Michigan is a great place to get Federal Housing Administration (FHA) loans — and you might even be able to get down payment help, whether you buy your 1st condo or your 4th single-family home. Consider an FHA loan in Michigan for your mortgage purchase quote.
Best Lenders for FHA Loans in Michigan
Interest rates are not the only important factor. A few Michigan FHA lenders stand out with specific qualities that may be most suitable for your needs. For example, the best mortgage companies might have easier qualifying requirements rather than the lowest interest rate.
What is an FHA Loan?
FHA loans are for low-to-moderate-income homebuyers. An FHA loan is guaranteed by the U.S. government and does not actually lend the money — instead, it guarantees a lender will recover losses if a borrower defaults.
Lower lender risk means that homebuyers with smaller down payments and lower credit scores can have access to home loans. You must meet both the lender and FHA guidelines to qualify for an FHA loan. All lenders have different guidelines — if you don’t qualify with a specific lender, you can reapply with another lender. On the flip side, FHA guidelines don’t change.
Remember, too, that an FHA loan is not the same as a VA or USDA loan. These are all distinct government entities that are allowed to set their own guidelines. They allow banks to set even stricter guidelines, and you must review what your preferred lender wants out of you as a borrower before getting your heart set on a particular loan product.
Requirements for an FHA Loan
It’s also important to understand debt-to-income (DTI) ratio. DTI shows how much of your monthly income is needed to cover your monthly debts. You calculate DTI by first adding together all of your monthly payments (car, credit cards, etc.) and divide that total by your gross monthly income (before taxes). For example, when monthly debt is $1,800 and gross income is $5,500, the DTI is 32.72% ($1,800 / $5,500 = 32.72).
The basic FHA requirements are listed below. You must:
- Be over age 18.
- Have a 500 credit score if you have a 10% down payment.
- Have a 580 credit score if you have a 3.5% down payment.
- Have a maximum DTI of 43% (50% for extraordinary circumstances).
- Have an FHA-approved appraisal.
- Have 2 years of steady income.
- Intend to live in your home as a primary residence.
- Get mortgage insurance.
- Follow the loan limits by Michigan geographical regions. The current range is $420,680 for a single-family residence, up to $809,150 for a 4-plex.
- Not have applied 2 years following bankruptcy or 3 years following a foreclosure.
Other requirements are in the U.S. Department of Housing and Urban Development publication 4155.1.
Types of FHA Loans
Many Michigan FHA loans are available — popular versions include:
- A basic home mortgage loan 203(b) is for purchasing or refinancing your primary home. You must meet standard FHA qualifications. Qualifying properties are 1- to 4- family units.
- Adjustable-rate mortgages (ARMs) have the same standard FHA qualifications. ARMs have 1-, 3-, 5-, 7- and 10-year fixed rates before the interest rate adjusts. Features include limiting percentage increases and how the adjustment is calculated.
- Streamline refinances enable you to refinance FHA mortgages with less documentation and underwriting. You must not be delinquent on your current mortgage not be delinquent. Refinancing must benefit the borrower somehow (such as a lower interest rate or shortening repayment of a new loan).
- Condominium mortgages are available but not all condos qualify. Some condo projects choose not to have FHA approval, which makes qualifying individual units difficult. If you want an FHA condo loan, check first with the condo board of directors about being FHA qualified or search the FHA condo database.
- Manufactured home loans generally have the same requirements (credit, DTI, down payment, etc.) but manufactured home loans are only available up to 20 years. Also, the loan limit is $69,678 in 2022 (manufactured home plus lot up to $92,904).
- Energy-efficient mortgages include funds to improve the home’s energy efficiency. Standard qualifications apply. Funds available for energy improvements are based on an energy assessment or a percentage of the home value.
- Reverse mortgages for seniors (also called a home equity conversion mortgage) require the owner to have equity in the home and be at least 62 years old. The amount of equity you need is loosely defined as “considerable.” Loan amounts are based on age, appraisal and current interest rate.
Other less-common FHA loan types are available as well.
Lender Specifics for FHA Loans
Whether you’re looking for lenders for first time buyers or any FHA loan, lender requirements vary. Credit score, down payment and loan servicing are popular considerations. Here are ranges you’ll frequently find.
