Buying A Home in Farmington Hills: 7 Things to Do Before Applying for a Mortgage

Buying A Home in Farmington Hills: 7 Things to Do Before Applying for a Mortgage

 

Buying A Home in Farmington Hills: 7 Things to Do Before Applying for a Mortgage

If you’re thinking about buying a home in Farmington Hills MI, applying for a mortgage is never simple, but it’s even trickier when you don’t know what to expect. If you are a first-time homebuyer, you can make the process easier by learning as much as you can ahead of time, before you’ve found your dream house.

Knowing what to expect allows you to plan ahead and improve your chances of getting a home loan with favorable terms. Here are 7 things to do before applying for a mortgage:

1). Review your credit report

Review your credit report to ensure there are no surprises long (several months) before you begin the mortgage process. Put simply, a low credit score will lead to a much higher mortgage rate, and even disqualification if it drives your monthly mortgage payment high enough.

When you submit a mortgage application, they’ll check your credit reports maintained by one or more of the three national credit bureaus (Experian, TransUnion, and Equifax), and the credit scores derived from those reports.

Lenders use credit information to help decide whether they’re willing to issue you a home loan and, if so, how much they’re willing to lend you and how much they’ll charge you in interest.

Farmington Hills MI Homes for Sale

Once a year, you can obtain a free credit report from all three credit reporting agencies at AnnualCreditReport.com. You’ll want to review each credit report carefully to make sure it accurately reflects your credit history and be ready to dispute anything on the report that isn’t accurate.  

2). Get familiar with basic mortgage terms

“Amortization,” “origination fee,” “earnest money” and other common terms used in mortgage lending might be phrases you’ve never even heard before. Since we are talking about your money and 10 to 30 years of your life, you’ll want to familiarize yourself with basic mortgage terms before speaking to lenders.

Everything you learn will position you to make the best choices for your finances and your future. Also, don’t be afraid to ask your lender or even your Farmington Hills REALTOR® lots of questions about the mortgage process, including mortgage terms you don’t understand.  

3). Know your budget

You don’t want to wind up with a mortgage you can’t pay – so it’s important to be realistic about your monthly income and expected expenses, and to leave some breathing room in your budget for emergencies or unexpected costs that might come up.

Most financial advisors agree that you should spend no more than 28% of your gross monthly income on housing expenses and no more than 36% on total debt. That 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 every month. To calculate how much 28% of your income is, simply multiply your monthly income by 28.

If your monthly income is $6,000, for example, the equation should look like this: 6,000 x 28 = 168,000. Now divide that total by 100. 168,000 ÷ 100 = 1,680.

Knowing what you can afford can help you take financially sound next steps. The last thing you want to do is jump into a 30-year home loan that’s unrealistic for your budget, even if you can find a willing lender.

If you want to qualify for a mortgage on your first try, it’s important to know how big of a loan you can reasonably afford. You can speak to a lender and go through a quick pre-qualification process to find out how much you can qualify to borrow and determine your budget for a home.

4). Improve your debt-to-income ratio

A high debt-to-income ratio (DTI) is the #1 reason why mortgage applications get rejected. Your DTI is all your monthly debt payments divided by your gross monthly income.

Most lenders typically offer loans to creditworthy borrowers with DTIs as high as 43-47%. That limit is based on policies by government-backed lenders like Fannie Mae, put in place to protect customers against predatory lending practices.

Simply put, the lower your DTI, the more financing options will be available to you.  If you have some flexibility on when you plan on buying, taking time to lower your DTI (and improve your credit score) can save you a lot of money over the life of your loan. 

A few DTI reduction strategies to consider:

  • If possible, pay off your car loan before applying for your mortgage.
  • If you plan on purchasing a car, considering waiting until after you’ve bought your home.
  • Start paying off your credit cards in full, one by one, but don’t close them out. 
  • If possible, refinance or consolidate current loans to reduce your monthly payments.
  • Consider adding a co-borrower with a low DTI and good credit history to your loan 

5). Consider various loan options

Not all home loans are the same. Knowing what kind of loan is most appropriate for your situation prepares you for talking to lenders and getting the best deal.

Understand how these choices affect your monthly payment, your overall costs both upfront and over time, and your level of risk. A loan “option” is always made up of three different things: loan term, interest rate type, and loan type.

