For the last few years, FHA loans have dominated the low down payment space in the mortgage world. We are finally seeing some positive signs in Michigan that things are getting better. One of those signs is that conventional loans have loosened up and are now allowing a 3% down payment with PMI.
Let’s compare both programs to understand the benefits of each.
There is a belief that FHA appraisals have a higher property standard or that more repairs would be required. This is not true as conventional appraisers will be looking for many if not all of the same aspects of the home.
Call us for details as these programs and requirements are constantly changing. The good news is that the feel from lenders is the bottom of the housing cycle is clearly behind us.
Posts tagged Homeowners Insurance
96.5% vs 97%
Home Insurance – What to know
Home Insurance is important enough to take a few moments to understand how it relates to you and your real estate goals. It is a must have for all transactions. Here is what you need to know:
- The cost to reconstruct the home, your deductible, and your credit score are the key points that determine your annual premium
- A copy of the appraisal will be provided – Agent will use it to determine coverage
- Only need “Walls In” coverage for attached condos
- Your agent needs to get new loan information from us
- You will be required to pay the 1st year premium in advance
- We must have your declaration page two weeks prior to the closing date
- This is required to obtain the “clear to close” status on your loan
Cash to close
We believe that all clients need to fully understand what it takes to close on their home loan. Yet the “Cash to Close” has consistently provided confusion in all borrowers’ minds.
There are 3 main components that make out your cash to close:
(Say we have a $150,000 purchase price, putting 10% down).
- Down Payment – $15,000 (Can range from 3% to 20% down or more)
- Closing Costs – $2,500 (Usually between $2,200-$3,000)
- Prepaid Items – $4,613
- TOTAL – $22,113
Prepaid items are certainly the most confusing, and can be divided up into 4 categories:
- Escrow Account: Lender will establish an account to pay your property taxes and home owners insurance ONLY IF you put less than 20% down.
- Property Tax Pro-rations: In Southeast Michigan, property taxes are paid 1 year in advance, so you must reimburse seller for taxes already paid. *Required regardless of down payment amount
- Home Owners Insurance: 1st year policy is always paid in advance and paid 2 weeks before closing. *Required regardless of down payment amount
- Prepaid Interest: You are required to pay for the interest on the remaining days left in the month you close.
In our example, the $4,613 can be broken down into:
- Escrow – 7 months worth of property taxes and 2 months worth of home owners insurance for a total of $1,900
- Tax Pro-Rations – 6 months worth of taxes totals $1,500
- Home Insurance – Premium would be $900 per year
- Prepaid Interest – Say we close on the 15th of the month, you would have to pay the remaining 15 days worth of interest at closing, a total of $313.
Keep in mind the tax pro-rations usually are the most confusing, and some lenders will not include this as it is not a lender related amount. Hope this clears things up.
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