As a first-time homebuyer, navigating the current, quick-paced housing market can be challenging. When you chance upon a house you love, it is good to know that you have an experienced lender standing behind you with a pre-approved mortgage. This way, you ensure that you have no impending obstacles between you and securing your new home. Likewise, if you refinance your current home or purchase a second home, acquiring a suitable mortgage loan should be as straightforward as possible.
There are many mortgage loans in Detroit, MI, each with varying requirements that will impact the chance of approval, the down payment, the interest rate, and the lifespan of your loan.
Types of Mortgages Available in Detroit
Here are some of the mortgage loans available to first-time homebuyers.
A popular type of mortgage loan in Detroit is a conventional loan. It’s excellent for homebuyers with strong credit scores, stable incomes, and a substantial amount to dedicate to a down payment. In addition, conventional mortgages offer the advantage of having lower interest rates than other types of loans and allow home buyers to place a larger initial sum on their total payable amount.
To qualify for this type of loan, borrowers need:
- At least a 620 credit score,
- Proof of steady employment and income
- Ability to make between a 3% and 20% down payment
Note that conventional mortgages aren’t federally backed loans, and they may or may not conform to Fannie Mae and Freddie Mac requirements.
A jumbo loan is an exceptional conventional mortgage choice for homebuyers purchasing a large or high-value property. Although it’s nonconforming to Fannie Mae and Freddie Mac standards, home buyers will typically be eligible for similar low interest rates. To qualify for these types of loans, borrowers will need:
- A credit score of at least 700 (although it depends on the value of the property)
- Stable employment and income history
- An excellent debt-to-income ratio below 45%Down payment between 10-20%.
An FHA loan is a federal government-backed mortgage loan, ideal for those who do not have a large down payment or do not have a strong credit score. An experienced and qualified mortgage loan officer will be able to verify if you qualify for this type of loan by using your FICO score along with other credit score details to assess potential risk. Typically, borrowers need a relatively strong FICO score of 580 or more to qualify for a substantial amount of financing with a low 3.5% down payment. In addition, all homebuyers who obtain this loan must pay an upfront mortgage insurance premium and an annual insurance premium.
A VA Loan is a mortgage loan provided by the U.S. Department of Veterans Affairs, available for qualified military service members, veterans, and spouses. It is perfect for military personnel or veterans who desire a mortgage that matches their financial needs and offers competitive interest rates. The significant advantages of a VA loan include:
- No required down payment
- Low interest rates
- No need for mortgage insurance or mortgage insurance premiums
- Caps on closing costs
Some borrowers may pay a funding fee upfront or add it to the loan amount, going towards the program. However, military personnel and spouses are exempt from paying this funding fee.
USDA/Rural Housing Service Loan
A USDA loan is a government-backed mortgage loan in Detroit that is available to low-income individuals who are buying a home in a rural area. It is ideal for those who may not have the saved finances to contribute to a down payment. To qualify, the lender you work with will ensure that you are purchasing a home in a USDA-eligible area and that you fall beneath the income threshold.
Types of Amortization
Along with your mortgage loan, you will choose between amortization types. Amortization is how payments are spread out for the duration of the loan. Some of each payment, usually monthly, will go toward the interest, and some will go toward your balance. There are three main types of amortization, fixed-rate, adjustable rate, and graduated payment. Lending experts watch and analyze market trends, understanding how the market may shift in the coming years. Accordingly, they can help you make the best decision between types.
A fixed-rate mortgage in Detroit involves a set interest rate for the complete lifespan of the loan; this will determine the monthly payment and the length of the loan. A good mortgage loan officer will advise if a fixed-rate mortgage is the right choice for you, based on your current financial situation and your future financial goals. Typically, a fixed rate mortgage will be appropriate for those who plan to stay in their home for an extended period and who appreciate predictable payments in their budget. If home buyers can afford a higher monthly payment, borrowers may benefit from a short-term fixed-rate loan. If a lower monthly payment is preferable, the term may be longer. However, a fixed rate mortgage may not be ideal if the rates are exceptionally high at the current time or in your present area.
An adjustable-rate mortgage involves an interest rate that can change over time depending on how the market moves. Your lending agency will provide an introductory fixed interest rate for a specified time. Then your interest rate will decrease or increase depending on the market. You will receive an interest rate cap, which limits the amount your rate can fluctuate throughout your loan. Typically, this type of amortization is advantageous for those who believe the current interest rates are too high, do not expect to stay in their home for a long period, or who want to pay significantly large amounts towards the loan in the first few years.
Graduated Payment Mortgages
A graduated payment mortgage is similar to an adjustable-rate mortgage, except that the borrower will understand precisely how and when the interest rate will change. This fixed-rate mortgage type offers low monthly payments for the first few years. Then, they gradually increase until it reaches the full payment amount. The significant advantages are that it’s easier for homebuyers to qualify for this type of mortgage and they’ll be able to make lower payments initially. In turn, they may be able to afford a higher down payment or afford other new house-related costs.