Loan term 

Interest rates come in two basic types: fixed and adjustable. This choice affects whether your interest rate can change, whether your monthly principal and interest payment can change and its amount, and how much interest you will pay over the life of the loan.

With a fixed-rate loan, your interest rate and monthly principal and interest payment will stay the same. Adjustable-rate mortgages (ARMs) offer less predictability but may be cheaper in the short term. In the later years of an ARM, your interest rate changes based on the market, and your monthly principal and interest payment could go up a lot, even double.

Explore rates for different interest rate types and see for yourself how the initial interest rate on an ARM compares to the rate on a fixed-rate mortgage.

Interest rate type 

Interest rates come in two basic types: fixed and adjustable. This choice affects whether your interest rate can change, whether your monthly principal and interest payment can change and its amount, and how much interest you will pay over the life of the loan. 

With a fixed-rate loan, your interest rate and monthly principal and interest payment will stay the same. Adjustable-rate mortgages (ARMs) offer less predictability but may be cheaper in the short term. In the later years of an ARM, your interest rate changes based on the market, and your monthly principal and interest payment could go up a lot, even double. 

Explore rates for different interest rate types and see for yourself how the initial interest rate on an ARM compares to the rate on a fixed-rate mortgage.

Loan type 

 Mortgage loans are organized into categories based on the size of the loan and whether they are part of a government program (conventional, FHA, or special programs). This choice affects how much you will need for a down payment, the total cost of your loan, including interest and mortgage insurance, and how much you can borrow, and the house price range you can consider. 

Each loan type is designed for different situations. Sometimes, only one loan type will fit your situation. If multiple options fit your situation, try out scenarios and ask lenders to provide several quotes so you can see which type offers the best deal overall.

6). Shop around

You’ll want to compare all the costs involved in obtaining a mortgage. Shopping, comparing, and negotiating may save you thousands of dollars. Home loans are available from several types of lenders – commercial banks, mortgage companies, thrift institutions, and credit unions.

Different lenders may quote you different prices, so you’ll want to contact several lenders to make sure you’re getting the best price. You can also get a home loan through a mortgage broker with access to several lenders, giving you a wider selection of loan products and terms to choose from.

Keep in mind that brokers are not obligated to find the best deal for you unless they have contracted with you to act as your agent. Therefore, you should consider contacting more than one broker, just as you should with banks or thrift institutions.

Good agents know good lenders

Your Farmington Hills real estate agent can help you find a mortgage lender. Most agents have a plethora of lenders in their referral database, and a group of lenders that they have personally worked with before. Agents can be trusted to refer a mortgage lender with a proven record and who can close loans.  

The Real Estate Settlement Procedures Act (RESPA) prohibits agents from receiving a “thing of value” from a lender in exchange for sending you its way, and this inhibits them from entering into quid pro quo arrangements that might not be best for their clients.

Most homebuyers want their new home purchase to be handled thoughtfully. They want to close within the contract period. That scenario is more likely to happen if you use your agent’s preferred mortgage lender.

7). Pull together your financial documents  

It’s a good idea to start prepping your financial documents. Lenders will request paperwork for your mortgage application that proves things like how much money you make and your debts. 

 Depending on your financial situation, the documents you will likely need when applying for a mortgage include 2 years’ worth of tax returns, pay stubs, W-2s or other proof of income, bank statements and other assets, credit history, gift letters, photo ID, and rental history.

If you’re self-employed or have other sources of income (such as child support), you will need to show your lender proof through 1099 forms, direct deposits, or other means. 

If you have any blemishes on your credit reports such as a previous short sale or a foreclosure, be prepared to write a statement that explains any negative items. Lenders may look at one-time unavoidable circumstances differently from habitual delinquency. 

The takeaway

The more you prepare ahead of time, the easier it should be to get the loan you need on the home you want and can comfortably afford. Don’t forget to compare different loan products, such as fixed-rate mortgages vs. ARMs, and conventional loans vs. FHA loans.

Both have their pros and cons and should be carefully considered. There is no one-size-fits-all approach. Also, be sure to shop around and get rate quotes from more than one lender. By doing so, you’ll likely get a better interest rate, more favorable loan terms, and save money now and in the long term.

Speak with your Farmington Hills MI REALTORⓇ about referring a lender to you. Real estate agents who routinely close a lot of deals have experience working with multiple lenders and know which of them will deliver.

