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Follow The Simple Steps Below In Order to Buy a $150,000 Home While Only Spending $1,500 Out of Pocket!

Find a Good Lender That Understands Your Financial Needs...

If you have limited savings or you're trying to keep as much of your savings as possible, you'll need to work with a lender that understands your financial goals. This means they'll need to be available and willing to crunch accurate numbers for you when you find a home to purchase.

This lender will also need to be familiar with the zero down mortgage programs available in your area. This first step is more about finding a good lender to help you as we'll cover the best mortgage programs in step 2.

In order to find the best mortgage lender simply click the button below and follow the directions. Once you find the right lender or if you're interested in working with Michigan Mortgage Solutions, you can move on to Step 2.

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Get Familiar With Zero Down Payment Mortgage Programs...

There are two great zero down payment options when it comes to mortgages and they are the VA Loan and the USDA Rural Development Loan. While these programs allow you to buy a home without a down payment they do each have certain restrictions.

The VA Loan is for qualifying veterans only. It's a great opportunity for those that have bravely served our country. However, if you have not served in the US military or Coast Guard, you will not qualify for VA.

The USDA Rural Development (RD) Loan is for qualifying properties in areas that are considered Rural. This means that you will need to look for homes outside the city lines but not necessarily in the "boondocks". I've included a map of Michigan below and you'll see that most of the state is eligible outside the bigger cities. Everything North of whats shown on the map is eligible for RD financing.
The USDA RD Loan also has some income restrictions based on total household income. These max household income limits are determined by county as well as number of people within the household. You can learn more about this program and income restrictions by calling 248-674-6450. You can also visit the USDA Rural Development website by clicking the button below.

The USDA Website allows you to complete address eligibility searches as well as research income limits in your county. Click the button below and it will take you to the USDA RD website.

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Crafting Your Offer in Order to Get The Seller to Pay Your Closing Costs...

Once you find a home you're interested in you'll be asked to make an offer in the form of a purchase agreement. The purchase agreement is simply a document that lays out the terms of your offer. It covers items like how much you're willing to pay for the home, what type of financing you'll be using, whats included in the purchase, and many other important details.

When you make an offer via a purchase agreement you will also be writing an Earnest Money Deposit check. This is what lets the seller know you are serious and "putting your money where your mouth is" so to speak. If the seller accepts your offer, this Earnest Money check will be deposited into an escrow account and used towards your closing costs.

Since we are focusing on buying a $150,000 home while spending less than $1500 out of pocket, we need to talk about closing costs and how to pay for them. The best way to pay for these costs are by requesting a sellers concession in your offer.

A sellers concession is simply the seller giving you a portion of their sales proceeds to cover your costs. Both VA Loans and USDA RD Loans allow the seller to give up to 6% of the purchase price towards a sellers concession.

When we talk about a $150,000 purchase price, that's up to $9,000 towards your costs. Your closing costs and prepaids should be nowhere near $9,000 and that's why I believe it's important for us to break down the transactional costs of a mortgage. Click the button below for a detailed explanation of mortgage closing costs and prepaids.

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Now that we've learned about closing costs and sellers concessions we need to dive into the $150,000 home purchase. We're going to be doing some relatively easy math here but if you'd like to avoid getting nerdy you can always call 248-674-6450 and we can do this math for you.

Time to Get a Little Nerdy...

First things first, as we know, our goal is to buy a $150,000 home while spending only $1500 out of pocket. The $1500 will be going towards the Earnest Money Deposit, any Home Inspections needed, and the Property Appraisal. All other costs and prepaids will be covered by the sellers concession.

However, before we make our offer to purchase we need to know exactly how much we will need in sellers concessions. This is important because if you don't use your full concession it gets credited back to the seller. By figuring things out correctly beforehand, we can ensure that you make the right offer and use every bit of the concession you've negotiated.

In order to figure out the concessions we'll need, we need to know some important data like the most recent summer and winter tax bills as well as an idea of what the yearly homeowners insurance premium will be. This data is important because the majority of your mortgage costs come from establishing an escrow account to pay future taxes and insurance, as well as reimbursing the seller for any taxes they have paid in advance. You'll also be paying for a years worth of homeowners insurance at close which is a purchase requirement.

