According to market research, it’s believed that 2.38 million Americans became first-time homeowners in 2020. More people are choosing to forego renting in favor of buying homes in Michigan.
If you’re considering becoming a first-time homebuyer, you’re likely unsure what the process would entail. Fortunately, home buying is not as challenging as you might believe. In our guide, we’re going to discuss everything you need to know about buying your first home in Michigan.
The Steps First Time Homeowners Need To Take To Buy A Home In Michigan
As previously mentioned, buying a home for the first time can be an exciting but daunting task, especially if you’re unsure how to purchase a home. After conducting our research and with our experience, it was easy for us to put together the following steps you need to undertake.
Have a look below to assuage your fears about first-time home owning and learn what you need to do to become the owner of your dream home.
1. Evaluate Your Credit Score
Unfortunately, if you have a less than favorable credit score, it’s highly unlikely that you will be able to buy a home in Michigan or any other state in the US. If you hope to be approved for a mortgage, you will usually need a credit score of 620 or higher. However, for Federal Housing Administration loans, you will need a minimum credit score of 580.
When buying a home, you want to have as high a credit score as possible which is why it’s an excellent idea to check yours: the higher your credit score, the lower your interest rate and the more affordable your repayments.
2. Calculate What You’re Able To Afford
A mortgage lender will tell you how much money you qualify for. Yet, it’s a good idea to calculate how much you can afford to pay on a house before seeing a lender so that you know what to expect. Calculating how much you can afford is not as difficult as you might think.
For an estimation, you can use the tried and trusted 28/36 rule. This rule states that you should now spend over 28% of your gross monthly income (your salary before taxes) on housing expenses. Additionally, this rule also states that you shouldn’t spend over 36% of your gross monthly income on monthly debt payments (such as your car loan, mortgage, and credit cards).
3. Save A Down Payment
After estimating how much you can actually afford to spend on a home, your next step should be saving a down payment. Usually, you will need to save a minimum of 20% of your home’s total price as a down payment, but you can put a higher down payment if you choose. Saving a down payment will help mitigate some of the extra fees like mortgage insurance.
However, if you can’t afford to place a 20% down payment on your home, you needn’t worry too much. Often, as a first-time homebuyer, you don’t need to place a down payment if you don’t want to or can’t afford to. Additionally, you need to also save money for closing costs. Generally, you need to save between 3% to 6% of your home’s purchase price for closing costs.
4. Choose A Trustworthy Mortgage Lender
When you’re ready to seriously consider buying a home, you need to choose a trustworthy mortgage lender. Although many buyers will choose a mortgage lender based on the recommendation of their real estate agent, you don’t need to do this.
Yet, when choosing a mortgage lender, you need to evaluate the loan estimate you receive. After receiving the loan estimates from the lenders you’re interested in; you can compare them to see which one offers you a deal you can’t resist.
5. Obtain Pre Approval
Although not necessary, it is often a good idea to get pre-approved by a lender as it can prove beneficial when you’re putting in offers on homes you like. Obtaining pre-approval will inspire confidence as sellers will be more confident that you will be able to pass final approval.
When applying for pre-approval, a lender will evaluate your credit information and assess your overall financial situation to determine if you are an ideal candidate for home buying. After your pre-approval assessment has been completed, you will receive a letter with the amount you could qualify to borrow.
6. Choose A Real Estate Agent
Although not necessary, it is often a good idea to get pre-approved by a lender as it can prove beneficial when you’re putting in offers on homes you like. Obtaining pre-approval will inspire confidence as sellers will be more confident that you will be able to pass final approval.
When applying for pre-approval, a lender will evaluate your credit information and assess your overall financial situation to determine if you are an ideal candidate for home buying. After your pre-approval assessment has been completed, you will receive a letter with the amount you could qualify to borrow.
7. Find Your Dream Home
Once you have found a real estate agent, you can begin to look for your dream home in earnest. When searching for your home, you might discover that every house starts to look the same, which is why it’s a good idea to decide beforehand what you’re looking for in a home. This will allow your agent to focus their search on homes you would seriously consider buying.
After you have narrowed down the prospects and are ready to view, be sure to pay attention to the homes in the area and the area itself. It’s also a good idea to research the neighborhood beforehand to determine if it’s one you would like living in.
8. Make An Offer
For most first-time homebuyers making an offer is a nerve-wracking decision which is why it’s a good idea to make sure the home you have found is the one you want. You will work with your real estate agent to draw up a purchase offer.
Since the listing offer might not be set in stone, you can make an offer based on what you want to pay for the home. After submitting the offer, the seller will either accept or decline or provide you with a counteroffer. Your agent will work with the seller and you to try and make both parties happy.
9. Undergo An Housing Inspection
Choosing to undergo a housing inspection is not always necessary, especially if the home you have purchased is brand new. However, having a housing inspection done can ensure you know the areas that need renovations or repairs.
This will ensure you know what you’re actually getting into before making the sale. If you find too many renovations or repairs, you can withdraw your offer.
10. Close On Your Dream Home
The last step in the first-time home buying process is closing on the house you have chosen. For this step, you have to sign the paperwork with the guidance of your real estate agent. During this process, the seller’s agent and representatives from the title company will be in attendance. Once the closing has been finalized, you will officially be a homeowner.
As can be evidenced, purchasing a home in Michigan as a first-time homeowner is not as challenging or complicated as you might have been led to believe. If you’re ready to purchase your first home, you should consider speaking with us at Loan X Mortgage.
We specialize in helping first-time homebuyers determine what they can afford and help them navigate the mortgage process. Speak with us today so that we can get started on getting you the best rates.
