Home Buying in 48042>Question Details

Joe, Home Buyer in Macomb, MI

I live at home, first time buyer. I only have about $15,000 saved for down payment/closing costs, looking to

Asked by Joe, Macomb, MI Sat May 17, 2008

get a home in the $175,000 area. I see a lot of great deals out there right now and am anxious to get myself one of those deals. I can save up about another $25,000 over the next year which would prevent paying the PMI. Do you see the market picking up/rates increasing at all in the next year, or would it be in my best interest to save over the next year and put down a larger down payment a year from now. -Joe

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Joe, you should do what ever is comfortable for you. Research property taxes and insurance costs along with principle and interest payments. Find a realtor that is consistently working with foreclosed homes, they will have updates weekly, and also check for HUD owned homes. HUD offers $100.00 down for FHA financing of purchases of HUD Owned properties $25,000.00 and more. Along with usually 3% for closing costs, prepaids, and discount. I think you should find a great deal out there and not have to spend so much money and have equity in today's market. That money would do you better put away earning interest and available for emergencies. Insurance for FHA is typically lower than PMI for conventional. USDA/Rural Development offers 100% financing in certain areas and as with FHA can finace repairs. If you have any questions, feel free to ask! Have a great day!
1 vote Thank Flag Link Mon Feb 16, 2009
Joe -
Advice from a fellow buyer, just do your homework and take what you learn here with a grain of salt. You're soliciting opinions here from people who sell homes for a living. So consider that bias as you read. There is much more to consider than just your downpayment and PMI. A great deal of your cash outlay that comes at closing is beyond what you may be considering. An FHA program may be very helpful to you. So your next step is to discuss what would be required at closing with a mortgage professional, and determine if there is a program that will work for you. Don't worry about interest rates going one way or another. There is an expectation that interest rates will rise in the near term, however that expectation is focused on the Fed. The Fed doesn't drive mortgage rates. The market for mortgage-backed securities drives the risk premium for which mortgages are priced. So even if the Fed Funds Rate is increased, which may prompt movement in the Treasury Yield Curve, if the perceived risk in mortgage securities is decreasing, so will mortgage rates.

And don't be fooled by comments about "market value." A home, like anything, is only worth what someone else will pay for it. If the bulk of pending sales are bank-owned, then bank-owned homes aren't priced below the market, they have likely become the market.
1 vote Thank Flag Link Sun May 18, 2008
Thanks all! I was not looking for a definitive answer, more opinions from people "in the know" about possible options. I appreciate the answers and the timeliness is unbelievable. this site is great and has helped with MANY questions I have had, it is good to see that there are people out there willing to help even if it doesn't benefit them directly. -Joe
1 vote Thank Flag Link Sat May 17, 2008
Joe, Sorry I see the crystal ball is broken.

In general. and this is very general, home values are still slowly decreasing. This may only be because of foreclosures. The latest information I saw was that the worst is over for Michigan from the sub-prime fallout. There will still be a glut of homes on the market afterwards so unless you stumble upon the perfect home either of your choices will work. Go with whichever is more comfortable for you.

I suggest seeing several lenders and allowing one to pull your credit. Before going, you may want to review your credit for blemishes at http://annualcreditreport.com You're allowed one free look per 12 months on that site. Initially, your lenders should be local. Once you are seriously looking, you can look for the best rates. I receive a daily ratelock email from ALaMode and they suggest allowing rates to float for the next 60 days. That is their opinion not mine.

Try looking for homes on http://moveinmichigan.com the public website for my MLS. Perhaps some other members on Trulia will post the public website for MiRealSource the other MLS is your area,

You can look at sample real estate forms on the website below. Please remember that anyone on this site cannot work for your best interests unless under a signed Buyer's Agency Agreement. I assume you eventually want to see someone working and negotiating the best deal for you, right?
Web Reference: http://mi-living.com
1 vote Thank Flag Link Sat May 17, 2008
Considering the inflationary pressure on the economy, there is a possibility that rates may increase from their current level. The $66+/- you may pay for PMI if you buy now will be more than offset by the increase in monthly payment with a 1% increase in the rate.
1 vote Thank Flag Link Sat May 17, 2008

PMI isn't the worst thing ever. It's relatively affordable, you can get an estimate right here on trulia from the payment calculator, in addition there are benefits to having an FHA loan. Under current regulations the minimum you have to put down with an FHA is 3 1/2%. In your case that would be just over $6000. As far as closing costs you can either pay them or you can finance up to 6% of your closing costs and prepaid items into your loan. FHA loans are also based on your ability to pay your mortgage, not your credit score. With a conventional mortgage if you don't have perfect credit you will end up paying a higher interest rate or more points up front in order to get the loan. Thirty year fixed interest rates are very similar for FHA and conventional loans, but as long as you have the minimum required credit score you qualify for the best interest rate available with an FHA loan. Also, FHA loans can be refinanced in the future through their streamline process, which doesn't require an appraisal.

Also Joe, keep in mind that if you purchase a bank owned home you would have to wait six months to refinance before you can access your equity for home improvements. By getting an FHA loan you can use the money you would have contributed to the down payment for renovations and the like.

