Millennials Are Changing The Home Buying Market

Millennials Are Changing The Home Buying Market

Millennials Are Changing The Home Buying Market:

-They’re opting for digital searches, deluxe homes, and the suburbs-  

 

As Millennials enter the housing market in greater numbers, they’re approaching it in a much different way than previous generations of home buyers. They’re bringing with them a new set of values and expectations.  

With a population of 83.1 million, Millennials now outnumbers Baby Boomers and represent more than one-quarter of our nation. The Pew Research Center defines a millennial as anyone born between 1981 and 1996.

Millennials also make up the fastest-growing segment of today’s homebuyers, according to a recent National Association of Realtors® report. The movement in the market by this generation is likely due to growth in their careers, higher income, and paying off student loans and other personal debts.

Although the most common reasons for recently purchasing a home differed between generations, the desire to own a home of their own was the main reason for  Millennials choosing to buy at this time.

“There’s been an influx of millennial home buyers as older Millennials have had some time to grow in their careers and pay off student debt,” says Stuart Eisenberg, national director of real estate and construction practice for accounting firm BDO USA.

Younger Millennials, meanwhile, more often rent as they begin their careers, but according to Eisenberg, the generational shift in home buying is just getting underway.  

Technology has transformed the way real estate is done 

Digital advancements have transformed the way real estate is done. Among millennials, utilizing the internet and mobile devices to find, view, and buy homes has become the norm.

Having grown up in a digital environment, millennials don’t want to spend days touring homes in person. Instead, they expect to shop for homes the same way they shop for everything else—online.

In fact, according to a Real Estate in a Digital Age report, 99% of millennials start their home search online and 58% found their current home on a mobile device. This figure is nearly double that of Baby Boomers using the internet to browse homes.

Digital advancements have also transformed the role of real estate agents. In the past, a REALTOR’s value came from providing important information about properties.

Now, the true value of a real estate agent is through their negotiation skills, professional relationships with other agents, ability to facilitate the transaction, and keeping up with marketing strategies in a fast-paced digital world.

Another digital impact is in how agents list homes. Tech-savvy Millennials are leading agents and brokers to introduce features like live streaming and video rather than traditional photographs, which have become the norm. 

Millennials, technology, and communicating with REALTORS®

Millennials also differ from previous generations in terms of how they use technology to communicate with REALTORS®. Texting represents the most immediate back-and-forth line of communication.

This generation uses text messages to express interest in a property, schedule appointments, and ask questions, while phone calls are typically reserved only for more urgent or pressing concerns.

NAR research suggests that agents are adapting to this demand for electronic communication, with 90% of agents communicating via text and 94% using email. Another 34% chat with clients through instant messaging. 

Millennials are choosing the suburbs and deluxe homes 

Although it’s taking them longer than previous generations, millennials are now buying homes and moving out of the city in larger numbers.

A recent Zillow study shows that almost half of Millenials (47%) prefer to live in the suburbs as opposed to the big city or rural areas. This generation of buyers want homes, but they don’t want just any old homes.

They are finding better options farther out from the city and are increasingly skipping starter homes in favor of something more deluxe. Roughly 45% of homebuyers aged 30 to 39 paid $300,000 or more for a home, according to the latest figures from NAR.  

In conclusion 

Millennials are now buying homes in droves and their habits are proving to shape the housing market in new and exciting ways. This generation’s preference for technology has changed both the way people shop for homes and the job of real estate agents – and could lead to a more streamlined home buying process. 

Partner With Oakland County MI REALTOR® – Tom Gilliam

REALTOR® – Tom Gilliam is your expert to buy or sell your home in Oakland County, Michigan. In Oakland County, MI, you need to find an experienced agent who knows the community.

Tom currently lives in the Oakland County area and is very familiar with the local market, neighborhoods, schools, and community issues. His office is located in the heart of Farmington Hills, with five additional offices throughout the southeast metropolitan area.

Tom is always ready to help families find the perfect home in the Oakland County area they want to live, whether it’s Farmington Hills, Novi, Birmingham, Troy, Rochester Hills, West Bloomfield, Bloomfield Hills, Ferndale, Royal Oak, Northville, Novi, Troy, Rochester, or Rochester Hills.

Give Tom Gilliam – “Your number one Oakland County Michigan REALTOR®” – a call today!

