This month, I had the honor of being a featured expert contributor on MoneyGeek.com, a website all about personal finance.  They asked me to address some common questions and concerns of potential first-time home buyers.  They also asked a few questions about buying a home in Michigan, which I’ve addressed here.

Just a quick reminder: These articles I share here are researched and written by me! As part of my commitment to ongoing support for my clients and partners, I write these articles to help them understand what’s really happening in the markets, beyond the headlines and soundbites.

What is the minimum credit score required for purchasing a house in Michigan?

Most lenders will require a minimum mid-score of 580. There are some investors who will accept lower credit scores, but those should be considered the exception rather than the rule. Buyers with a mid-score below 580 should expect tighter underwriting guidelines and possibly increased down payments.

smaller single family home exterior

What are the key factors to consider when buying a house in Michigan?

With regard to location, there are no concerns a buyer should have when purchasing a home in Michigan.  Michigan has a diverse economic base – the economy here is not as dependent as other states that are more dependent on a single industry, in the way that the Technology sector is a considerable part of California’s economy, for example.

And while most housing markets are experiencing short supply, Michigan tends to experience a better balance of supply & demand, which helps support property values.  Other areas of the country experiencing far greater imbalances of supply relative to demand are more likely to see significant price declines. 

Furthermore, while the Great Lakes-region experienced generous home value increases in the past 5 years, it’s been nothing like parts of Florida and Arizona, which have seen prices fall recently.  For example, Michigan did not experience the “Zoom Town” effect of remote workers flocking to a more affordable location, thereby driving up prices.  

But there are still concerns that any diligent homebuyer should be aware of.

What are some common mistakes that home buyers make when trying to purchase a property in Michigan, and how can they avoid these pitfalls?

Stretching vs. Overbuying:  It’s not uncommon for many first-time home buyers to stretch themselves financially.  To a degree, this is completely normal and logical.  Many buy their first home with the reasonable expectation of an increase in future earnings, which over time makes their housing expense a smaller portion of their income.  And many buy their first home based on an updated, reduced budget.

But that is not the same as overspending.  Overspending means buying a property that outright exceeds a buyer’s financial capacity to consistently make the payments on the loan, and/or to maintain the property.  Owning your home is great – but you also own a building, which must be maintained, and maintenance often costs money. 

Overspending means significant (and often unsustainable) changes to a buyer’s lifestyle to afford their mortgage payments.  Is it reasonable to budget zero date nights or dinners out every month, just to afford a mortgage?

Family of 4 excited to be in new home

I often tell my clients – Just because you can get approved for a certain sales price or payment amount does not mean that it makes sense for you.  It may work for the lender, but it also must work for you and your lifestyle.

Underbuying:  While it’s important not to overspend in terms of price and monthly payment, it’s also important to not underbuy, in terms of space, location, or practicality, regarding future needs and plans.   For example, choosing a smaller house or a less-preferred location based solely on today’s needs could result in the need to move again soon.  Most of my clients buy homes that they can grow into – they may not need two or even three spare bedrooms today, but if they’re a young, growing family, they realize that they are making an investment in their future, not just for today.

Waiving a home inspection:  Sellers often view an inspection as a potential to have to further negotiate the price, and intense competition may lead to pressure or even a request to waive the home inspection.  This is not a great idea – the purpose of the home inspection is to protect the buyer from unforeseen maintenance (read: expense).

At the least, the buyer should request an inspection, but perhaps limit any re-negotiation to major defects/structural issues and/or repairs over a certain dollar amount, like $5-10,000.  This way, the buyer can have the property inspected and get insight about its condition, and the seller has the comfort of knowing that the inspection won’t be used by the buyer to attempt to negotiate a lower price based on minor items uncovered in the inspection.

To avoid these challenges, it’s best to seek professional expertise.  When I have clients considering buying a home but are unsure if it’s the right move at the right time, I always suggest they discuss their plans with their financial planner.  (And if they don’t have a financial planner, what better time to find one?)  Similarly, I always instruct my clients to discuss the prospect of waiving a home inspection with their real estate agent.

And in many cases, family and friends can be great resources with their own personal experiences. 

Are there any programs available to help first-time home buyers in Michigan?

There are several resources available to help first-time home buyers in Michigan.  The majority of these resources are called “Down Payment Assistance” (DPA) programs, which offer contributions to help reduce the initial investment for a first-time home buyer.

Family of 4 and dog smiling

Like all loan programs, these are all subject to qualification requirements, and each program is likely to have different requirements.

Does this need to be repaid?  It is critical to understand the nature of the DPA.  While the contributions are sometimes truly grants – meaning that the buyer does not have to repay them – many of the DPA programs are in fact loans.  They may not require a monthly payment, but they buyer may have to repay the entire balance when they sell the home or even attempt to refinance.  This could affect a homeowner’s ability to refinance to a lower rate.

 Be sure to discuss the full details of any prospective DPA program with your lender.

If you find this interesting or helpful, please feel free to share it with a friend, family member, or co-worker – it’s my goal to educate and empower as many people as possible during this incredibly unique time in housing!

Here is how I can help!

  • If you are looking to purchase a new home or have questions about your mortgage, the market, getting preapproved, etc., or
  • If you are a Realtor or a Broker looking for a lender with great financing solutions to help educate your clients on the state of the market to help them feel good about their decisions

Please call today – I am happy to help however I can!

Brian Mutter is a twenty-year veteran of the mortgage and real estate industry.  His vast experience across nearly all aspects of real estate makes him an incredibly well-rounded problem-solver.  Brian’s clients are treated to a white-glove client experience every single time.  Education, information, and communication are the cornerstones of his approach.

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