First Time Home Buyer in Michigan; Basics

If you’re a first-time home buyer in Michigan this is your Michigan Realty guide to help you navigate this process. After reading this you’ll feel much more confident when approaching a realtor and a lender.

Being a first-time home buyer in Michigan isn’t as scary as you might thing. Read on to learn more.

What does my credit score need to be to buy a home in Michigan?

Unless you’re buying with cash or cryptocurrency, you’re likely going to be using a mortgage. So, you’ll be curious if your credit score will qualify you for a mortgage. The good news for first time home buyers is your credit score doesn’t actually need to be perfect.

We caught up with Mekhael Kattula, a mortgage broker for Swift Home Loans in Birmingham, Michigan, to give some insight.

“A lot of people think you need 730s-740s in order qualify, but that’s not true. The sweet spot is 700, but you can get a conventional mortgage as low as 620.”

Mekhael continued saying that it would be easier for lower credit scores to qualify for an FHA (Federal Housing Administration) Mortgage. This mortgage type requires a lower down payment, lower credit scores will often qualify, and they’re less strict on Debt-to-Income ratios.

Having a lower credit score using an FHA also provides you additional protections. In the buying process FHA has inspection requirements which assure the buyer that nothing significant is wrong with the house before the lender can close on the deal. From this inspection, you’ll also know some of the little things that will need to be done to fix the home.

What are the down payment requirements to buy a home in Michigan?

Mekhael: “For a first-time home buyer you can put as little as 3% down to buy a home, which is still for a conventional loan. Now if you’re not a first-time home buyer and you’re looking to get a conventional loan you’ll need a minimum of 5%, with the average amount being around 9%.”

Now for the previously mentioned FHA loan, the minimum will be 3.5%.

It was often viewed as a requirement to put 20% down to avoid mortgage insurance, but as the affordability of mortgage insurance improved the suggestion is no longer 20%. Plus, mortgage insurance is arguably a good thing to have. But that’s an article for another day.

There are programs out there to assist with down payments, and this is a conversation that you’ll need to have with your realtor and your lender, as one might best fit your circumstance.

Once I’m pre-approved for a mortgage, can I place an offer on a house?

Theoretically, you can place an offer on a house before ever speaking to a lender. If you ask a Realtor, they will almost always tell you in big bold letters to never do that.

In certain market conditions, you might offer on a home without talking to a lender. For example, when homes are flying off the market, you find a home you NEED, and you’re confident that a lender will provide you the loan. At this point you’re prioritizing speed as a means to get an accepted offer.

A realtor wants you to get pre-approved first, mostly because of trust and confidence. It’s about trust and confidence because of the time required to help you look for homes and write offers. A realtor will also want to know that the price range you’re looking in is realistic according to what a bank would approve you for.

Yet, the most important reason is because it’s a faster transaction for you to be pre-approved. In fast moving markets, often listing agents are asking buyer agents if the offer will come with a pre-approval. When that happens the seller of the home is looking for the confidence that this transaction will likely move smoothly.

So, we’d agree that its best to be pre-approved before shopping.

What happens when my offer is accepted to buy a home in Michigan?

What happens next will be determined by the purchase agreement that you submitted to the seller. This is true as a first-time home buyer or if this is your hundredth home you’ve purchased.

Typically, there are a few deadlines acknowledged in the real estate purchase agreement that you’ll need to be aware of. These are the main ones you’ll see:

The first deadline is the time frame to get a private inspection/appraisal. Keyword private. Some mortgage types require this activity, and purchase agreements are written to keep that timing more flexible.

The second deadline is the time frame to submit your earnest money deposit. Sometimes the earnest money deposit is provided WITH the offer to purchase, and if so, there would be no deadline to pay attention to.

Third is the date of Closing. This is the date when paperwork is sign, sealed and delivered.

Lastly the date of key exchange and possession. Often in a purchase agreement this can happen after the date of closing as the seller will need a window of time to move out of their home. Key exchange and possession can also happen the day of closing.

Sometimes these dates will need to change. If you’re working with a Realtor, they’ll have you sign an addendum to acknowledge this. Both parties will end up signing that addendum. The most common reason for changing a deadline has less to do with the buyer or seller, but the mortgage lender needing more time.

What’s the difference between earnest money and my down payment?

For this question we ask Mekhael to give us his answer. “The earnest money is your good faith money to the seller, that if you back out of the deal you could lose that money. The down payment is money applied to the equity of the home.”

In other words, with Earnest Money, you’re telling the seller that you’re so serious about buying this house that this is the amount you’re willing to lose if you back out. The earnest money will be applied to the purchase price of the home when you move forward with the purchase.

Like Mekhael said, the Down Payment is instant equity in the home. The more you put down, the more equity in the home you’ll have right away and the lower your monthly mortgage payment.

What’s the difference between the appraisal and the home inspection?

The fundamental difference in real estate is Value vs. Condition. The appraisal is the analysis of the value of the home. The inspection is the analysis of the condition of the home.

The confusion happens because the real estate appraiser and the real estate inspector are looking at similar features. After all, a big factor in the value of something is the condition that it’s in.

For a real estate appraiser, they aren’t exclusively looking at just the condition of the home. An appraisal is also determined by market conditions of the neighborhood, the overall real estate market, and even the cost to rebuild such a home.

To contrast, the real estate inspector is simply looking at the condition of the home. As such, they almost always do a more detailed job at finding everything going on with the home you’re looking to buy.

If I’m already pre-approved, why does underwriting take so long?

This is another great Mekhael question. “So having a pre-approval is essentially having gone through the underwriting process, before it actually goes to underwriting. Really now-a-days underwriting doesn’t take long, only about 7-14 days on average. Waiting for title work to come back, appraisals, etc. these are all third-party requirements that aren’t in our control and often push out the date.”

Ultimately, the fastest closings occur because the title company, the lender, and the realtor all worked together seamlessly and there are no hiccups along the way.

The average closing time from the date of an accepted offer is between 25-40 days. With all cash transactions, this timeframe is shortened to only a matter of days.

What are the closing costs when buying a home in Michigan?

You hear the term a lot – closing costs. These are costs that are paid out at the closing table. There are costs to the seller and the costs to the buyer in each transaction.

Not all closing costs are worded in the way we’ll word them for this article. Depending on market conditions and how negotiations play out between the buyer and seller, some of these costs are negotiable. The following are closing costs you might see when you are a real estate buyer in Michigan.

Origination fees

These are fees paid to your lender for administrative work on the application and processing the loan request. This can also include Points which are fees that you can pay upfront for lowered interest rates.

Services the Lender required

These are fees that are required for the loan. For example, an appraisal fee, a credit report fee, a Flood Certificate (flood insurance).

Services the Borrower shopped for

These include: Home Inspections, pest control, getting a survey done, a title search and title insurance. This also includes any attorney fees and depending on the type of property you’re looking to buy, there could also be HOA fees.

There are also taxes, and in Michigan they typically average around $1300, but that’s also property dependent.

On average the total amount you’ll need at closing will be around 2-5% of the loan amount.

Congratulations!

You’re now a homeowner! Hopefully this provides you with some valuable insight and helps prepare you as a first time home buyer in Michigan. We’d recommend that you speak to a real estate professional to help you navigate this process. It’s a lot of technical information and most of the time you won’t need to know 90% of the information you read in this article. Let your realtor handle it and just enjoy the process.

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Disclaimer: This is not real estate advice, and you should speak with a licensed professional in Michigan Real Estate to clarify the information found in this article.