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

Article sources: 

https://www.nar.realtor/research-and-statistics/research-reports/real-estate-in-a-digital-age
https://www.corelogic.com/intelligence/find-stories/the-top-four-ways-millennials-are-changing-the-housing-market
https://www.nar.realtor/sites/default/files/reports/2017/2017-real-estate-in-a-digital-age-03-10-2017.pdf
 https://www.nar.realtor/sites/default/files/documents/2021-home-buyers-and-sellers-generational-trends-03-16-2021.pdf
https://www.forbes.com/sites/theyec/2021/06/01/how-millennials-are-changing-the-mortgage-and-home-buying-market/?sh=34cca84e690b

Buying a Home in Oakland County MI: Responding to A Counteroffer 

Buying a Home in Oakland County MI: Responding to A Counteroffer 

Buying a Home in Oakland County MI: Responding to A Counteroffer 

When buying a home in Oakland County MI, the stakes are high for both the person buying the home and for the seller. Hence, it may take some negotiating to reach an agreement that both the buyer and the seller are happy with. Of course, the optimum scenario would be to submit an offer on a home you love and the seller accepts it with no conditions. However, it’s more common, that the seller will respond to an offer with a counteroffer, which means they are open to starting the negotiation process.  In real estate terms, this is appropriately referred to as the seller-to-buyer counteroffer. 

How Many Counteroffers Are Typical? 

Just as a seller can submit a counteroffer to a buyer, a buyer can counter the seller’s counter, which then becomes a counter-counteroffer or Buyer Counteroffer No. 1. There’s no limit to the number of counteroffers that can go back and forth. If either party does not agree to the terms, the offer becomes void, and the buyer and seller go their separate ways with no further obligation. 

Responding to a counteroffer

A counteroffer changes one or more aspects of your original offer, and basically, you have three options for responding. You can either accept the seller’s counteroffer, reject the counteroffer or present a counteroffer of your own.

If you decide to continue negotiations, know your options such as how much you can spend, whether there are (or will be) similar properties to bid on, and what you are willing to concede – whether that’s contingencies or repairs you were previously set on.  

Also, consider how you can make the deal smoother for the seller, which may help push your offer through. For example, how quickly is the seller looking to close and can you agree on that? Have they already bought a new house? Do they want reassurance that their childhood home will be well-loved?  

View Homes For Sale in Oakland County MI

Find out what the seller’s motivations are – financial, emotional, logistical – and create a counteroffer that is in alignment with your own priorities. The seller’s motivations may become apparent with their first counteroffer and your counter may address some but not all of the seller’s concerns.

Commonly negotiated aspects of home buying 

With homebuying, everything is negotiable from repairs and closing costs to furniture and appliances. Some of the most commonly negotiated aspects of homebuying include the purchase price, closing costs, closing date, contingencies, earnest money deposit, and personal property. Offers and counteroffers can negotiate on a mix of these factors:

Purchase price 

Your pre-approval letter from your lender will tell you the maximum you can pay for a property, but you may not need to increase the price up to your limit. Your Farmington Hills MI REALTORⓇ will be able to advise you on what makes the most sense for your budget and the local market. The sale price is the most commonly changed item in the seller-to-buyer counter offer.

The seller might change this number in one of two ways. They might offer a price that is somewhere in between your offer and the original asking price or counter back with their original asking price, which means they are not willing to negotiate on price. But if they give you a counteroffer below the original list price, the negotiations are on. You can then choose to accept the seller’s proposal or make another counter offer back to them.

Closing costs 

The closing costs, which include insurance, title fees, taxes, and appraisals, are often the most negotiated line item between buyers and sellers. Closing costs can add up to as much as 5% of your total loan amount.  The seller’s counteroffer might address any contributions toward closing costs.

For example, you ask them to cover $6,000 worth of your closing costs, which is a common strategy in a buyers market. The seller might simply say no to this request. They could also agree to contribute $6,000 toward your closing costs while increasing the sale price by $6,000 – allowing you to finance your closing costs into the loan.

Closing date  

This is the date that you get the keys to the home. In a counteroffer, the seller might make changes to the closing date. Maybe they need more time to pack up and move, so they sign a counteroffer back to you proposing a 45-day escrow period. As the buyer, you can accept it or not. In most cases, the buyer will accept the seller’s proposed changes to the closing date, if it’s not a big difference

Contingencies 

If the provisions aren’t met, contingencies let you back out of a contract. A seller can reject or modify the contingencies, or conditions for the purchase, that you included in your offer. A home appraisal, obtaining financing, home inspection, and home sale are all examples of contingencies:

  • An appraisal contingency protects the buyer and is used to ensure a property is valued at a minimum, specified amount. 
  • A financing contingency gives the buyer time to obtain financing for the purchase of the property.
  • An inspection or a due diligence contingency gives the buyer the right to have the home inspected within a specified time period.
  • A home sale contingency gives the buyer a specified amount of time to sell and settle their existing home to finance the new one.

Before you consider dropping contingencies, be sure to speak with your Oakland County MI real estate agent about the possible risks. Sellers almost always accept the home-inspection contingency, as well as the financing contingency because they know that most buyers will refuse to move forward without those contingencies.

Earnest money deposit 

The earnest money deposit – also referred to as good faith money – is the sum you put down with your offer to show the seller you are a serious buyer. The earnest money deposit applies toward your down payment or closing costs. While the buyer and seller can negotiate the earnest money deposit, it often ranges between 1% and 2% of the home’s purchase price, depending on the market.