For our $150,000 home purchase we are going to make the following assumptions prior to doing any math; Summer Taxes are $1600, Winter taxes are $800 and Homeowners Insurance is $960 for the year. Keep in mind that the calculations I'm about to show you should be done by your mortgage lender but I believe it's important for you to see where these numbers come from.

Funding Your Escrow Account...

Lets figure out how much it will cost to fund your escrow account first. As mentioned earlier, the escrow account is created to ensure that you can pay your future taxes and homeowners insurance when they are due. In Michigan, summer taxes are due on July 1st and winter taxes are due December 1st.

Your Homeowners insurance typically renews every year and is due in the month that you purchased your home. For our example, we are going to use a closing date of April 15th, 2015 and a first payment due date of June 1st, 2015. You'll need these dates and the dollar amounts for the taxes and insurance to perform your calculations. Get this data and use the calculator by clicking the button below.

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Follow these instructions when using the calculator;

1. Enter the "First payment date" as the 1st of the second month beyond your closing date. In our example we are closing on April 15th, 2015 which would make our "First payment date" June 1st, 2015.

2. "Payments per year" will be 12 and "Rounding" should be Nearest

3. Under "Disbursements" on line 1002 for "Homeowners Insurance" - Payments per year = 1, Payment due date = the closing date which in our example is 04/15/ 2015 and the Payment amount is the yearly premium of $960.

4. Next we'll need to manually enter the summer tax bill. We do this on line 1005 by typing the word "Summer" in the box provided and entering 1 for Payments per year, entering 07/01/2015 for the Payment due date and then entering 1600 for the payment amount.

5. Next we'll do the same for the winter tax bill. We do this on line 1006 by typing the word "Winter" in the box provided and entering 1 for Payments per year, entering 12/01/2015 for the Payment due date and then entering 800 for the payment amount.

6. The last thing we do before hitting the Compute button is enter a 2 in the dropdown box for "Cushions for other items"

7. Click the blue "Compute" button and write down the number for "Total Escrow required" as this will tell you the cost to fund your escrow account. For our example that number is $1,600.

Tax Prorations & Reimbursing the Seller...

Now that we know how much it will cost to fund our escrow account we need to figure out how much we must reimburse the seller for the taxes that they have already paid in advance. This is called a tax proration and can often be a surprise or an unexpected fee to home buyers.

In Michigan property taxes are paid in two installments commonly known as summer and winter taxes or Local and County taxes. For the purposes of this example we'll refer to them as Local(summer) and County(winter) because that is how they are labeled on the next calculator we are going to use.

Local taxes are paid July 1st of every year and pay through July 1st of the following year. County taxes are paid December 1st and pay through December 1st of the following year. So, depending on when you purchase your home, the seller will be due some of the taxes that they've paid beyond the date that they owned the house.

In our example we are closing on April 15th, 2015 which means that we own the house from April 15th on. Since the seller prepaid the local taxes until July 1st, 2015 and the county taxes until December 1st, 2015, we need to reimburse them for anything they've paid beyond April 15th.

To determine these prorations due to the seller we'll be using the Tax Proration Calculator which can be accessed by clicking the button below.

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Please follow these instructions when using the calculator;

1. Enter the desired closing date which in our example is April 15th 2015

2. Enter the Local or Summer tax data as follows;

Cost = Summer tax bill or $1600 for our example
From = July 1st of the previous year or 7/1/2014 for our example
To = July 1st of the next year or 7/1/2015 for our example
Per Diem Based On = 365 Days
Mark as "Paid" in the last drop down under the "Calculate" button

3. Enter the County or Winter tax data as follows;

Cost = Winter tax bill or $800 for our example
From = December 1st of the previous year or 12/1/2014 for our example
To = December 1st of the next year or 12/1/2015 for our example
Per Diem Based On = 365 Days
Mark as "Paid" in the last drop down under the "Calculate" button

4. Click the calculate button and make note of the number the "Seller Receives From Buyer" which in our example is $841.64

Again, it's important to realize that a good mortgage lender will be doing all this math for you. However, not all mortgage lenders are created equal and some may use estimates or averages when calculating escrow setup and prorations. If your lender is using estimates or averages, I would highly suggest you find a different lender or at least rut these calculations yourself so you don't end up with a nightmare closing, needing to bring much more to closing than anticipated.

