Taking the plunge to buy your first home can be a little scary. Not only is it a big financial commitment, but there are numerous new terms and processes to learn. An experienced local real estate agent can help smooth the path to new homeownership. The caring team at Up North Realty will walk you through every step of the way – from house-hunting to handing you the keys to your beautiful new home. Looking to buy a house for the first time? Here are important details to know.
A strong credit score enables first time buyers to more easily obtain a mortgage. However, new buyers with lower scores don’t need to immediately fret because they can work to raise their credit in the months preceding the start to their home search. Mortgage lenders typically look for a minimum score of 620 to give approval to buyers, but the higher the score, the better the mortgage rates offered. Over the life of a mortgage, this equates to thousands of dollars saved. To raise a credit score, the following actions can help.
- Pay down debt. Pay down whatever debt you’re able to lower your debt-to-income ratio; this is the primary way lenders measure a home buyer’s ability to repay their mortgage debt. Get this ratio down to at least 43% (or lower if possible).
- Pay bills on time. Even just one late payment can be a blemish for seven years on a credit report.
- Check credit reports. Ensure no mistakes are listed, if any errors are found, file a dispute with the credit reporting agency ASAP.
- Don’t close old credit accounts. Shutting down accounts will affect your credit utilization ratio which can drag down a credit score.
- Make micropayments on debt. Making several small payments a month will reduce the amount of interest paid as opposed to one monthly payment and get debt paid down more quickly.
- Pursue an alternative credit score. Many lenders accept alternate scores. How they are achieved is by paying your monthly bills on time, including utilities, internet, phone, and other routine bills.
While a strong credit score equates to lower interest rates being offered, it also impacts how much of a down payment first-time buyers are required to put down, along with how much they’ll pay for private mortgage insurance (PMI). Strengthening a credit score reduces these costs.
Typically many buyers strive for a 20% down payment when they buy a home because this eliminates a lender’s requirement for a buyer to pay for PMI. PMI ensures the lender is repaid in the event the mortgage is defaulted on. However, even buyers who cannot achieve a 20% down payment can still purchase a home, it’ll just take a little more effort towards budgeting.
- Open a new savings account. Keep this money separate from other funds to ensure it’s not touched to make purchases or pay bills.
- Create a budget. Know what money is coming in and what’s going out. Look for ways to eliminate expenses by cutting out all unnecessary spending and stick to it.
- Save extra income. Any unexpected income, such as overtime or other monies, put straight into the new savings account.
- Avoid impulse buying. Remove all shopping apps from your phone and don’t buy anything substantial or frivolous until thinking about it for 24 hours. (Unsubscribe from emails that tend to lead to purchases, just eliminate that temptation.)
- Set achievable goals. Set realistic savings goals to avoid setting the stage for failure, start with what is affordable and keep up the momentum to save – even small amounts add up!
To further help achieve down payment goals, use a mortgage calculator to help track how much can be saved overall on a home loan with a larger down payment and what’s feasible for a monthly mortgage payment.
Before first time home buyers even begin to start house hunting in Michigan, they should prepare to be preapproved for a mortgage. It’ll ensure you don’t miss out on a property due to delays associated with not being pre-approved. This entails doing homework to understand the basics of mortgage lending and realizing there are vast differences between different types of mortgages and lenders. Start shopping around with different lenders to see what types of mortgages and terms are offered.
- Consider the length of the mortgage loan (the shorter the loan the less interest paid over time).
- Understand mortgage interest rates and what to look for when comparing them amongst lenders. Know the difference between fixed-rate mortgages and adjustable-rate mortgages (ARM). - Learn about the different types of loans available and learn the eligibility terms.
- FHA loans for people with low credit or low income.
- MSHDA loan for Michigan buyers.
- VA loans for military service.
- Conventional loans (ask about first-time homeowner loans.)
- Understand mortgage credit certificate (MCC), a homebuyer assistance program designed to help people afford homeownership by claiming tax credits.
Ideally, buyers should shop a minimum of three lenders to get a good sense of the type of mortgages and interest rates available. Remember to ask all lenders about first time home buyer programs. Once lenders are narrowed down, be sure to read the fine print on any mortgage offers.
Purchasing real estate is not an investment to take lightly. You want to find the right location and property, connecting with a good local agent can help you achieve these goals. Questions to ask realtors include:
"How long have you been in the industry?"
"How many buyers do you connect with homes each year?"
"How long have you been licensed?"
You want someone with experience, preferably with a long history in the local communities with a firm understanding of the regional market. The best agents demonstrate professionalism and put the needs of their clients above their own. The Up North Realty team is well-versed in the local market and is dedicated to each and every client they serve – we’re not happy until you’re happy with your buying experience.
One of the most appealing aspects of buying real estate in the Upper Peninsula is that homebuyers get more bang for their proverbial buck. Not only is it a smart financial investment, but buying Michigan land also comes with an amazing lifestyle. The UP is one of the most desirable locations in the U.S. but is far more affordable than other coastal, waterfront, mountainous, or wooded areas. Buyers looking to invest in UP property won’t have to shell out $1 million or more to get a property on Lake Superior. They will never pay obscene amounts to buy property near a popular ski resort or other desirable destinations like other areas. Waterfront homes and land along Lake Superior are widely available. Buyers can choose from existing homes or plan for new construction. Michigan is currently ranked as the third-most affordable state in the U.S. It also is listed in the top five states for the lowest cost of living per capita income.
The house hunt goes beyond finding the perfect property with the right number of bedrooms and bathrooms. Other attributes to consider include the quality of local schools, commute travel, access to medical care, and shopping. Consider if you want more of a rural or urban community. Also, important to consider are the homes in the area you’re looking well-kept, and do they have strong resale value?
Once you find the perfect home in the UP, it’s time to start negotiations and this is one of the steps you’ll learn the true value in connecting with the right agent. Once a price is agreed upon, inspections, title searches, and other vital steps will be taken during the closing process. On average, the closing process takes 30-40 days but can vary.
Your Up North Realty agent will make sure you’re paying a fair price under current market conditions in the Upper Peninsula. We’ll also ensure critical repairs are made and make sure you’re not left strapped paying all of the closing costs unless you are compensated in other ways to keep your first home affordable. We’ll do what we can to expedite the closing process while making certain no steps are missed.
Buying your first home is an exciting time! To learn more about how we can help you find the property of your dreams, contact Up North Realty today at 906-524-2211.
Written by Tracy Kahkonen on November 28, 2020