The earnest money deposit might range between 5% and 10% of a property’s sale price in a hot housing market. Some sellers prefer a fixed amount, such as $5,000 or $10,000. Of course, the higher the earnest money amount, the more serious the seller is likely to consider the buyer.

Therefore, a buyer should offer a high enough earnest deposit to be accepted, but not one so high as to put extra money at risk. Earnest money is always returned to the buyer if the seller terminates the deal.

Personal property 

A refrigerator, washer, and dryer set, and other appliances may be included in a home sale, but if they’re not, ask for them. The same goes for furniture and other personal belongings. The structure, fixtures, outbuildings, and anything attached to the land is included in the sale and is considered the “real property.”  

Negotiate with the market in mind

How you negotiate the seller’s counteroffer will depend on the type of market you’re in. Do you know if the seller has multiple offers on the house? If they do, you need to tread carefully. In a hot seller’s market, the seller’s counter may come with an unofficial “take it or leave it” clause. 

How is a counteroffer accepted?

The buyer can simply accept the counteroffer and deliver it back signed to the seller and their agent. Time is of the essence here as all counteroffers include an expiration date. It’s also important to note that the seller can accept another offer while the buyer is deciding whether to move forward, which is another reason to act quickly when a counteroffer is on the table. 

If the seller receives a more favorable offer while the buyer is deciding, the seller will typically withdraw the counteroffer, effectively removing the first buyer from the situation.  

The bottom line

The counter-offer process in real estate is more art than science. Look at what motivates the other person, get all the information you can about your alternatives, and look for a middle ground that still meets all of your priorities. Also, don’t believe an agent who tells you the seller will always counter the offer. Even if the seller does, you can still lose the house if the home is still getting showings. 

Partner With Oakland County MI REALTOR® – Tom Gilliam

REALTOR® – Tom Gilliam is your expert to buy or sell your home in Oakland County, Michigan – the Oakland County community’s number one REALTOR®.  In Oakland County, MI, you need to find an experienced agent who knows the community.

Tom currently lives in the Oakland County area and is very familiar with the local market, neighborhoods, schools, and community issues. His office is located in the heart of Farmington Hills, with five additional offices throughout the southeast metropolitan area.

View Homes For Sale in Oakland County MI

Tom is always ready to help families find the perfect home in the Oakland County area they want to live, whether it’s Farmington Hills, Novi, Birmingham, Troy, Rochester Hills, West Bloomfield, Bloomfield Hills, Ferndale, Royal Oak, Northville, Novi, Troy, Rochester, or Rochester Hills.

Give Tom Gilliam – “Your number one Oakland County Michigan REALTOR®” – a call today!

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

Buying A Home in Farmington Hills MI? Getting A Pre-approval is Key

Buying A Home in Farmington Hills MI? Getting A Pre-approval is Key

Buying A Home in Farmington Hills MI? Getting A Pre-approval is Key: You may have been told that it’s important to get pre-approved at the beginning of the homebuying process, but what does that really mean? And why is it so important? In today’s market, with rising home prices and high buyer demand, it’s crucial to have a clear understanding of your budget and stand out as a serious homebuyer to sellers.

Once you get pre-approved for a home loan, the seller knows you’re a better prospect than someone who hasn’t begun negotiating with a lender. Pre-approval is also helpful when you’re hunting for a house. If you have a pre-approval amount of $240,000, for example, you know not to waste your time shopping for a $400,000 home.

Is Pre-qualification the same as pre-approval?

A pre-qualification is a good indication of creditworthiness and the ability to borrow, but a pre-approval is the definitive word. A mortgage pre-qualification is usually based on an informal evaluation of your finances. You tell the lender about your credit, debt, income, and assets, and the lender estimates whether you can qualify for a mortgage and how much you may be able to borrow.

Pre-approval is the next step if you get a thumbs up during pre-qualification. During the mortgage pre-approval process, a lender will pull your credit report and review documents to verify your income, assets, and debts.  If you are confident about your credit and financial readiness to buy a home, then you might skip the pre-qualification step and go straight to the pre-approval and start shopping for a home. 

Mortgage pre-approval

A mortgage pre-approval is an offer by a lender to loan you a certain amount under specific terms. Pre-approval is not a guarantee you will be given a loan and the mortgage can still be denied. A home appraisal must be completed before a loan can close to ensure you aren’t paying more for the home than it’s worth. 

Also, the lender’s offer may not stand if your financial situation changes between pre-approval and closing. Keep in mind that it can take several days or longer to get preapproved for a mortgage. The timeline varies by lender and how quickly you are able to provide the lender with the information it needs, including proof of your income and assets.

When you are ready to make offers, a seller often wants to see a mortgage pre-approval and, in some cases, proof of funds to show that you’re a serious buyer. In today’s competitive market, sellers have an advantage because of intense buyer demand and a limited number of homes for sale; they may be less likely to consider offers without pre-approval letters.