If you have any other mortgage questions please feel free to contact me.
0 votes Thank Flag Link Mon Feb 16, 2009
Hi Joe,

Congratulations on saving up some money. I have read the responses to your questions and feel all are worthy of your consideration. I am writing to tell you that you can buy with little to no money down. The one caveat being to do your homework and pay a low price for the home you buy. Right now you can purchase a home using FHA financing and you can get your down payment (2.25% to 3%) and closing costs (6%) paid by the Seller. Of course the Seller must be willing, but for the most part a deal can be worked out. Going this route you can keep your money invested or use it to make home improvements. Yes, you pay mortgage insurance, but having the money in hand can come in handy too. You could buy down your interest rate to a point where it washes out the mortgage insurance. There are lots of ways to get the very best arrangement for your personal situation. Look for a expert mortgage loan officer that has the skills to present several options so you can make the best choice.

As for the market, look for it to be soft for years to come. When we get out of the sub-prime melt down we will still see increased inventories due to the baby boomer generation selling off property. Also, Metro Detroit goes the way the auto business goes. I do not see the US auto market share increasing or profit sharing checks any time soon.
0 votes Thank Flag Link Thu Jun 19, 2008
Just like buying and selling a stock, only in hindsight can you know if you bought or sold at the "best" time. What I do know is that homes are available now at much lower price levels than a few years ago and the cost of borrowing is relatively inexpensive for borrowers with good credit and a stable income.

Not only do we not know what home prices or rates will be in a year, who knows what lending and/or PMI guidelines will be like? Also, depending on how the market swings, who knows if that extra $25,000 you can save will translate into $25,000 more purchasing power.

If you're ready to make the move towards homeownership, speak to a reputable lender who can educate you on the mortgage process and the options available to you currently. Here at Countrywide for example, we offer a full slate of FHA,VA, Conforming loans etc and we even offer loans with no PMI with as little as 5% down, and you don't even have to take out a second mortgage at a higher rate.

Many good opportunities are lost when people are afraid to pull the trigger, but eventually you just have to jump into that pool...
0 votes Thank Flag Link Mon May 19, 2008
Joe just wanted to clarify the Macomb County market. Right now out of 7234 homes for sale only 11.9% are bank owned yet 50% of the 977 homes pending are bank owned. The reason the bank owned are hot is because you get more bang for your buck because they Are priced below the market. This is why we are seeing multiple offers on bank owned homes - in a buyers market. These are the great deals you are seeing.

Will the market pick up? The bank owned homes will be around for at least another 12 months or more and they are an active part of the market. BTW FHA loans also have PMI only it's called MIP.

Cindy Knight
0 votes Thank Flag Link Sun May 18, 2008
Joe first I would like to congratulate you on Saving that much money. We do not see that very often here.

We service Macomb, MI and feel the market will continue to drop in value over the next year, due to the number of bank owned homes on the market. The banks want these homes sold and they are pricing them way below market. In fact, 50% of the pending sales are bank owned and most receive multiple offers. So you should get them while they are hot.

As for interest rates, well raising them would hurt this area for sure. But anything and I mean anything can change them. So waiting to avoid PMI may not be a good idea right now. Buy a bank owned home, give it a little TLC and get the PMI removed. The market will bounce back and you will be sitting pretty.

This really is a great time to buy but it has to be right for you too.

Cindy Knight
Realty Executives e-Group
0 votes Thank Flag Link Sat May 17, 2008
By the way Joe, if your market is depressed, it would probably be very easy to have the seller finance your down payment if they have the equity. Also, when negotiating price, you can have the seller contribute up to 6% to closing costs / rate buy down. I would typically plan for about $3000. Thanks!
Web Reference: http://www.homevaluator.org
0 votes Thank Flag Link Sat May 17, 2008
Hi Joe,
I don't think wait is the word, but don't run out and buy the first thing either. I always tell my clients that finding the right deal is more important than timing the market. There are sales in my area from 2004 that still haven't been outdone, while few and far between. Housing is slow, so it can easily take a year for the right house, at a great price to hit the market. I certainly wouldn't wait to try and avoid PMI, interest rates are expected to rise and that will wipe out any savings you would have had. Start tracking the market several hours every week. This sounds like your biggest investment to date, treat it like one and do your homework. Get a good broker, but make sure you know what questions to ask, and what to look for ahead of time. Start watching Craigslist, FSBO's online and on the street, and set up an autonotifier from your MLS. Also start traking Realtytrac preforeclosures and send letters to the owners offering to buy their home and save them the commission. Thanks!
Web Reference: http://www.homevaluator.org
0 votes Thank Flag Link Sat May 17, 2008
Hi Joe, congratulations on saving for a down payment. If you go FHA, you will only need to put down 3% in a down payment and you can negotiate with the sellers to contribute towards you closing costs.
I can't advise you on when the market will turn around. I wish I could, but I don't have a crystal ball.
If you have good credit and need a house, it will not be hard to get you into a home in the current market conditions.
I have a really good friend who sellers in MaComb County if you want to explore your options.
0 votes Thank Flag Link Sat May 17, 2008
Good question Joe! I wish we had a crystal ball so we would know for sure. What we do know, however, is that while home prices have continued to decline, the Michigan market has picked up over the past year. Also, the number of foreclosed homes coming on the market seem to be decreasing somewhat.

Many reports indicate that the recovery will begin near the end of this year, while others predict it won't happen until next year. That said, your best course of action may be to contact a reputable lender and review your financing options. FHA has lower downpayment requirements and you may be able to take advantage of the many deals that are out there right now. Good luck to you!
Web Reference: http://MichiganMoves.com
0 votes Thank Flag Link Sat May 17, 2008
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