Buying a Home in Farmington Hills MI and Your Credit Score

Buying a Home in Farmington Hills MI and Your Credit Score

Buying a Home in Farmington Hills MI and Your Credit Score

Your 3-digit credit score affects nearly every facet of your financial life. The higher the score, the easier it is to achieve important milestones such as buying a car or getting a mortgage to purchase Farmington Hills MI homes for sale. Credit scores typically range from 300 (poor) – 850 (excellent) and borrowers within a certain range can qualify for a mortgage loan.

While you don’t need a perfect 850 credit score to get the best mortgage rates, there are general credit score requirements you must meet in order to take out a mortgage. For the best mortgage rates, you should try to aim for a credit score of 760 or higher. However, the minimum credit score requirements vary.

Conventional and jumbo loans are not insured by the government and will often have higher credit score requirements than government-backed loans, such as VA loans or USDA loans. The VA itself doesn’t have a minimum credit score requirement. Instead, it requires lenders to look at the overall loan profile.

Mortgage lenders may set their own underwriting requirements, and many lenders want to see a credit score of 620 or higher. There’s also no minimum credit score requirement for a USDA Loan, and you can possibly get approved for one with a 620, 600, or even a 580 credit score. 

Having a higher credit score makes a big difference in the amount of money you pay over the course of a loan. Credit scores in the higher range can save you thousands of dollars in interest payments over the life of a mortgage.

Minimum FICO Credit Score Requirements for Several Mortgage Loans 

1). Conventional Loans 

Borrowers need a minimum credit score of 620 (Fair) to qualify for a conventional mortgage loan. Conventional loans follow standards set by government-sponsored mortgage loan companies, Freddie Mac and Fannie Mae, and may be secured by one of these companies or a private lender. 

Conventional loans are more affordable and are divided into conforming or non-conforming loans based on whether they conform or follow lending rules set forth by Fannie Mae and Freddie Mac. Conforming loans follow standards such as maximum loan amounts and non-conforming loans may exceed those limits.

2). Jumbo Loans

Borrowers need a minimum credit score of 680 (Good) to qualify for a non-conforming jumbo loan. A jumbo loan exceeds the maximum loan amount limits set by the Federal Housing Finance Agency ( FHFA), responsible for overseeing Fannie Mae and Freddie Mac, as well as the 11 Federal Home Loan (FHL) banks. 

Jumbo loans are not eligible to be insured by Fannie Mae or Freddie Mac, which means lenders take on more risk in the case borrowers default on the loan. Borrowers need to meet higher credit score requirements of at least 680 due to the larger loan amounts and riskier nature of these loans. As with conforming conventional loans, down payments vary.

3). FHA Loans

Borrowers need a minimum credit score of 500 (poor) with 10% down or a score of 580 (fair) with 3.5% down. Insured by the Federal Housing Administration, an FHA loan is an option for borrowers who are considered a higher risk due to low credit scores and little money to put toward a down payment. Credit score requirements differ based on how much money you plan to put down. 

Borrowers with a higher credit score can qualify to make a lower down payment. With a down payment of less than 20%, lenders will typically require borrowers to take out private mortgage insurance (PMI) to cover the cost if you default. Although PMI costs extra, it allows buyers who cannot make a significant down payment (or those who choose not to) to obtain financing at affordable rates. 

PMI typically costs 0.5% – 1% of your loan amount per year. So, for example:  if you buy a $300,000 home, you would be paying anywhere between $1,500 – $3,000 per year in mortgage insurance. This cost is broken into monthly installments to make it more affordable.

4). VA Loans

VA loans are insured by the U.S. Department of Veteran Affairs and are designed for eligible members of the military community and their spouses. The VA doesn’t set a minimum credit score requirement for the VA loan, but also does not make the loan. Lenders who do make the loans will typically have a credit score benchmark. Although the benchmark can vary from lender to lender, a 620 (fair) credit score is a common requirement for a VA loan. 