According to the National Association of Realtors (NAR), homes are receiving an average of 5.1 offers for sellers to consider. As a result, bidding wars are more and more common. Pre-approval gives you the advantage you need if you get into a multiple-offer situation, and these days, it’s likely you will.

When multiple buyers have made legitimate offers for the same Farmington Hills MI property, the seller can choose which one they want to accept. A pre-approval letter indicates to both real estate agents and home sellers that you’re financially able to buy a home, and it’s expected that a pre-approval letter will accompany any offer you make.

How to get pre-approved for a home loan

Start by requesting copies of your credit reports. Dispute any errors that might be causing your score to be lower than it should be. If you find delinquent accounts, work with creditors to resolve the issues before reaching out to a lender for mortgage pre-approval.

A credit score of at least 620 is recommended, and a higher credit score will qualify you for better rates. Generally, a credit score of 740 or above will enable most borrowers to qualify for the best mortgage rates. 

Calculate your debt-to-income ratio. Your debt-to-income ratio, or DTI, is the percentage of gross monthly income that goes toward debt payments, including credit cards, student loans, and car loans. Lenders prefer borrowers with a DTI of 36% or below, including the mortgage, though it can be higher in some cases.

Gather income, financial account, and personal information such as Social Security numbers, current addresses, and employment details for you and your co-borrower (if you have one). You will also need bank and investment account information and proof of income. 

Documents you will need to get a mortgage pre-approval letter include your W-2 tax form and 1099s if you have additional income sources and pay stubs. Two years of continuous employment is preferred, but there are exceptions.

Self-employed applicants will likely have to provide two years of income tax returns. If your down payment will be coming from a gift or the sale of an asset, you’ll need a paper trail to prove it.

Understand what the lender is offering you. Make sure you understand all the terms of your mortgage. If you don’t know what something means, the lender must explain it to you. The Truth in Lending Act requires all lenders to provide you with comprehensive loan cost information so you can comparison shop.

Comparing offers from multiple lenders can help you compare rates and fees and save you thousands of dollars over a 30-year mortgage. Going through the mortgage pre-approval process shouldn’t hurt your credit score. FICO, one of the largest U.S. credit scoring companies, recommends confining those applications to a limited time frame, such as 30 days.

Time your pre-approval. A pre-approval is typically good for 90 days. Wait until you’re ready to start hunting for your house before you request a pre-approval, otherwise, you are wasting both your time and that of the lender who’s preapproving you.

The bottom line

Every step you take to gain an advantage as a buyer is crucial in a market that’s constantly changing. Interest rates are low, prices are going up, and lending institutions are regularly updating their standards.

It is important to have the information, resources, and the right team of professionals such as a loan officer and a trusted Farmington Hills MI real estate agent to help ensure that you take the right steps. If you’ve been trying to decide if now is the right time for you to buy a home, let’s connect to discuss your options.

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

With a passion for real estate, Tom Gilliam has been serving Farmington Hills and the surrounding Oakland County MI area for nearly two decades. Tom is known for his friendly demeanor, dedication, and professionalism. He will be able to quickly ascertain your needs and goals and create a plan of action based on your specific criteria. 

Tom’s clients appreciate his honesty and transparency and feel it helps them as they make important real estate decisions. He understands how important good communication is to every transaction and is available for his clients whenever they have questions or concerns, promptly returning all phone calls, texts, and emails.

Having someone like Tom by your side to advise and guide you means there is one less thing you need to worry about. He will protect your interests, advocate for you, negotiate on your behalf, and go the extra mile to ensure the best results possible. If you are interested in buying or selling Farmington Hills real estate or homes in the surrounding area, please give Tom Gilliam a call at (248) 790-5594 or you can reach him by email.

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

Map Farmington Hills MI

Things to Know About Buying A Farmington Hills Home With Guest Unit

Things to Know About Buying A Farmington Hills Home With Guest Unit

Things to Know About Buying A Farmington Hills MI Home With Guest Unit 

For many homebuyers, a separate guest house or attached in-law suite is the ultimate home purchase wish-list item. There are so many advantages to owning a guest unit. Some homeowners may use it to host relatives for long-term visits throughout the year. It’s much more convenient to have separate accommodations for guests, allowing both you and them plenty of privacy and space. While others might use the unit to house elderly parents, as transitional space for older children, as a studio, home office, or gym, or as a source of passive income by renting it out.  

Multigenerational Housing

As the demand for multigenerational housing steadily increases, so has the interest in guest houses and in-law suites. It is estimated that 64 million Americans currently live in multigenerational households. Mostly associated with the millennial generation, more young adults are staying home and living with their parents for longer to give them the time to earn money and gain financial independence before they strike out on their own.

Guest homes are ideal in this situation giving both parents and the young adult plenty of privacy and personal space. An in-law unit can also be the perfect accommodations for elderly parents, providing a convenient and comfortable setting that allows for independence and privacy, and with added affordability compared to separate households. Considering the average cost of assisted living can cost as much as $4,000 per month, it’s easy to see how this option can be a win-win situation for everyone in the long run.

