligibility requirements that help low-to-moderate income purchasers obtain a home.

USDA Loan Eligibility

At a minimum, USDA loan program guidelines require:

  • U.S. citizenship or permanent residency
  • Ability to prove creditworthiness, typically with a credit score of at least 640
  • Stable and dependable income
  • A willingness to repay the mortgage, as indicated by at least 12 months of no late payments or collections
  • Adjusted household income is equal to or less than 115% of the area median income. See here for income guidelines.

A credit score of 640 or above usually helps eligible borrowers secure the best rates for a guaranteed USDA loan with zero down payment. Such a score also rewards you with a streamlined or automated application process.

You can still qualify for a USDA loan if your credit score falls below the margin or if you have no credit history at all. However, the interest rates may not be as favorable. In addition, applicants with no traditional credit history may still qualify for these loans. However, you’ll need to show a reliable financial standing through evidence like timely utility or tuition payments.

How Do I Apply?

Applying for a USDA loan is pretty straightforward.

The first step is to choose a USDA lender, such as Michigan Mortgage. We specialize in USDA loans. Once you are working with us, we’ll find out what home you are interested in, where it’s located, your asset and debt situation, and how much you need to borrow. We will conduct a credit check to assess your credit score, just as we do with a traditional mortgage.

Once all that is done, we’ll ask you to provide documentation, including:

  • Government-issued ID
  • W-2 statements
  • Recent pay stubs
  • Bank statements

The application process is pretty easy, really. Our loan officers are skilled at making everything go smoothly and helping you navigate the process and get you in your home as soon as possible.

This blog post was written by experts at Mortgage 1 and originally appeared on www.mortgageone.com. Michigan Mortgage is a DBA of Mortgage 1. 

Happy Healthy with Hadlee: Connecting with Nature

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Earlier this month, we hosted a Zoom Class focused on health and wellness during the COVID-19 pandemic. We were joined by Health and Lifestyle Change Coach Hadlee Garrison – she had a ton of helpful information to share.

Here are some of Hadlee’s suggestions that we found to be most helpful during this difficult time.

Michigan Mortgage: Welcome back! We appreciate you sharing your knowledge with us!

Can you explain why our mental and physical health are so connected? Why are they so intertwined?

Hadlee: Often we think of a distinction between our physical health and our emotions, mental clarity, moods, and thoughts. But in actuality, our physical and mental health are inextricably connected.

The way we feel physically impacts our moods and emotions in both tangible and subtle ways. Physical injuries and disease can result in mental health issues. A less obvious but common example of this is overeating and experiencing lethargy, grumpiness, and/or mental fog.

And the way we think and feel mentally and emotionally can also manifest physically. This can be seen when a person experiences the placebo effect and is healed of a physical malady without actually getting the treatment they think they’re getting. It can also show up as physical disease down the road after years of repressed emotion or trauma.

While modern health sciences have historically focused only on physical health, we are finally seeing more attention given to the significant effects mental health plays not only in day-to-day quality of life but also in the physical health of all individuals.

It only makes sense that whatever is happening in one part of the body could create a cascade of effects to another part of the body. The brain is part of the body, so it can affect the rest of the body in both negative and positive ways, and vice versa. For a long time, we believed that the mind and the body didn’t really affect each other, but now modern research shows just how much we’ve overlooked the mind-body connection and how much each affects the other.

MM: This is so fascinating! One thing we talked about a lot on our call is the importance of getting out and enjoying nature. Can you explain that a little bit?

H: Time spent in nature is linked to a whole host of physical and mental benefits. It can:

  • Lower stress
  • Increase mental acuity and attention
  • Calm the nervous system
  • Increase levels of cancer-fighting “natural killer cells” in the body
  • Activate neural pathways associated with calm
  • Decrease levels of depression and anxiety
  • Enhance immune function

It really is so important to be intentional about getting outside right now, especially since we might be less likely to get outside during Shelter in Place because we aren’t going as many places.

Bonus: Pair your time in nature with movement for added health benefits!

MM: Tell us more about movement! Why is it so important for mental and physical health?

H: Movement is so important for both our physical and mental health. It’s not just about creating a physically fit body. Moving your body is incredibly important for:

  • Decreasing risk for chronic diseases like heart disease, obesity, type 2 diabetes, and some cancers
  • Strengthening bones and muscles and decreasing injury as you age
  • Improving sleep
  • Increasing resilience to stress
  • Improving moods throughout the day
  • Reducing risk for depression and anxiety.
  • Improving the structure and function of the brain, making you more mentally clear and focused and allowing you to learn information and make decisions with more clarity and ease.

MM: Thank you for your guidance! If people would like more information, or to connect with your directly, how can they do that?

H: Sign up for a 30-minute Health Goals Session, where we’ll talk about your health and life goals, challenges, and priorities, as well as next steps for achieving your wellness goals.

If you want to work with me further, you can indicate that on your Health Goals Session application. Here is the description for my Happy Healthy Habits program, where they can take a look at what I do with my clients and what I might be able to do for them if we find we’re a good fit for each other.

And if you want more tips, inspiration, advice, and other fun stuff, you can follow and/or direct message me on Instagram or Facebook @happyhealthyhadlee, or sign up for my newsletter. I respond to all questions and inquiries with as much support as I can, and welcome communication, especially during these challenging times. My passion is helping and empowering people to take control of their own wellbeing and life, so reach out and I’ll do whatever I can to help!