When determining credit eligibility for a VA loan, lenders will analyze the borrower’s credit profile. This generally includes pulling credit reports from the three major credit-reporting agencies (Equifax, TransUnion, and Experian) and taking the middle, or median, score as your credit score for VA loan qualification.

In addition to your credit score, your lender will consider past credit patterns to determine willingness to repay. A borrower who has made timely payments for at least the past 12 consecutive months demonstrates a willingness to repay future credit obligations. Conversely, a borrower with late payments, judgments, and delinquent accounts may not be a good candidate for loan approval.

5). USDA Loans

Although USDA loans don’t officially have a minimum credit score requirement, most lenders prefer a minimum credit score of 640. The U.S. Department of Agriculture guarantees a mortgage issued by a participating local lender, similar to an FHA loan and VA-backed loans, allowing you to get low mortgage interest rates, even without a down payment. If you put little or no money down, you will have to pay PMI. 

Borrowers typically finance these fees into the loan rather than pay them in cash. Because USDA loans are designed to spur development in rural areas, they are one of the few mortgage programs that require borrowers to purchase property in a specified geographic area. The good news is most of the U.S. is considered eligible outside of urban areas. 

The Takeaway

If you are currently planning on buying a home in Farmington Hills MI, you’ll want to check your credit reports and scores as soon as possible. The better your credit history, the more likely you are to receive a good interest rate on your mortgage loan. Lenders will use your credit reports and scores as important factors in determining whether you qualify for a loan, and what interest rate to offer you.  

If there are errors on your credit report, you may have trouble qualifying for a loan. Review your credit reports and take steps to fix any errors. You have the right to a free copy of your credit report once per year from each of the three companies (Equifax, Transunion, and Experian) at www.annualcreditreport.com

Partner with Top-rated Farmington Hills MI REALTOR® -Tom Gilliam

Whether you are interested in buying a home in Farmington Hills, MI, or its time to list your current property, experience matters most in a changing market. Offering over 20 years of local experience, top-rated Farmington Hills REALTOR® – Tom Gilliam offers in-depth local market knowledge and access to the most up-to-date listings. Tom is known for his professionalism and is an expert at uncovering the perfect home for his clients’ lifestyle needs in the right Farmington Hills neighborhood or community. 

2020 Best of Farmington Hills REALTOR - Tom GilliamFor sellers, Tom will create a comprehensive marketing plan that exposes your home to the public as well as to other real estate agents through the Multiple Listing Service (MLS), other cooperative marketing networks, open houses for agents, and so on.

Your listing will appear on all the most popular real estate sites where buyers spend hours a day looking at homes such as Realtor.com, Zillow, Trulia, REMAX, Redfin, and dozens of others. Your property will also be featured on Tom’s own highly-trafficked website Homes2moveyou.com. You can be assured that your home will get sold quickly and for the highest market price.  

Farmington Hill MI Homes for Sale

Tom works very hard for his clients. As your agent, Tom will protect your interests, negotiate on your behalf, advocate for you, and be your trusted guide and advisor throughout the home buying or selling process. If you or someone you know is interested in Farmington Hills MI real estate, please give Tom Gilliam a call today at (248) 790-5594 or you can reach him here.

Tom Gilliam, REALTOR®
RE/MAX Classic
29630 Orchard Lake Rd.
Farmington Hills 48334
Direct: 248-790-5594
Office: 248-737-6800
Email: Tom @ Homes2MoveYou.com
License #314578

Buying a Home in Farmington Hills MI? The Benefits of An FHA Loan 

Buying a Home in Farmington Hills MI? The Benefits of An FHA Loan 

Buying a Home in Farmington Hills MI? The Benefits of an FHA Loan:  Are you currently in the market to buy a home in Farmington Hills MI and thinking about your options for a mortgage? An FHA loan is a mortgage that’s insured by the Federal Housing Administration (FHA). FHA loans are popular with first-time, lower-income, and/or lower-credit home buyers due to their flexibility and low rates.  