Passive Income

A guest unit can also be a great source of passive income through renting, whether for long-term renters or for short-term vacation rentals like Airbnb or VRBO. If you decide to take the renting route, you will need to check with your local city for any requirements regarding permits or zoning laws that may prohibit you from renting the space. In particular, vacation rentals using Airbnb have specific rules and zoning laws you must follow.  

Also keep in mind that with a vacation rental, you must pay to furnish and stock the unit, manage bookings and payments, hire a cleaning crew, keep up with landscaping and repairs, and find new ways to attract happy renters. Is your home is in a popular area? Will you even have renters that will want to stay there? Also, be sure to factor in vacancy when considering costs. How many renters will you need to be consistently renting the unit to make a profit, let alone break-even?

In order to make the home attractive to renters and prospective home buyers when it comes time to sell, the suite should have the ability to be closed and locked to the rest of the home for privacy and should truly function as an independent space with kitchen and bathroom facilities. Easy accessibility to the separate unit, as well as handicapped accessibility, improves the function of the independent living space and increases the value.

Will a guest house be included in the overall square footage? 

An additional structure that is not connected to the main house in any way will not be included in the overall square footage. An example of this is a guest house that is in the backyard and has its own entrance. These structures are considered Added Detached. This is because the livable square footage of a detached guest house isn’t included in the price per square foot calculations. Garages, pool houses, guest houses, or any rooms that require you to leave the finished area of the main house to gain access are not counted.

If the additional structure is attached to any part of the main house, it can be included in the square footage. This applies even if the structure has its own entrance. For example, a guesthouse or in-law unit that can only be accessed from its own door but shares a wall with the kitchen in the house.

Will a guest house or in-law suite increase your home’s value?

At some point, you may want to sell your home and in-law unit – perhaps you move for a job or want to downsize when you retire. Whatever the reason, you’ll want your home to have gone up in value so you can walk away with more cash in your pocket. Homes with separate guest houses or attached in-law suites are growing in popularity. More and more families are choosing to live in multi-generational homes either to care for their aging parents or because of financial reasons. 

However, while homes with guest units are increasing in demand, there is no hard figure on how much value they will add to your home because every real estate market is different. Buyers are looking for different features at different times, though an extra suite is likely to stand out for many reasons. If you want to calculate the value of your in-law unit, determine what it’s really worth including the value it will add to your own lives if you’re not planning on selling your home anytime soon. 

If you use it to save money on in-home caregiving or retirement homes, what would you have spent on these things if you didn’t have the suite? If you plan on making money through short-term rentals, what will that income amount to? Also, think about what it would cost to add an in-law suite in the future. These things can all mean extra value to the right buyer.  In-law suites and guest homes are highly sought-after elements, and when it comes time to sell, anything to make your property more desirable can tip the scales in your favor.

Final Thoughts

Buying a Farmington Hills home with a guest unit is a big financial decision that can quickly get overwhelming when you maneuver through the extra paperwork and city requirements. An experienced, Farmington Hills MI real estate agent can help you navigate the local market, city laws, and find an affordable property with an in-law unit that fits your budget so you have cash left over to cover any extra guest home expenses and upkeep costs.

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

With a passion for real estate, Tom Gilliam has been serving Farmington Hills and the surrounding Oakland County MI area for nearly two decades. Tom is known for his friendly demeanor, dedication, and professionalism. He will be able to quickly ascertain your needs and goals and create a plan of action based on your specific criteria. Tom’s clients appreciate his honesty and transparency and feel it helps them as they make important real estate decisions. He understands how important good communication skills are to every transaction and is available for his clients whenever they have questions or concerns – promptly returning all phone calls, texts, and emails.

Having someone like Tom to advise and guide you means there is one less thing you need to worry about. He will protect your interests, advocate for you, negotiate on your behalf, and go the distance to ensure the best results possible. If you are interested in buying or selling Farmington Hills real estate or homes in the surrounding area, please give Tom Gilliam a call at (248) 790-5594 or you can reach him by email.

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

Map Farmington Hills MI

Closing Costs To Consider When Buying A Home in Farmington Hills MI

Closing Costs To Consider When Buying A Home in Farmington Hills MI

Closing Costs To Consider When Buying A Home in Farmington Hills MI

Buying a home in Farmington Hills MI involves more money out-of-pocket than just the down payment. There are also closing costs to consider. Closing costs refer to the charges and fees that are paid when a house purchase is finalized.

Typically, the buyer’s closing costs include mortgage insurance, homeowner’s insurance, appraisal fees, property taxes, reserves to set up escrow, and various fees that lenders typically charge, among others – while the seller covers ownership transfer fees and pays a commission to their real estate agent.

Farmington Hills MI Homes for Sale

The total cost can often come as a shock to first-time homebuyers who may only be looking at coming up with the amount of their down payment. Understanding what closing costs cover and budgeting for them will smooth out the final stretch of the home buying process. Lender fees can be the most significant of all closing costs.