Now that we've got the hard math out of the way and we've calculated your escrow setup at $1,600 and the tax prorations at $841.64, we can add in $960 for your yearly homeowners insurance premium. This will bring our escrow and pre-paid costs to $3,401.64.

Calculating Title & Recording Fees...

Next we need to determine your Title fees which include a closing fee to the title company, Title Insurance, and recording fees. The closing fee on a purchase is typically $500 but it depends on the Title company which is typically selected by the Realtor that lists the property for sale. Title Insurance is a certain percentage of the loan amount and recording fees are based off of the amount of pages being recorded for the mortgage and the deed.

To determine the Title fees we will be using a calculator provided by First American Title Company which can be accessed by clicking the button below.

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Use the following instructions for best results;

1. Check the boxes for Title Rates and Recording Fees

2. Choose your state, choose your county, and choose your city from the available drop downs

3. Under the "Purpose of Transaction:" drop down choose "Sale w/ Mortgage"

4. Enter the purchase price in the "Sale Amount:" box which would be $150,000 for our example

5. Enter the purchase price in the "Loan Amount:" box as well because we are using a zero down program in our example so our loan amount would be the same as the Sale Amount or $150,000

6. Click the "Next" button and then click "Yes" when prompted. This will show you how much the title insurance will cost as well as the recording fees. In our $150,000 example, the Title Insurance is $564.35 and the recording fees are $20 for the Deed and $59 for the mortgage.

So, when we add the $500 closing fee to the $564.35 Title Insurance and then the recording fees of $20 and $59, we get a total of $1,143.35 in Title Fees.

Putting It All Together to Figure Out How Much You'll Need in Concessions...

Now the only thing missing from these fees would be any lender related costs and pre-paid interest. Lender fees can range as some lenders charge a lot of garbage fees like application fees or processing fees. However, lenders can also give you a lender credit to help pay for your costs. For our example, I'm going to use Michigan Mortgage Solutions lender fees which we have none.

The only lender fees you will pay when working with Michigan Mortgage Solutions is an underwriting fee of $795. You will only pay that underwriting fee in situations where it makes sense to do so, like to qualify for a better rate if we haven't utilized all of your concessions.

When it comes to pre-paid interest, it really depends on interest rate you qualify for and the closing date. In our example, we are closing on April 15th and the month of April has 30 days. This means we'll need to pay 15 days of interest since we begin paying interest on April 16th and our first payment isn't due until June 1st. Mortgage interest is paid in arrears so the June 1st payment will cover all the interest due for the month of May but not the 15 remaining days of interest due for April.

For our $150,000 home, we'll assume the interest rate is 4%. 15 days at 4% interest will result in $251.51 of interest due.

If we take your escrow and prepaid fees of $3,401.64 and add the title fees of $1,143.35, we get a total of $4,544.99 in costs. Now we need to add the prepaid interest of $251.51 for a total of $4,796.50 in fees.

So, in our example, we will have approximately $4,796.50 in fees and costs. This is the minimal amount we would like to request in sellers concessions with our offer. It just so happens that $4,796.50 is very close to 3% of $150,000 which means you could offer $150,000 with a 3% concession.

It's rare to need over a 4% concession when trying to cover your costs. However, it comes down to the math as a high tax property or a lower priced home may require more than 4%. If you're truly looking to purchase a home and spend less than $1500 out of pocket, you'll want someone like Michigan Mortgage Solutions to complete this math for you as we do it everyday and we're good at it.

Call us anytime at 248 674-6450 and we'll be gld to crunch some number for you!
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