The FHA insures these loans on single-family and multi-family homes in the U.S. and is the largest insurer of residential mortgages in the world. They are a good option for buyers who may not have saved enough for a large down payment although no FHA loan options for a “zero money down” loan are available.  

HUD 4000.1 states that FHA loan applicants cannot use “unapproved sources” for the down payment. Those unapproved sources include credit card cash advances, payday loans, or any other “non-collateralized loan” to make the down payment. Your financial institution is required to verify the sources of all down payment funds including cash saved at home, savings accounts, family member contributions, etc.

Even borrowers who have suffered from bankruptcy or foreclosures may qualify for an FHA-backed mortgage. A borrower can qualify for an FHA loan with a down payment for as little as 3.5% with a minimum FICO score of 580. With a  credit score of 500 – 579, a borrower would be required to make a 10% down payment.

FHA borrowers are also required to pay two FHA mortgage insurance premiums — upfront at closing, and annually for as long as you repay your FHA loan, in most cases.

Down payment and credit score amounts are just two of the requirements needed to qualify for an FHA loan. Other FHA loan requirements set forth by the Federal Housing Authority include:

  • Borrowers must have a steady employment history or work for the same employer for the past two years.
  • Borrowers must have a valid Social Security number, lawful residency in the U.S., and be of legal age to sign a mortgage in your state.
  • Borrowers must pay a minimum down payment of 3.5 percent. The money can be gifted by a family member.
  • New FHA loans are only available for primary residence occupancy.
  • Borrowers must have a property appraisal from an FHA-approved appraiser.
  • Borrowers’ front-end ratio (mortgage payment plus HOA fees, property taxes, mortgage insurance, homeowners insurance) needs to be less than 31 percent of their gross income.
  • Borrowers’ back-end ratio (mortgage plus all your monthly debt, i.e., credit card payment, car payment, student loans, etc.) needs to be less than 43 percent of their gross income.
  • Borrowers must have a minimum credit score of 580 for maximum financing with a minimum down payment of 3.5 percent.
  • Borrowers must have a minimum credit score of 500-579 for maximum LTV of 90 percent with a minimum down payment of 10 percent. FHA-qualified lenders will use a case-by-case basis to determine an applicants’ creditworthiness.
  • Typically, borrowers must be two years out of bankruptcy and have re-established good credit. Exceptions can be made if you are out of bankruptcy for more than one year if there were extenuating circumstances beyond your control that caused the bankruptcy and you’ve managed your money in a responsible manner.
  • Typically, borrowers must be three years out of foreclosure and have re-established good credit. Exceptions can be made if there were extenuating circumstances and you’ve improved your credit. If you were unable to sell your home because you had to move to a new area, this does not qualify as an exception to the three-year foreclosure guideline.
  • The property must pass an FHA inspection and appraisal. The overall structure of the property must be in good enough condition to keep its occupants safe and must be worth the purchase price. Severe structural damage, leakage, dampness, decay, or termite damage can cause a failed inspection. In such a case, repairs must be made in order for the FHA loan to move forward.  

FHA Annual Lending Limits

The FHA sets annual lending limits for home loan amounts that it will insure. These limits are determined based on the county in which you live and the type of property you’re purchasing.  These loan limits are calculated and updated annually and are influenced by the conventional loan limits set by Fannie Mae and Freddie Mac.

Low-cost areas of the country have a lower limit, known as the “floor,” and high-cost areas have a higher figure, called the “ceiling”. It’s not uncommon for the ceiling loan limit to be more than double the floor for single-family properties. The limits also vary based on the type of property. 

For 2020, the FHA floor was set at $331,760 for single-family home loans. This minimum lending amount covers 80% of all U.S. counties. The FHA ceiling represents the maximum loan amount and is illustrated in the table below:

FHA Limits (low-cost areas)
Single Duplex Tri-plex Four-plex
$331,760 $424,800 $513,450 $638,100

Also for 2020, the FHA ceiling was set at $765,600 for single-family home loans. This represents the highest amount that a borrower can get through the FHA loan program. It applies to high-cost areas in the United States and is illustrated in the table below.