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

Whether you are interested in Farmington Hills MI homes for sale or it’s time to list your current property, experience matters most in a changing market. Serving Farmington Hills and the surrounding area for over 20 years, Tom is able to provide his clients with the kind of knowledge, skills, commitment, and personalized service they need and deserve.

An extremely down-to-earth person, Tom is someone you can trust and feel good about working with. His clients appreciate his honesty and transparency and feel it helps them as they make important real estate decisions. Tom makes himself available to his clients whenever they have questions or concerns and promptly returns any texts, calls, or emails.

Farmington Hills MI Homes for Sale 

As your Farmington Hills MI real estate agent, Tom will protect your best interests, advocate for you, negotiate on your behalf and do whatever is necessary to ensure the best results possible. Having a trusted professional like Tom by your side means there is one less thing to worry about.

To find out more about buying or selling real estate in Farmington Hills MI, or homes in the surrounding Oakland County area, please give highly-rated REALTORⓇ – Tom Gilliam a call directly at (248) 790-5594 or send him an 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 Real Estate

 

 

 

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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The Closing Process When Buying a Home in Farmington Hills MI

The Closing Process When Buying a Home in Farmington Hills MI

The Closing Process When Buying a Home in Farmington Hills MI: A real estate closing, also called a settlement, is the process of transferring ownership of a home from the seller to the buyer. In the context of real estate, “closing” is basically synonymous with “signing.” Reviewing and signing documents is the bulk of what a home buyer does during this process. But that’s not all that happens.

Summary: Come closing day, the buyer and seller will sign all the necessary papers to officially seal the deal; the property title and ownership get transferred from the seller to the buyer; the home buyer will sign a variety of documents prepared by the escrow/closing agent and will also pay whatever closing costs are due; and agent commissions and other funds are distributed by the escrow agent. 

The closing process is usually managed by an escrow agent and sometimes an attorney who specializes in handling real estate closings and preparing the related documents. In some states, the home buyer and seller can close separately at different dates and times. While in other states, both parties must attend closing at the same time and sit at the same table with their respective real estate agents and/or attorneys. 

Even though you and the seller may agree on a closing date, your agent will probably work with your lender and title agency to suggest a timeline that allows them enough time to correctly execute their end of the deal.  

The Steps at Closing

While the logistics mentioned above can vary, the steps at closing are basically the same.  

  • The home buyer will bring a cashier’s check to cover all remaining closing costs and fees. 
  • The property title will be signed over from the homeowner to the buyer, thus transferring ownership.
  • The closing agent (or lawyer or notary) will register the new deed with the appropriate government office. After that, the home buyer will be listed as the official owner of the property. 
  • The respective real estate agent(s) involved in the transaction will receive their commission fees. 
  • The seller will receive any proceeds they earned from the sale, once their mortgage balance and closing costs have been paid off.

Closing day documents

A real estate transaction is a complex process that involves a lot of paperwork, and there are many documents that buyers will need to sign on closing day. Fortunately, the escrow or closing agent will have all of the required documents prepared and ready for the buyer’s signature upon arrival at closing. 

There will be mortgage-related documents, legal disclosures, tax records, and more. It’s not uncommon for buyers to sign their name over a dozen times before all is said and done. Buyers will have to sign the property deed, bill of sale, mortgage agreement and note, transfer tax declaration, and closing disclosure. 

Once the buyer has finished signing all of the closing documents, and all funds have been properly distributed, the deed of ownership will transfer from the homeowner to the buyer. If it is a joint closing, the seller will then hand over the keys. If it is a separate closing, the seller’s agent might deliver the keys (This can vary).

How Farmington Hills MI homebuyers can prepare in the days leading up to closing

Knowing what happens in the days leading up to closing can reduce some of the stress and help ensure a smooth transaction. Here is what you can typically expect to happen: Your mortgage lender will send you a closing disclosure a few days prior to closing. Among other things, the closing disclosure shows how much the buyer has to pay in closing costs. The buyer will then need to obtain a cashier’s check in the amount stated in the closing disclosure.

In some cases, the buyer might wire the money to the title/escrow company, rather than paying by cashier’s check. Typically, the buyer brings a copy of the homeowner’s insurance policy to the closing, or an insurance binder, depending on what the lender requires. During the week prior to closing, last-minute underwriting issues may also be resolved in some cases. 

