Michigan Mortgage basics-
About
Credit
Credit scores
Closing costs
Debt ratios
Down Payments
Points
Pre approval letters
| A few years ago could write a book about Michigan mortgages and the variety of mortgage products, but in the last few years banks have gone back to the basics. There are not many different loan types anymore.. Here are some of the most important topics include: |
Credit
Your credit fitness will go a long way in determining what kind of loan you will qualify for and what interest rate you will pay.
Before you go out looking at Michigan homes, you should see a Michigan mortgage lender to get pre-approved. A loan officer will analyze your income, debt, and credit. Your loan officer will pre-approve you for a maximim home loan amount. This does not mean you are approved for that exact amount until you formally apply for a loan and the loan is actually under written.
Credit scores
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Closing costs
I have two pages on closing costs. If you don't have the money for closing costs talk to your Realtor or your mortgage person. They can help you get the money for closing cost through seller's concessions or a no closing cost loan.
Debt Ratios
When you shop for a Michigan mortgage, one of the key factors a lender takes into consideration before granting approval is your debt-to-income ratio. This is the ratio between how much you owe each month ( the total monthly debt payments) and how much you earn (gross). This ratio calculates the percentage of debt you are carrying in relation to how much money you are making and gives lenders a good indication of how much additional debt you´ll be able to handle. Each lender has guidelines on how much the Debt to income ratio (DTI) can be. The usually DTI ratio is about 28% - 36%. Though there are lenders that allow up to 50% debt to income ratio. But the higher the ratio, the higher the rate usually. There are exceptions. FHA allows up to 41%. If you have good assets, good reserves, (money in retirement accounts, mutual funds, stocks, bank accounts) and good time on your job the lender may give you a great rate and an exception to the rule.
Determining how much house you can afford is based largely on income and expenses. Lenders used ratios to determine your maximum loan amount:
- Front ratio: The front ratio is your total projected mortgage payment (PITI) plus any homeowners association or condominium association fees divided by your gross income. For example, if your PITI plus fees is $1,500 per month and your total monthly gross income is $6,000, your front ratio would be 25 percent. Traditionally, your front ratio must be less than 28 percent.
- Back ratio: The back ratio is your total projected mortgage payment (PITI) plus any homeowners association fees or condominium association fees PLUS any car payments, credit card debts and other loan payments divided by your total monthly gross income. For example, if your PITI plus fees plus all other loan payments is $2,000 and your total monthly gross income is $6,000, your back ratio would be 33.3 percent. Traditionally, your back ratio must be less than 36 percent.
Down Payment
A major consideration Michigan home buyers have is how much money they will need up front to acquire a new home. The requirements vary widely. Some lenders offer loans with no money down and VA loans are often available without a down payment required. Other lenders may require 10 percent of the purchase price or more (up to 25 percent down with certain non-conforming loans) as a down payment. Some buyers prefer to make a substantial down payment, even more than what is required by the lender, to keep their monthly payments lower. In addition to the down payment, closing costs can be significant, up to 5 percent or more of the loan amount and are payable in cash at closing, although some lenders will allow you to add the closing costs to your loan principal, reducing your payout at closing but adding to your monthly payment.
Points
Should you buy points? Points are more confusing than necessary. Simply put, one point is 1 percent of the loan amount and points are payable to the lender at closing. Points are really paying interest in advance. Some lenders will allow you to reduce your interest rate by paying points; for example, an 8 percent loan may be able to be reduced to 7.5 percent if you pay two points or to 7 percent if you pay four points. You may be able to finance the cost of the points, but then you will paying interest on the interest you paid, so it is wise to have your lender and/or mortgage broker run the numbers to see if paying points is more advantageous for you. You don´t have to pay points at all if you don´t want to.
I hope this information on Michigan mortage basics help you. If want to starting to look for a Michigan home and don't know where to start give me a call or email me. My cell phone is (248)310-6239 or my email is yesmyrealtor@gmail.com
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