FHA Limits (high-cost areas)
Single Duplex Tri-plex Four-plex
$765,600 $980,325 $1,184,925 $1,472,550

The Takeaway

Borrowers who cannot afford a 20 percent down payment, have a lower credit score, or can’t get approved for private mortgage insurance should look into whether an FHA loan is the best option for their individual scenario. Another advantage of FHA loans is that they are assumable, meaning that if you want to sell your home in the near future, the buyer can “assume” the loan you have.

Partner with Top-rated Farmington Hills MI REALTOR® – Tom Gilliam

2020 Best of Farmington Hills REALTOR - Tom GilliamA top-rated Farmington Hills and Oakland County MI real estate agent like Tom Gilliam can show you more properties and save you thousands of dollars when buying a home. You need an agent who knows the area, processes a vast network of local connections, and has the skills to negotiate like a pro.

From first-time homebuyers to multi-million dollar investors, Tom continually strives to provide top quality service for his clients. With access to the most up-to-date MLS listings for Farmington Hills MI homes for sale and surrounding Oakland County MI real estate, Tom is able to match his clients’ lifestyle needs with the perfect home.

If you are ready to list your current property, Tom has the experience and skills necessary to handle the marketing and sale of your home. Tom employs the latest technology to deliver massive exposure to your home that will drive mega-response from qualified buyers.

 Search the MLS for  Farmington Hills MI Homes for Sale

Search the MLS for Oakland County MI Homes for Sale

With over 25 years of local real estate experience, Tom will protect your interests and work extremely hard for you to ensure the best possible outcome. If you or someone you know is interested in buying or selling real estate in Farmington Hills MI or the surrounding Oakland County area, please give top-rated Farmington Hills MI REALTOR® Tom Gilliam a call today at 248-790-5594 or you can get in touch here.

Tom Gilliam, REALTOR®
RE/MAX Classic
29630 Orchard Lake Rd.
Farmington Hills 48334
Direct: 248-790-5594
Office: 248-737-6800
Email: Tom @ Homes2MoveYou.com
License #314578

Down Payment Under 6% For Many Home Buyers

Down Payment Under 6% For Many Home Buyers

It seems that the biggest hurdles and worries for penitential home owners is the down payment on a home, leaving potential home buyers feeling defeated in the first steps to moving and getting their own Down Payment Under 6% For Many Potential Home Buyershome. The potential home buyer still believes that it is the 20% traditional down payment that is needed to secure a mortgage and to purchase a home. This way of thinking and believing can stop any potential home buyer from even taking the first step into becoming a homeowner, but this has changed and many potential home buyers are unaware that the traditional days are long past us.

Down Payment Changes

Times have indeed changed for most potential home buyers, depending on your credit worthiness and other factors the 20% down day’s area thing of the past. Many potential home buyers are able to get a mortgage for a new home with not 10% down payment, but as low as 6%. That’s right, in 2017 over 61% of potential home buyers made a 6% and sometimes less down payment on their new homes according to  National Association of Realtors’ Realtors Confidence® Index. Not only that, but I have seen in recent months new homebuyers getting down payments as low as 3%. For potential home buyers this is reason to celebrate.

Low down payment mortgages such as FHA and others have paved the way for potential home buyers to realize the American dream of home ownership without having to stash away and struggle with trying to save up to 20% on a down payment for their first home. This is good news for a whole new generation of potential home owners that were concerned and stressing about a large down payments in order to be able to purchase a new home.

The Take Away

If you have been unable to save up to 20% for a down payment, it’s time to start talking to some lenders to determine the right situation for you. Your dream of home ownership without the stress of depleting your savings or having enough for a down payment is awaiting you. I know some great lenders that I can suggest to you. Give me a call 248-790-5594 or Contact Me

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