What Farmington Hills MI homebuyers need to bring on closing day

Buyers need to bring all necessary paperwork with them to closing to make sure nothing is missing, different, or overlooked. Some important documents include: 

  • Cashier’s or certified check – You’ll pay your closing costs with a certified check or a wire transfer from escrow.
  • Proof of homeowners insurance – Lenders require an insurance policy before closing   
  • Photo ID – You’ll need to bring a government-issued identification for the title company.

Closing day check list

Review the following checklist to make sure that you have everything in order so that the closing day process runs as smooth as possible:

  • Contact the closing agent – Once you know who your closing agent is and where they’re located,  contact their offices to see if they have any special instructions for you. They’ll typically have a list of items you’ll need to bring.
  • Review your closing documents – Legally, you should receive your closing documents 3 business days prior to closing. Make sure you read them so you understand what you’re signing and check for any errors. Double-check all of the basics: spelling, numbers, names, etc.  
  • Check the fees – Your most recent loan estimate should be close to your closing disclosure. Some fees may change a little, but there shouldn’t be any big surprises at this stage.
  • Review seller responsibilities – Review your final walk-through checklist to make sure the seller has taken care of all their responsibilities.
  • Be payment ready – Expect to write the check for closing costs. Plan in advance if you are transferring funds from another account so they are cleared.

How much It costs to close on a house in Farmington Hills MI 

Closing costs are the fees that third parties charge and typically include the home inspection fee, premium for homeowners insurance, appraisal fee, credit report charges, attorney expenses, and so forth. Some of these fees, such as earnest money and home inspection fees, will need to be paid before the actual closing day. On average, homebuyers will pay between 3% to 4% of the purchase price of the home in closing fees. For example, if your home costs $300,000, you might pay between $9,000 and $12,000 in closing costs.

The takeaway

Closing on a house in Farmington Hills MI may seem like a cumbersome process, but the toughest part of it is the waiting. If you enlist the help of a skilled Farmington Hills MI REALTOR and other experienced professionals at every stage of the process, you will feel confident and look forward to closing day when you get the keys to your new home!

Partner with award-winning Farmington Hills MI REALTOR® – Tom Gilliam   

Tom Gilliam is proud to be a trusted REALTOR® in Farmington Hills MI for the past 20 years, offering his guidance and expertise to 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, Tom will protect your interests, advocate for you, negotiate on your behalf, and do whatever it takes to ensure a smooth transaction and the best results possible. He is able to provide the kind of knowledge, skills, dedication, and personalized service you need and deserve. If you or someone you know is interested in Farmington Hill MI real estate, feel free to reach out to Tom directly 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 

10 Common Mistakes to Avoid When Buying A Home in Farmington Hills MI 

10 Common Mistakes to Avoid When Buying A Home in Farmington Hills MI 

10 Common Buying Mistakes to Avoid When Buying A Home in Farmington Hills MIAre you currently in the market to buy a home in Farmington Hills, MI? If this is your first rodeo as a homebuyer, or if it’s been several years since you last bought a home, knowledge is power. Buying a home comes with many big decisions, and it doesn’t hurt to be mindful of possible pitfalls so you can avoid as many mishaps as possible. Some are minor, some are costly and some even involve buyers purchasing homes that are completely wrong for them.

Here are 10 common home buying mistakes to avoid and and some expert advice to help you on your journey to homeownership:  

1).  House hunting before getting pre-approved  

House shopping can be exhilarating and it can also be taxing, so it’s no surprise that many people want to get going on it right away. However, shopping for a home before getting pre-approved for a mortgage is not a good idea.

Getting pre-approved ensures that you have the financial ability to purchase a home, helps you understand how much home you can afford, and shows sellers that you are serious when making a purchase offer. There’s no need to tour any Farmington Hills MI homes for sale if you don’t know which properties are within your budget.

Sellers are also more likely to consider your purchase offer if they know they are dealing with someone who already has a mortgage pre-approval.

2).  Obtaining a rate quote from only one lender

No two lenders are the same and each one may offer different interest rates, closing costs or other fixed fees. If you don’t shop around, you could miss out on a better deal. By getting quotes from a number of lenders, you’ll be able to choose the one that will save you the most money at the closing table or over the life of the loan.

