Detroit Real Estate

What is PMI?  Here is my PMI explanation.  When your loan officer talks about PMI they mean Private Mortgage Insurance.

Primary Mortgage Insurance (PMI) is required by the lender if don't put 20% down. Lenders require PMI if you don't have 20% equity in the house when you purchase or refinance the home.

Why do banks require PMI?  It is fairly simple there is a higher default rate on loans the less people put down.

• At 20% a certain number of people default on a loan
• but at 15% more people go into foreclosure
• at 10% even more

So banks charge for PMI based on how much you put down.  The historical facts show what percentage go into default.  So the PMI covers the bank's losses in case of default.  You the borrower pay the PMI each month.  You are paying the insurance premium each month when you pay PMI.

It is just the way it is.  If you don't have 20% you are going to be paying PMI.  So the bottom line is you pay PMI to protect the bank from the loss in case you go into foreclosure and the bank has to sell the house for less.

I hope this explanation of PMI helped you.  Have a great night! 

Russ Ravary your Metro Detroit real estate agent 

If you are a Michigan first time home buyer you are probably wondering what type of Michigan mortgage you should get?  One of the easiest ways to determine what mortgage to get boils down to how much money do you have?

Let me break down some of the Michigan mortgage costs that you will incur when you get to the closing table on your Metro Detroit home.

Mortgage closing costs usually range from about $2200 - $2500

Tax pro-ration explanation and escrow explanation.  Tax pro-rations and escrow costs are one full year of the property taxes.  So if the winter and summer taxes are $3500 then you will need $3500 to cover tax pro-rations and escrows.

Down payment is based on what you can afford.  Your choices are usually 3 1/2%, 10%, then any where from 10 to 20%.

For our explanation today let's say the house is $100,000, the taxes are $3000, and your are doing a FHA loan that requires a 3 1/2% down payment.   So let's use:

                      $2200 closing costs

                      $3000  one year property taxes   

                      $3500  FHA  3.5% down payment

                      $8700 total closing costs needed  

The minimum you can come to the closing table with is 3 1/2% of the purchase price.   So in the case above you would need is $3500.  Even that money can be a gift from a family member.  The rest of the money can come from seller concessions.  Seller's concessions explanation.

Don't get discouraged if you don't have enough money yet to buy a home, give me a call, I will sit down and help you plan to buy your Metro Detroit home.

               Russ Ravary

What Metro Detroit home should you buy 

The cons of buying a Metro Detroit condo

Home buyer checklist

Oakland County Lake front real estate

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My quote of the day on New Years resolutions:

We spend January 1 walking through our lives, room by room, drawing up a list of work to be done, cracks to be patched.  Maybe this year, to balance the list, we ought to walk through the rooms of our lives... not looking for flaws, but for potential.  ~Ellen Goodman

When you get a Michigan mortgage you may need escrows...Here is a my explanation of escrows.

Escrow definition:

When you have less than 20% down (less than 20% of the purchase price)  the banks and lenders require you to have escrows.  Escrows are basically a savings account that money is put aside for your taxes and homeowners insurance.  You don't have a choice whether to have escrows or not if you have less than 20% down. 

My thoughts on why banks require escrows are..... you don't have the 20% down payment so you aren't a "grade A" saver.  They think you are a bigger risk.  So the lender or bank want to make sure that you have the money to pay the Michigan property taxes and home owners insurance each year.  So they set up an escrow account.  Each month when you make a house payment you will also be paying 1/12 of your property taxes and 1/12 of your home owners insurance.  So when the home owner insurance bill comes due you have the money to pay it.

The bank takes care of paying them for you.

So now let's give you a real life explanation of escrows and why you need money to set up an escrow account.

Let's say your winter taxes are $1200, summer taxes are $3000, and your homeowners insurance is $600.  Now lets break it down into monthly payments your winter taxes are $100 a month, summer taxes are $250 a month, and your homeowners is $50 a month.  Now lets say you are closing on February 28.  Your first payment is going to be April 1.

So $2500 summer taxes are going to be due July 1.  So you are going be having $250 of your payment go to summer taxes each month.  But you only are going to make April, May, June, and July payments.  That's only 4 payments of $250.  That's a $1000 but you owe $3000.  So where is that money coming from?  You have to set up the escrow account when you go to the closing table.  So you need $2000 for the summer taxes.

Now let's figure out winter taxes due Dec 1.  So you will be having $100 of your house payment go to winter taxes each month.  But again you only are going to make April, May, June, July, August, Sept, Oct, Nov, Dec payments.  You will be short 3 months payments.  3 X $100 so you need $300 for your escrow account.

