As a home buyer in Michigan you probably have a lot of questions as to what to expect. Whether you’re shopping for the first time, or have purchased in the past, as frequently as everything changes it can be hard to navigate the waters. But that’s what I’m here for! Let’s go over some of the basic frequently asked questions from our Mortgage Monday series on Facebook.
HOW DO I KNOW IF I’M READY FOR A MORTGAGE PAYMENT?
This one is easy, if you qualify, buy! Rental rates are often as much as double what a mortgage on the same home would cost. And with a mortgage, you OWN the property, with a rental, you have to give it back no matter how much money you’ve sunken into it.
Here are some signs that it’s time to buy:
• You plan to live in the area for 2 years or more
• You want the ability to customize your own home
• You want to save money with tax deductions
• You want to build equity
• You have money saved up and a steady income
”How do I know what I can afford?”
Great question! The first step to purchasing a home is determining how much you can afford and getting a pre-approval letter from a lender.
The rule of thumb is that you can afford to spend 2.5 times your annual salary on a home, but that doesn’t take into account your existing debt and your lifestyle.
It’s best to talk to a mortgage lender to find out what you qualify for and get your pre-approval letter.
I’d be happy to send you my recommended lenders, shoot me a message or download my free home buyers guide at mbre.info/buyerguide
What information does a lender need from you in order for you to get a loan?
Here’s your checklist:
✓ Proof of ID
✓ Proof of address
✓ Pay stubs
✓ W-2s and 1099s
✓ Bank statements
”Can I qualify for a mortgage if I’m self-employed?”
Getting a mortgage can be a bit more challenging when you are self-employed, but it is still possible.
To prove your income and self-employment when you apply for a mortgage, you will most likely need:
• The last two years of tax returns for you and your business
• Year-to-date profit and loss statement
• Current balance sheet
• Letter from your accountant stating that you are still in business
• Your bank statements
If you’re self-employed and thinking about buying, I’d love to walk you through the process and introduce you to a great lender!
But what if a lender says you don’t qualify?
1. Find out why you were denied. Your loan officer should give you a definite answer as to why your application was turned down. Having this info will help you know what you need to do for next time.
2. Check your credit report. Pull your free credit report and make sure there aren’t any errors.
3. Pay down your debt. Most lenders want to see a debt-to-income of less than 43 percent. Do what you can to come in under that number by paying off credit cards, student loans, and car payments.
4. Shop around. If you were denied a conventional loan, talk with your realtor or mortgage advisor about other loan products that may work with your financial profile. Don’t be afraid to speak with multiple lenders. I always suggest consulting a credit union, your regular bank, and a mortgage company.
Here’s a crash course:
Definition: A conventional loan is a loan not insured by the government. This means there’s no guarantee for the lender if you fail to repay.
Down payment: Because it’s not insured, a conventional loan requires a 20% down payment.
Special considerations: Can’t do 20%? Then you’ll need to have private mortgage insurance (PMI). PMI picks up the tab for your lender if you happen to default on the home.
Definition: A FHA loan is a loan insured by the Federal Housing Administration (FHA).
Down payment: Because it’s insured, a lender can offer a downpayment as low as 3.5% of the purchase price.
Special considerations: You’ll need a credit score of at least 580 with 3.5% down, and 500 with 10% down.
Definition: A VA loan is a loan guaranteed by the Veterans Administration (VA). It is only available to current members of the U.S. armed forces, veterans, national guard or reserves, and surviving spouses.
Down payment: There is no minimum down payment or PMI required for buyers purchasing a primary residence.
Special considerations: Borrowers do pay an initial funding fee — a one-time charge between 1.25% and 3.3% of the loan amount.
You’ve watched enough HGTV and tackled enough small projects to now want a fixer-upper all your own.
So what about financing? How do you secure a mortgage that allows you to purchase a property and gives you the cash you need to transform your newly-acquired diamond in the rough?
Enter a home renovation loan.
• A home renovation loan is a type of mortgage loan that includes the costs of renovating a %22fixer-upper.%22
• In most cases, an appraisal for a home renovation loan includes up to 110% of the home’s after-improved value.
• Use the money from a home renovation loan to make repairs, add square footage, or upgrade the kitchen and bathrooms.
• You’ll want to get detailed estimates and avoid over-improving your new home. Talk with an experienced real estate agent who knows your neighborhood and can help you avoid both pitfalls.