How much can a buyer expect to pay?

Average closing costs for the buyer will typically run between 2% and 5% of the loan amount.  On a $300,000 home purchase, for example, you could expect to pay from $6,000 to $15,000 In closing costs. Much depends on the points and origination fees a lender charges to make the loan. The points, together with any origination fee will be included in the Origination Charges section of your Loan Estimate.

The government requires lenders to list closing costs and the amount of cash you’ll need to have on hand at the time of settlement on every mortgage applicant’s Loan Estimate. The lender should provide the loan estimate to potential borrowers within three days of submitting an application. The Loan Estimate details the terms of your loan, including:

  • Expenses, with clear “yes” or “no” answers to important questions, such as whether each amount can increase after closing, whether your loan includes a prepayment penalty or a balloon payment, and which expenses are included in your escrow account 
  • The projected monthly mortgage payment, including taxes, insurance, and other assessments 
  • Estimated closing costs and the amount of cash you’ll need to have on hand at the time of settlement 
  • Information on services you can, and cannot, shop for — such as pest inspections, survey fees, and the home appraisal 

The Closing Disclosure provides the same information as the Loan Estimate but in final form. This means that it contains the locked-in costs of your loan and the specific amount you’ll need to pay at closing. You’ll receive this document three days before your scheduled loan closing.

Non-recurring and recurring closing costs 

There are over 35 closing cost items that you may be required to pay, which can be separated into two categories: non-recurring and recurring:

Non-recurring closing costs are paid once at closing and never again. Non-recurring closing costs are the fees that most mortgage borrowers are familiar with and may include the following items: 

  • Title policy
  • Escrow or closing
  • Appraisal
  • Credit report
  • Notary
  • Wire fees
  • Courier and delivery
  • Attorney fees
  • Endorsements
  • Recording
  • Jurisdictional transfer taxes
  • Home protection plan
  • Natural hazard disclosure
  • Home inspection
  • Fees paid to the lender in conjunction with the loan 

Although non-recurring closing costs are set by the specific service provider, you may be able to comparison shop and negotiate some of the fees to lower your closing costs.   

Recurring closing costs are those charges that you will pay again and again. They are paid either monthly or yearly as time goes on. Recurring closing costs include items such as:  

  • Fire insurance premium
  • Flood insurance (if required in your area)
  • Property taxes
  • Mutual or private mortgage insurance premiums
  • Prepaid interest
  • HOA fees

You will be required to pay a portion of these ongoing expenses when the loan closes. Additionally, depending on the time of year your loan closes and your local property tax rate, the amount of property tax you are required to pay at closing can be significant, especially if your loan closes earlier in the year and you’re required to pay several months of property taxes in advance.

If you are required to use an impound or escrow account after your loan closes for your mortgage payment, property tax, homeowners insurance, and other expenses, you may also be required to pre-pay certain expenses. These additional recurring closing costs are due at closing.   

Seller Credit  

Buyers with limited funds can utilize a Seller Credit to help significantly reduce their out-of-pocket costs and enable them to purchase a property they would be unable to buy otherwise. A seller credit also referred to as: sales concessions, seller paid costs, or seller contributions –  is money the seller gives the buyer to pay for closing costs. Some or all of the closing costs, including your property taxes and personal hazard/fire insurance, may be paid for by the seller. 

If the seller pays all your closing costs, you will only pay your down payment. By law, the seller cannot pay for any portion of your down payment. Also, homebuyers cannot receive cash from the seller – not even one dollar.

In order to get a seller credit, you must have it included in your Purchase and Sale Agreement.  The lender doesn’t handle the negotiation of a seller credit. Ask your Farmington Hills MI REALTORⓇ to negotiate it for you (it’s part of the price negotiation of the home).  

A seller credit allows the buyer to finance his closing costs into the new loan amount. The lender must approve the credit and the home’s value must merit the increase in the sale price as determined by an appraisal. Be sure to always check with your lender before you negotiate an offer that involves a seller credit because the lender might not allow it.

Lenders limit what the buyer and a seller credit can pay for. For example, the lender might limit your credit to 3% of the purchase price if you’re financing 100% of the purchase price. Or, depending on your FICO score and the amount of your down payment, the lender might allow a seller to credit you as much as 6% of the purchase price. 

Help with closing costs 

There are also grants and loans available to help with closing costs. If you qualify, you could receive thousands of dollars to help with your mortgage costs. Oftentimes, closing cost assistance is offered by a HUD-approved local or state housing commission, or a mortgage lender. These agencies set aside a certain amount of funds for closing cost grants for low-to-moderate-income borrowers.

Check out the resources below to locate and learn about programs you may qualify for:

Requirements to qualify for closing cost assistance vary by program, and income caps and maximum loan amounts are common. You don’t always have to be a first-time homebuyer to get financial aid.

Many programs are available to repeat buyers or former homeowners who haven’t owned property in the last 3 years. 