Pick at least three to five lenders and request quotes on the same day to help you compare apples to apples. According to Freddie Mac, getting a quote from just one additional lender could save you an average of $1,500 over the life of a loan.

Get a quote from 5 different lenders and the average savings doubles. Visit lender websites to learn more about the products they offer and read customer reviews to make sure you’ll be in good hands once the loan closes. Find a lender who is a good fit in costs and in service.  

3). Not checking credit reports and correcting errors

Mortgage lenders will scrutinize your credit reports when deciding whether to approve a loan and at what interest rate. If your credit report contains errors, you might get quoted an interest rate that’s higher than you deserve. That’s why it pays to make sure your credit report is accurate.

You can request a free credit report each year from each of the three main credit bureaus. Errors on your credit reports can cause your credit scores to be lower than they should be, which can affect your chances of getting a loan or credit card and how much interest you pay.

Federal law gives you free access to your credit reports from the three major credit bureaus: Equifax, Experian and TransUnion. Using the government-mandated AnnualCreditReport.com site is the quickest way, but you can also request them by phone or mail. Disputing any credit report errors and getting those negative items removed can be a quick route to a better score.

4).  Buying more home than you can afford

Don’t buy more house than you can reasonably afford. The maximum loan amount on your pre-approval letter doesn’t mean you should look at homes that are priced to match it. The lender may know your income and even your debt-to-income ratio, but that’s all they look at when it comes to monthly expenses.

The lender doesn’t know how much you pay for groceries, gas and insurance, healthcare, school tuition or loans, utilities, and other expenses you might have.  If maxing out the loan amount you qualify for means that you are stretching your monthly budget to the limit, you probably need to find a more affordable home.

Even if you can make your mortgage payments with all of your other monthly expenses, a higher monthly payment can affect other areas of your life. The more money you borrow, the less you’ll be able to put towards important savings such as your 401(k) or emergency fund.

5).  Depleting your savings

One of the biggest mistakes many first-time homebuyers make is spending all or most of their savings on the down payment and closing costs. Some people scrape all their money together to make the 20 percent down payment so they don’t have to pay for mortgage insurance.

This may translate to substantial savings on the monthly mortgage payment, but it’s not worth the risk of living on the edge. Instead, aim to have three to six months of living expenses in an emergency fund, even after you close. Depleting your emergency or retirement savings to make a large down payment is a risk best avoided.

6).  Being Unaware of the hidden costs of owning a home

Many first-time home buyers are unaware of the hidden costs of homeownership because they’ve never owned one. When moving from an apartment to a home, there can be some additional costs that you may not have experience paying as a renter.

These hidden costs include higher utility bills, new utilities like trash removal and recycling, property taxes, homeowners insurance, outdoor maintenance and equipment, maintenance and repair, tools for home improvement and maintenance, furniture to fill more space, etc.

Figure out how much each expense will be, add that amount to your savings goal, and have it saved up before you move in.

7).  Believing that you must have a 20% down payment

There’s still a long-standing myth that you need a 20% downpayment in order to buy a home, but that isn’t actually correct. When you make a bigger down payment on your home purchase, you’ll likely get a better mortgage rate and a lower monthly payment, since you’re not borrowing as much. But that doesn’t mean you should hold off purchasing your first home, or upgrading to a new one, until you have a 20% down payment.

You can get a conventional loan with as little as 3% down or a loan backed by the Federal Housing Administration (FHA) with just 3.5% down. There are also 0% down payment programs available if you’re in the military, or you’re a low- to moderate-income borrower buying a home in a rural community.

Plus, some first-time buyers may qualify for a down payment assistance program through their state or local housing agency.

8).  Not planning for closing costs

Your down payment isn’t the only upfront cost you’ll have as a homebuyer. With such a big emphasis on the purchase price and the down payment, many people fail to plan for closing costs, which can range from around 3% to 6% of your loan amount. To prepare for closing costs, it helps to know what’s included in this major expense.

Although some of these may not be included in your closing costs, common fees include the appraisal, home inspection, property taxes, title and attorney fees, lender fees, application fee, prepaid interest, loan origination fee, discount points, title search fee, mortgage insurance application fee, upfront mortgage insurance, and lender and owner title insurance.

Other costs and specific mortgage fees will depend on where the home you are buying is located and the type of loan you get.