Interest Rates for FHA
FHA rates are affected by the same issues as conventional mortgages, car loans and other interest rates. Factors begin with the federal monetary policy and the 10-year Treasury bond yield. The federal fund rate establishes the minimum rate. Lenders then set their FHA rates above the minimum based on their risk factors. Adjustable and fixed interest rates are important risk factors.
Adjustable rate: An adjustable-rate mortgage (ARM) means that the interest rate changes periodically and results in periodic monthly payment changes. Homebuyers want ARM loans for lower monthly payments when adjustable rates are lower than fixed rates.
Lenders can offer lower rates on ARM loans because they’ll experience less risk. Risk involves how long the lender commits money at a specific rate. A 30-year mortgage is long commitment. When the interest rate changes periodically, the lender has less risk over 30 years.
Homebuyers expecting to own the home a short time may consider an ARM because the mortgage is repaid before the rate changes. Long-term homeowners with an ARM that adjusts upward can switch to a fixed rate with a refinance quote.
A 5/1 ARM is common. The “5” tells you the rate is fixed for 5 years. The “1” tells you the rate changes once every year after that. Let’s say you have a 5/1 ARM for $100,000 with a beginning 3.4% rate. Your monthly principal and interest payment is $443.48 for 5 years. Let’s say the rate adjusts up to 4.7% in year 6. Your payment becomes $507.92. Let’s say the rate drops to 2.9%. Your payment becomes $419.98.
Fixed rate: The monthly total for principal and interest never changes with a fixed rate. The payment on a $100,000 at 3.7% for 30 years is always $460.28. But fixed-rate loans can offer different loan terms — or the number of years you have to pay back your loan. The more years there are, the higher the interest rate you’ll get because of the lender’s higher risk.
The fixed rated for 15 years is lower than for 30 years. However, because you repay more each month, your payment is higher. A $100,000 loan at 3.5% has a $714.88 payment for 15 years. A 30-year loan payment at 3.7% is $460.28. Your savings on the lower 15-year rate is from the total interest paid — $28,678.86 over 15 years compared to $65,701.87 over 30 years (a $37,023.01 savings).
Your personal factors are also considered when the FHA interest rate. Lenders consider your credit, DTI and income.
Do You Need Mortgage Insurance?
You’ve probably heard that 20% is the magic down payment percentage. But that number is more myth than fact. The 20% down payment only allows you to avoid paying mortgage insurance — you can actually put down less, and particularly if you get an FHA loan.
The FHA requires you to pay a mortgage insurance premium (MIP) but only requires 3.5% down. That is $3,500 down on a $100,000 home, instead of $20,000 at 20%. Mortgage insurance is another way that lenders lower risk — it doesn’t benefit you at all, it benefits your lender. In other words, mortgage insurance protects the lender if you default.
FHA loans require 2 types of mortgage insurance. The upfront mortgage insurance premium (UFMIP) is charged when you take out the loan. The cost is 1.75% of the loan. For a $100,000 loan, the cost is $1,750. You don’t have to pay this upfront, as the name implies. UFMIP can be added to your monthly payments.
The other is a mortgage insurance premium (MIP). Cost is calculated on an annual basis but you’ll make monthly payments. The exact amount depends on how much you borrow, the down payment and loan length. You can expect to pay a 0.85% annual premium for a Michigan FHA loan. By rolling the $1,750 UFMIP into a $100,000 loan, the loan total becomes $101,750. The annual 0.85% is $864.88. You divide by 12 months to get $72.07. Adding that to your monthly $460.28 payment totals $532.35.
How to Apply for an FHA Loan in Michigan
FHA requirements don’t change, although a few Michigan specifics can apply. You must apply with lenders doing business in Michigan. Also, there are FHA loan limits for Michigan geographical regions. The good news is that FHA down payment help is available through the Michigan State Housing Development Authority.
To apply for a Michigan FHA loan you generally need:
- A credit score of at least 580 (500 for exceptional circumstances)
- 3.5% down payment
- 2 years of employment
- 2 years of tax returns
- 2 most recent bank statements
- An FHA-approved appraisal that verifies property value and standards
- Other requirements may exist
Flexibility with FHA Loans in Michigan
Michigan FHA loan requirements are possibly the least stringent you’ll find. You can qualify for an FHA loan after a foreclosure or bankruptcy in 3 years or less. Benzinga’s data and deep research can help you find the best FHA loan in Michigan.
Frequently Asked Questions
What credit score do you need for an FHA loan in Michigan?
For an FHA loan in Michigan you need a credit score of 580.
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