Partner with Highly-rated Farmington Hills MI REALTOR -Tom Gilliam

With over 20 years of real estate experience, Tom Gilliam is proud to be a trusted Farmington Hills MI REALTORⓇ – offering his guidance and expertise to area home buyers and sellers. Tom understands that buying or selling a home is a significant financial and life decision and that you are looking for someone you can trust.

Farmington Hills MI Homes for Sale

You can be assured that Tom will protect your best interests, advocate for you, negotiate on your behalf, and guide you towards the best results possible. Get the process started today by contacting Tom directly at (248) 790-5594 or you can get in touch with him by email.

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 

Farmington Hills MI

 

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Oakland County MI First-time Home Buyers: FHA Loans 101

Oakland County MI First-time Home Buyers: FHA Loans 101

 Oakland County MI First-time Home Buyers: FHA Loans 101

While most people consider homeownership the American dream, many are not able to qualify for a conventional loan, which is a type of mortgage loan that’s not insured or guaranteed by the government. Unlike conventional loans, FHA loans are backed by the Federal Housing Administration and help to take some of the risk from lenders and place it on the government for higher-risk borrowers. Although the government insures the loans, they are actually offered by FHA-approved mortgage lenders.

The FHA, which is part of the U.S. Department of Housing and Urban Development (HUD), offers a wide range of loans to help different groups of people. FHA loans are helpful for Oakland County MI home buyers with limited savings and/or lower credit scores as they allow for down payments as low as 3.5% and a 580 FICO.  These types of loans are not only for first-time home buyers. Repeat buyers can get an FHA loan as long as they use it to buy a primary residence. FHA loans can also be used to refinance your home or for repairs on an older home.  

How FHA Loans Work

The Federal Housing Administration’s flexible underwriting standards allow borrowers who may not have stellar credit, high incomes, and/or cash savings the opportunity to become homeowners. With an FHA loan, borrowers must pay mortgage insurance, which protects the lender from a loss if the borrower defaults on the loan. The cost of insuring your loan is generally higher than with conventional mortgages, and you can expect to pay higher mortgage insurance premiums (MIPs) each month. Government-guaranteed mortgages are not available on high-priced homes, and you can see the cap in your area using the online tool on HUD’s website.

The differences between an FHA loan and a conventional loan 

When buying a home in Oakland County MI, It’s easier to qualify for an FHA loan than for a conventional loan, which is not insured or guaranteed by the federal government. FHA loans require mortgage insurance regardless of the down payment amount, compared to conventional loans where you need mortgage insurance for down payments under 20%. FHA mortgage insurance payments will be the same regardless of your credit score.

FHA loans

  • More rigid property standards
  • Lower credit scores allowed 
  • Somewhat higher down payment needed
  • Private Mortgage Insurance (PMI) is required for down payments of less than 20%

Conventional loans

  • Higher credit score needed (at least 620)
  • Slightly smaller down payments allowed
  • Private Mortgage Insurance (PMI) is required for down payments of less than 20%
  • More liberal property standards

One of the biggest advantages of an FHA loan is that only a 3.5% down payment is required for a home loan purchase (with a minimum 580 credit score). This is a lot less than other conventional types, which will ask anywhere from 5 to 20%. It’s worth noting that If you were to combine the FHA loan with a down payment assistance program, it could potentially mean that you would only need to put 0.5% down.

With an FHA loan, the down payment doesn’t have to come directly from the borrower; It can come from a family member, employer, or charitable organization as a gift. Also, if you prepay your mortgage before a certain amount of time, many conventional lenders will charge a prepayment penalty. With an FHA loan, there is no penalty for prepayment.

FHA loan limits for Oakland County MI in 2021

No matter which type of FHA loan you’re seeking, there will be limits on the mortgage amount. These limits vary by county. Limits for FHA Loans in Oakland County, Michigan range from $356,362 for a 1 living-unit home to $685,400 for 4 living-units.   

The different types of FHA loans

Loan qualification guidelines are fairly similar across the various types of FHA loans available:

  • Fixed-rate loans – Available in fixed-rate terms between 15 and 30 years, FHA mortgages come with a low down payment advantage- one of the lowest on the market.
  • Adjustable-rate loans – An FHA adjustable-rate mortgage (ARM) comes with an interest rate that “adjusts” over the loan’s term; generally increasing. Many people are drawn to ARM mortgages because they offer initial rates significantly lower than a fixed-rate product.
  • FHA 245(a) loan – An FHA 245(a) loan packs a fixed rate graduated-payment mortgage, also known as a “growing equity mortgage.” Graduated payment mortgages structure your monthly payment to scheduled increases over the life of your loan. As your loan amortizes, you’ll reach a point in time when your equity starts gaining traction. These mortgages are set up in 30-year terms, but it’s not uncommon to pay off the loan early depending on which graduated plan you choose.
  • FHA energy efficient mortgage – The FHA Energy Efficient Mortgage (EEM) program is a financing add-on that allows FHA borrowers to roll the cost of approved energy efficiency upgrades into their home loan. Homebuyers commonly use this program to update their home’s windows, HVAC systems, and insulation.
  • FHA loans for mobile homes – It is possible to use an FHA loan to finance a manufactured or mobile home, but finding a lender willing to approve financing may take a few tries.  
  • FHA loans for condos – Many are surprised to find that they can purchase a condo using the FHA loan. Since some condo associations enforce rules regarding property sales and improvements, however, there are some restrictions when it comes to using your FHA loan for a condo.
  • FHA 203(k) – Compared to other types of FHA products, 203(k) loans offer the opportunity for buyers to purchase fixer-uppers while financing additional funds for home repairs and renovations into the mortgage.
  • FHA reverse mortgage (HECM) – FHA Reverse mortgages are used as a home equity conversion mortgage (HECM). This allows a qualified homeowner to receive monthly cash disbursements by liquidating the equity they’ve built up in their home.

How to qualify for an FHA loan

Getting prequalified for an HOA loan is a simple and quick process, and can even be done over the phone. Your loan officer will require information about your basic finances, such as debt, income, and assets.  After running these numbers and evaluating them, he/she can tell you an amount you may qualify to borrow. To be eligible for an FHA loan, borrowers must meet the following lending criteria:

  • A FICO score of 500 to 579 with 10 percent down or a FICO score of 580 or higher with 3.5 percent down.
  • Verifiable employment history for the last two years.
  • Income is verifiable through pay stubs, federal tax returns, and bank statements.
  • The loan is used for a primary residence.
  • The property is appraised by an FHA-approved appraiser and meets HUD property guidelines.
  • Your front-end debt ratio (monthly mortgage payments) should not exceed 31% of your gross monthly income.
  • Your back-end debt ratio (mortgage, plus all monthly debt payments) should not exceed 43% of your gross monthly income. (Lenders may allow a ratio of up to 50% in some cases).
  • If you’ve had a bankruptcy, you will need to wait 12 months to two years to apply, or three years after a foreclosure. (Lenders may make exceptions on waiting periods for borrowers with extenuating circumstances).

Your credit score

The minimum credit score for an FHA loan is 500. If your score falls between 500 and 579, you can still qualify for an FHA loan, but you’ll need to make a larger down payment. Again, these are FHA guidelines — individual lenders can opt to require a higher minimum credit score.

Your debt-to-income ratio (DTI)

The FHA requires a DTI of less than 50, meaning that your total monthly debt payments can’t be more than 50% of your pretax income. This includes debts that you aren’t actively paying off.

FHA closing costs

FHA closing costs include the mortgage insurance (MIP), lender and third-party fees, and prepaid items that are due when signing your mortgage paperwork. Here’s the breakdown:

  • FHA mortgage insurance premium (MIP) totals 1.75% of your loan amount, due at closing. You can also finance this charge as a part of your loan. You’ll also find that an additional ongoing FHA MIP of 0.45% to 1.05% is built into your monthly payment. While the rate remains the same for the life of the loan, the premium is adjusted annually based on the remaining principal loan balance.
  • Lender fees typically include an origination fee, underwriting fee, document preparation fee, supplemental loan origination fee (for FHA 203(k) renovation loans only), and interest rate lock fee.
  • You may also decide to buy discount points (a prepaid interest that lowers your loan’s interest rate), which will be listed as a lender fee.
  • Third-party fees include fees for services offered by other providers and could include Title insurance policy premium (for the lender and an option for the buyer to purchase as well), notary fee, credit report fee, Recording fees, appraisal fee, courier fee, attorney fees, and flood certification fee.
  • Prepaid items are fees that are paid in advance, with some shared between buyer and sellers such as tax and insurance escrow deposit, flood and hazard insurance premiums, real estate taxes, and per diem interest.

In summary 

Whether an FHA loan vs a conventional loan is the better choice, when buying a home in Oakland County MI, really depends on the situation as each borrower, financial situation, and home are different. Likewise, each loan has its benefits. An FHA loan is more flexible to obtain, but no matter how large your down payment, you will have to pay mortgage insurance. Whereas, a conventional loan requires a higher credit score and more money down, but doesn’t have as many provisions. You’ll want to speak with your mortgage professional to discuss which loan makes more sense for your individual financial situation and needs.

Partner with award-winning Oakland County MI REALTOR® – Tom Gilliam   

Tom Gilliam is proud to be a trusted REALTOR® in Oakland MI for the past 20 years – offering his guidance and expertise to both home buyers and sellers. Tom understands that buying or selling a home is a significant financial and life decision and that you are looking for someone you can trust. As your agent, he will protect your interests, advocate for you, negotiate on your behalf, and guide you towards a smooth and successful transaction.   

Whether you are ready to buy a home in Oakland County MI or its time to list your your current property, feel free to reach out to Tom directly at (248) 790-5594 or you can get in touch with him by email.

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 

 

 

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