9).  Changing jobs or having income gaps

In order to qualify for a mortgage, you need to show stable job history and consistent income. Your lender will scrutinize your income and employment history over the last two years to determine whether you have that stability.

If you’ve been in between jobs in the past two years, be prepared to explain why.  If you’re looking to take a new job before closing on your mortgage, be strategic because it may delay your loan approval. Communicate potential job changes to your lender and be prepared tp supply any additional documentation they may request.  

10).  Applying for credit or charging up credit before closing

One important home buying mistake you want to avoid is taking on more debt in the middle of the mortgage lending process. This misstep can quickly derail your loan approval. It’s recommended that borrowers not take on any new debt or apply for a credit card until after closing on their new home. The loan underwriting department at the bank may be checking your credit after you’re approved and before the bank funds your loan.

If you max out your credit card or take out an auto loan before your closing, that debt is factored into your mortgage application. More debt pushes up your debt-to-income (DTI) ratio, or the percentage of your gross monthly income used to repay debt. If your DTI ratio exceeds the maximum ratio for your loan program, your loan may not be approved.

Partner with Award-winning Farmington Hills MI REALTOR® – Tom Gilliam   

Tom Gilliam is proud to be a trusted REALTOR® in Farmington Hills MI for the past 20 years – offering his guidance and expertise to buyers and sellers. Tom is able to provide his clients with the kind of knowledge, skills, commitment, and expertise they need and deserve. He also understands that buying or selling a home is a significant financial and life decision and that you are looking for someone you can trust. Tom will protect your interests, advocate for you, negotiate on your behalf, and go the extra mile to ensure a smooth transaction and the best results possible!

If you or someone you know is interested in buying or selling Farmington Hills MI real estate, feel free to reach out to Tom Gilliam directly 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 

 

Farmington Hills MI First-time Homebuyers: The Down Payment

Farmington Hills MI First-time Homebuyers: The Down Payment

Farmington Hills MI First-time Homebuyers: The Down Payment

As a first-time homebuyer, socking away money for a down payment to purchase a home in Farmington Hills MI may seem like an overwhelming task. The down payment is the upfront cash you pay to qualify for a home loan, which is expressed as a percentage of the home price. 

Many potential homeowners think that 20% down is the only option when it comes to getting a mortgage, but, that is just a common misconception, as there are many options out there.  

Lenders often look at the down payment amount as your investment in the home. Not only will it affect how much you will need to borrow, but it can influence whether your lender will require you to pay for private mortgage insurance (PMI).

Mortgage insurance protects the lender in case the borrower defaults on the home loan, and typically, you will need PMI if you put down less than 20% of the home’s purchase price. 

Different loans require different down payment percentages

Down payment requirements can also vary by lender and your credit history. The minimum down payment for an FHA loan is just 3.5% with a credit score of 580 or higher, for example, but the minimum is 10% with a credit score of 500 to 579.

State and local down payment assistance

Exploring local and national first-time homebuyer assistance programs is an important step in the journey to homeownership. Down payment assistance is often combined with favorable mortgage interest rates or tax breaks.

Many state housing authorities combine closing cost and down payment assistance programs with mortgages that have favorable interest rates. Some states even offer tax credits you can use on your federal tax return.

These first-time homebuyer assistance programs can boost your chance of homeownership in particular geographic areas, or help borrowers in certain professions, such as educators, first responders, or active-duty military and veterans. 

It’s important to note that programs will usually set a maximum sale price and some have income limits, so not all home buyers will qualify. Still, it’s worth checking out programs in your state.

Down payment gifts from family members

It’s not uncommon for first-time homebuyers to get help from family members. Using a gift to supplement savings can help first-time homebuyers clear the down payment threshold.

According to a 2019 Generational Trends report from the National Association of Realtors, of all homebuyers ages 28 and younger, 28% used a gift from a relative or friend to make a down payment. And of all buyers ages 29 to 38, 21% used a gift.

Down payment gifts are acceptable to lenders, but applying a gift toward a down payment involves more than depositing a check. The donors will have to verify in writing that they made the gift and have the financial ability to make such a donation.

They will be required to provide bank statements as proof, along with a letter confirming that the donation is a gift and not a loan. 

If the gift funds are added to the buyer’s bank account after settlement, then documentation will still be required before it can be applied to the purchase. Typically, this will require a receipt of the cashier’s check as given to the closing agent.

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.comYou 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, he 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

 

 

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