Michigan FHA Loan
What is a Michigan FHA Loan?
If you dream of owning a home in Michigan, but are concerned about your credit, an FHA loan might be the right choice for you. FHA loans were created in 1934 by the Federal Housing Administration. They are a valuable resource designed to help borrowers with less-than-perfect credit purchase a home. Since 1934, FHA loans have helped over 40 million people become homeowners.
The FHA is governed by the U.S. Department of Housing and Urban Development (HUD). This means FHA loans are backed by the United States government. This makes FHA loans attractive to mortgage lenders because there is less risk of the lender losing its money. The FHA does not lend money directly to the borrower. Instead, they insure the loan. The borrower then goes to an FHA-approved lender like a bank or a mortgage company for the loan.
FHA loans are one of the best options available for first-time homebuyers. They are more accessible than Conventional loans. This makes them popular with a wide range of borrowers.
With lower down payments, lower credit requirements, and the option for financial assistance, homebuyers from all financial backgrounds may be able to qualify.
Get answers to your questions about Conventional loans vs FHA loans here.
Michigan FHA Loan Benefits
FHA loans are popular because of their many benefits. They are designed to help people who have no credit history or less-than-perfect credit get a mortgage. People who have experienced foreclosure or bankruptcy may also be able to qualify for an FHA loan.
Here are some of the benefits of FHA loans.
- Low Down Payments: Having a low down payment option is one of the main reasons FHA loans appeal to first-time homebuyers. In some cases, borrowers can qualify for a down payment as low as 3.5%.
- Can be Combined with Down Payment Assistance Programs: The Michigan State Housing Development Authority (MSHDA) offers down payment assistance without monthly payments. Its Michigan Homeowner Assistance Fund can be used for closing costs, the down payment, property taxes, or homeowner’s insurance.
Down payment assistance programs have their own requirements for eligibility. It is up to the borrower to research these programs and organize with them. This should be done independently of their mortgage lender.
- Gift funds can be used for down payment: You can use financial gifts from friends and family to pay for the down payment on your home.
- Higher Debt-To-Income Ratio: FHA loans can have a DTI of as much as 57%. This makes FHA loans easier to qualify for than Conventional loans where the DTI can only be up to 45%.
- No Monthly Minimum Income Requirement: Income must be verifiable and consistent for the last two years. However, there is no minimum amount a borrower must make in order to qualify for an FHA loan.
- A Variety of Loan Types to Choose From: There are several FHA loan options for buyers. Streamline Refinance and the FHA 203(k) are two of the more popular FHA loans available. It is important to note that not all mortgage lenders in Michigan offer all FHA loan types. Check out all FHA loans offered by New American Funding.
- Some or All Closing Costs Can be Covered by the Seller: FHA loans allow the seller to contribute up to 6% of the sales price to cover the buyer’s closing costs. Closing costs are usually somewhere between 2% and 5% of the purchase price. They can include appraisal and inspection fees, a loan origination fee, and service fees.
- Assumable Loans: The borrower can assume an existing mortgage. The mortgage will be transferred to the buyer from the seller. The homebuyer will be subject to the terms, conditions, and rates of the original FHA loan.
- A Variety of Eligible Properties: They are available for single-family detached homes, 2-4 unit homes, condos, townhomes, and manufactured homes.
Michigan FHA Loan Requirements
There are many different types of FHA loans available in Michigan. Requirements are different for each loan and mortgage lender. Some of them can be stricter than those of Conventional loans. Contact your lender to discuss loan specific requirements. Here are some general FHA loan requirements for Michigan.
- A credit score of 580 or higher: A lender may accept credit scores of 500-579 under certain conditions. A credit score lower than 580 will require a larger down payment.
- The ability to pay a 3.5%-10% down payment: The percentage you will pay will be calculated according to your credit score. The borrower’s credit score must be 580 or higher to have a down payment of 3.5%
- Minimum of two years employment: Must have verifiable, steady, and consistent income. You will need documentation. It can include tax returns, pay stubs, or W-2s. This requirement is the same for borrowers who have worked for other people and those who are self-employed.
- Mortgage insurance: The ability to pay the mortgage insurance premium (MIP) is required. Your lender will calculate the amount of MIP based on the amount of the loan. However, all FHA loans will require borrowers to pay an upfront MIP of 1.75%. This is in addition to monthly mortgage insurance, which is required for the life of the loan.
- Higher home inspection standards: Property must pass an appraisal approved by the FHA
- Loan must be for a principal residential property: FHA loans cannot be used for rentals, investing in properties, or vacation homes. They are also not available for business properties.
- A debt-to-income ratio of less than 57%: A person’s debt-to-income (DTI) ratio is the percentage of their gross monthly income they spend to cover debts. Debts can include student loans, credit cards, and any type of federal debt.
To qualify for an FHA loan, you cannot spend more than half of your gross income on debt. There are some exceptions. In general, however, many lenders will want to see your debt-to-income ratio be no greater than 43%.