Again we do the same thing for your home owners insurance policy which will be due next February 28.  So they will collect 1 month of your homeowners insurance.  $50.

So $2000 + $300 + $100 is $2400.  You will need $2400 to set up your escrow account so you will have enough money to pay your property taxes and homeowners insurance when they come due next year.   Every year the banks do a check to make sure there isn't too much money or too little money in your escrow account.  There is a federal formula that that banks and lenders have to use to make sure you have the right amount of money in your escrow account.

If you don't understand this explanation of escrow accounts feel free to call or email me.  My cell is (313) 310-9855 amd email is Yesmyrealtor@gmail.com

Search Metro Detroit homes for sale and get the latest Southeastern Michigan home listings emailed to you so you don't miss out on the great deals!!!

Russ 

For more information click on any of the categories below

 Livonia real estate and Wayne County home buyers tips

Oakland County water front real estate

How much will the property taxes go up after I buy the home

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My quote of the day is:

May all your troubles last as long as your New Year's resolutions.  ~Joey Adams

Here is what to Keep From Your Closing on your new home!

Everything!!!

The title company will give you a copy package of everything you signed.  Keep this in a safe place.  It will have your mortgage papers, your real estate papers, home warranty  in it.  They call this your closing package.

Your mortgage person should give you a copy of the appraisal and the survey.  If you don't get a copy of your appraisal give your mortgage guy a call and have him send it to you.  After all you have paid anywhere from $300 - $450.   Keep these items with the closing package.

Your copy of your inspection report and your offer documents should be kept also in the same place.

You will need to refer to these documents when you refinance, sell the home, have to check on your mortgage.  By keeping them safe and available will make it easier on you.  Over the years you will forget some of the numbers and it is great to be able to look back and get the information you need.

But the most important thing you if you are a first time home buyer is the HUD Settlement statement.  You need this for your CPA so you can get your $8000 tax credit from Uncle Sam.  Congratulations on buying your Metro Detroit home, or Michigan Home.  May you and your family have lots of great memories in your new home.
                                                                                    

 Russ Ravary

Search Metro Detroit homes for sale - get the latest listings emailed to you so you don't miss out on the deals

If you are buying a Metro Detroit home and getting a Michigan mortgage here is a quick explanation of tax pro-rations. 

Here is my definition of tax pro-rations:

Tax pro-rationsare the amount of money you will owe the seller for the property taxes they have pre-paid.

In Michigan we pay property taxes in advance.  When you buy a Michigan home you will have two taxes to pay.  A winter tax and a summer tax.  Each tax covers a 12 month period.  Winter taxes are due December 1 and go until November 30th of the next year.  Summer taxes are due July 1 and go until June 30th of the next year.

Let's do a scenario of explanation of tax pro-ratios.  Let's say the winter taxes are $1200 a year and the summer taxes are $3000.  So let's say we are closing on Feb 28 2010. 

So the seller has paid the winter taxes on December 1, 2009.  His winter taxes are $1200 a year or a $100 a month.    So he has used up 3 months of his taxes he paid because we are closing on Feb 28.  So he has 9 months of taxes he has paid and not using.  The seller wants his money back.  It is customary for the seller to get his tax money back.  So you owe the seller 9 months of taxes X $100 = $900

Then we figure out how much you owe the seller back for the summer taxes.  The summer taxes are $3000 or $250 a month.  So the seller has used up July, August, September, October, November, December, January, February.  He has used up 8 months of his taxes.  So you owe the seller 4 months back.  4 months X $250 = $1000 you owe the seller.

$1000 summer taxes + $900 winter taxes = $1900 in tax pro-rations you owe the seller.

Of course what tax pro-rations you owe the seller depends on how much the taxes are and when you close on the house.  There is no ''good time" to close.  Tax pro-rations are just a cost of buying your new home.  I hope this explanation of tax pro-rations will help you understand your Michigan mortgage and the closing costs.

Search Metro Detroit homes for sale and get the latest Southeastern Michigan home listingsemailed to you so you don't miss out on the great deals!!!

Russ 

For more information click on any of the categories below

 Livonia real estate and Wayne County home buyers tips

Oakland County water front real estate

Michigan Property tax explanation

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My quote of the day: 

An optimist stays up until midnight to see the new year in.  A pessimist stays up to make sure the old year leaves.  ~Bill Vaughan