How Do I Qualify for An FHA Loan in Michigan?
To qualify for an FHA loan in Michigan you must meet the above requirements. You must have a credit score of at least 500. Your DTI must be less than 57%. You must be able to put down a 3.5%-10% down payment.
There is no minimum income or specific career requirement. However, you must be able to prove consistent income. You will be asked to provide paperwork like your personal ID and tax returns for approval. There is also no maximum age limitation, however a borrower must be of legal age to sign a mortgage.
The property must be located in Michigan and it must be your primary residence. The loan amount you want must adhere to the FHA loan limits for your county.
Mortgage lenders will have their own individual qualification standards and requirements. There will also be terms and conditions unique to your loan that you will need to consider.
How to apply for FHA loan in Michigan
Applying for an FHA loan does not have to be a difficult experience. To get started, contact one of the New American Funding branches in Michigan. The company’s loan officers will be happy to answer your questions and help you through the process of applying for an FHA loan.
You should already have a budget in mind when you contact your mortgage lender. Once you’ve found a lender, you can begin to collect the documents needed to apply for an FHA loan. You will need to provide your specific mortgage lender with applicable information for approval.
This includes personal identifying information and proof of income. Examples include signed tax returns from the last two years, W-2’s or 1099’s also from the last two years, a bank statement, and a copy of your social security card. You will also want to gather any information regarding your current debts as well as extra income you receive.
You can use the New American Funding Michigan Mortgage Calculator on our website to estimate your mortgage costs.
Michigan FHA Loan Limits
The maximum loan amount for FHA loans varies by county. They also change year-to-year based on the rise and fall of property values. All counties in Michigan have a loan limit of $472,030 for a single-family home. The loan limit goes up to $907,900 for a four-family home throughout the state.
FHA Streamline Refinance in Michigan
Refinancing your FHA loan can be a great idea if you can use it to get a lower interest rate. FHA Streamline Refinance is designed to give you the chance to lower your monthly mortgage payments. It updates your original interest rate to a new one that your lender will calculate using current mortgage rates.
Refinancing your FHA loan is simple.
- Requires less documentation
- No appraisal required
- No need to document income
- No employment requirement
- No credit check
They can also be used to change from an FHA Adjustable-Rate Mortgage to a fixed-rate mortgage.
FHA Fixed-Rate Mortgages
FHA 15-Year Fixed-Rate Loan:
- All the benefits of a 30-Year Fixed-Rate Loan
- Save thousands in interest over the life of the loan
- Build equity faster
- Pay your house off sooner
FHA 30-Year Fixed-Rate Loan:
- No prepayment penalties
- Low down payment options
- Gift funds allowed
- Ability to Streamline Refinance
FHA Adjustable-Rate Mortgages
FHA 5/1 Adjustable-Rate Mortgage:
- Keeps interest rates low for 5 years
- Introductory interest rates are typically lower than fixed rates
- Good for buyers who plan to own the home for a short time or refinance in a few years
FHA 203(k) Loans
FHA 203(k) loans help borrowers who want to purchase a house that needs repairs. FHA 203(k) loans, also known as a rehab loan, are designed to finance the costs of house renovations and repairs. They are not limited to the purchase of a new home. They can also be used by a homeowner to upgrade and improve the condition of the home they've already invested in.
FHA 203(k) Limited Loan
- Good for homes that need renovations (not major structural repairs)
- Can finance mortgage payments during home repairs
- Accepts lower credit scores
- Can be used for energy efficient upgrades
FHA 203(k) Standard Loan
- Can cover more costly renovations like structural repairs
- Can be used by a homeowner to improve accessibility for persons with disabilities
- Can also cover mortgage payments during home repairs
Can be used to add value to your existing home
Michigan FHA Loan FAQs
How does a Michigan FHA loan work?
Michigan FHA loans work the same way as national FHA loans. They follow guidelines set out by HUD. The difference in Michigan-specific FHA loans is the loan limit. Loan limits are based on the home values in each county. They can be different from county to county and state to state.
What credit score do you need for an FHA loan in Michigan?
To qualify for an FHA loan in Michigan borrowers need to have a minimum mortgage specific credit score of 580. A credit score of 580 can qualify you for a 3.5% down payment.
Some lenders may accept a credit score of 500-579 with a 10% down payment.
What is the max FHA loan in Michigan?
FHA loans have maximum loan limits based on the county the buyer is located in. All counties in Michigan have a limit of $472,030 for a single-family home.
What qualifies as a first-time homebuyer in Michigan?
If a homebuyer in Michigan has not owned a home in the last three years or more, they qualify as a first-time homebuyer.
Does Michigan have a first-time homebuyer program?
Michigan does have programs available for first-time homebuyers. These can include educational programs, resources, and financial assistance programs. It is important to research these programs individually as they will have requirements and qualifications that are separate from your lender.