FHA Loans Michigan

First-time homebuyers in Michigan may feel intimidated by the high home prices. As many prospective buyers cannot afford the purchase price outright, they turn to home loan products to finance their purchases.

However, lenders must assess the risk associated with each borrower to determine if they can pay back the debt. Conventional loans have higher standards for income, credit scores, and other metrics, which means many Michigan buyers cannot qualify for these mortgages. 

Fortunately, the federal government assists through FHA loans to help prospective home buyers afford homes even if they do not qualify for conventional loans. 

Discover FHA Loans Today

What Are FHA Loans?

The Federal Housing Administration (FHA) is a branch of the US Department of Housing and Urban Development. This entity backs FHA loans, which can be acquired through various mortgage companies in Michigan. Because the Federal Housing Administration guarantees these FHA loans, lenders can relax their eligibility requirements for borrowers. 

As a result, more borrowers have access to homeownership. This is especially true for BIPOC and LGBTQ+ individuals, who are often denied conventional mortgage products at much higher rates than their peers. 

For example, Black homeowners seeking a conventional mortgage for a manufactured home were denied 83% of the time, but were only denied 26% of the time for FHA mortgages. Last year, over 30% of FHA loans were provided to borrowers of color, which is much higher than the approval rate for conventional products. 

Another study found that though same-sex couples have a 73% higher chance of being denied mortgages overall, lesbian couples applying for an FHA product, regardless of their race, had the same acceptance rates as white heterosexual couples. 

The Federal Housing Administration has also been on the cutting edge of improving access to mortgage products for LGBTQ+ people, as in 2021, it expanded the Fair Housing Act to prevent discrimination against people who identify as gay, lesbian, bisexual, transgender, queer, or questioning. Back in 2012, it required that HUD-approved lenders allow financing access without considering actual or perceived sexuality or gender identity. 

The FHA mortgage program has been essential in reducing housing disparity for people of all marginalized identities, and it can help you, too. 

While you may not qualify for a conventional loan because of credit issues or higher monthly debts, you could still qualify for an FHA loan since there is less risk to the lender because of the government’s support.

Am I Eligible?

Benefits of Federal Housing Administration (FHA) Loans in Michigan

An FHA loan is an excellent choice if your options are limited. Home buyers can work with FHA-approved lenders to acquire these home loans to afford properties in Michigan. Here are some of the benefits of the FHA loan program:

Lower Credit Score Requirements

Credit scores reflect your history of paying back debts, such as car loans, student loans, mortgages, and credit cards. People with lower credit scores often struggle to find mortgage options.

BIPOC and LGBTQ+ people may find it especially difficult due to the discrimination they face, which leads to lower credit scores, which is why FHA products are such a valuable tool to improving access to financing.

For example, young adults in Black-majority areas have an average score of just 582, which is considered subprime. People in majority Black or Hispanic communities see a notable decline in their scores over their 20s, while those in White communities see their scores increase as they build their credit. 

In a 2023 survey, 53% of LGBTQ+ individuals reported a credit score below 700, compared to only 40% of their non-LGBTQ+ peers. They are also twice as likely as cishet individuals to have poor or very poor credit, posing serious obstacles to attaining homeownership. 

Transgender individuals face special hurdles due to the use of their deadnames on their credit reports, which can cause major headaches when attempting to discern their score. While there has been legislation advanced to assist with this, it remains a significant problem for trans and non-binary borrowers. 

However, an FHA loan has much lower standards for credit scores, making it easier to qualify for a mortgage. 

Small Down Payment Options

One of the upfront costs of buying a home is the down payment. This is the money you put toward the home’s purchase price to lower the total loan amount and the monthly payments. 

Many individuals, regardless of their identity, find this one of the biggest challenges of purchasing a home, but it is especially challenging for marginalized individuals. For example, 30% of Black households have outstanding educational debt as compared to 20% of White households. Over 39% of LGBTQ+ individuals have federal educational debt, and the number is much higher for transgender individuals specifically. These payments make it difficult to save up, reducing the opportunities to prepare for home ownership. 

Thankfully, a federally-backed mortgage product can help reduce this hurdle. An FHA mortgage will not require a substantial down payment, so you are more likely to qualify for this loan if you have limited funds. This is especially helpful when you consider there are other closing costs that must be paid upfront. 

Competitive Interest Rates

Mortgage companies charge interest to make money from home loans. The higher the interest rate on your home loan, the more you will pay each month for the loan term. FHA loans typically offer lower interest rates so that payments are more manageable for home buyers. This lowers the overall cost of your FHA mortgage. 

Additionally, you can choose between fixed rates and adjustable rates depending on what your overall goals are. If you do not intend to stay in the home for long or are willing to refinance later on, an adjustable rate may be a good choice, but if this is your forever home, a fixed rate may be a better option. 

Flexible Underwriting Guidelines

When a lender assesses your application for an FHA loan, they will base the approval on calculated risk. Even though you must meet most of the eligibility requirements, the lender will be more flexible with its standards based on your individual situation than conventional loan lenders, who would be more strict with their underwriting practices. 

Assumable Mortgages

One option you have when buying a home with an FHA mortgage is taking over the previous owner’s loan. Rather than applying for a new FHA loan, you would instead inherit the house and the seller’s FHA loan. You still have to go through the application process for FHA loans to ensure you meet the eligibility criteria, but then you would simply take on the remaining loan balance and consistent payments on the existing FHA mortgage. 

This is a great option, considering the median sales price of a Michigan home has risen 6.9% in the past year, so taking over an existing mortgage is often cheaper. Assumable mortgages are usually not an option for conventional loans. 

FHA Mortgage Requirements

What does it take to qualify for an FHA loan in Michigan? Since these FHA loans have looser requirements, you are more likely to qualify even if a conventional loan is out of reach because of personal finances. Here are some Michigan FHA loan requirements to know as you begin your home-buying journey. 

Minimum Credit Score

Each lender may have a different threshold for the lowest credit score requirement for an FHA loan. For the most part, the average lender will require a minimum score of 580 to approve an FHA mortgage. However, if you have enough money for a large down payment of 10%, or very few monthly debt payments, an exception could be made for a score as low as 500. 

Down Payment Amount

The minimum down payment required for an FHA loan is 3.5% of the home’s sale price. Low down payment requirements make it easier for more borrowers to access homeownership, but having a larger down payment is always a better option. Remember, if you only make the minimum down payment, the total amount of the loan will be higher. 

Though Michigan is a pretty affordable state, with average home prices of $250,534, a 3.5% upfront payment can still feel daunting; the down payment would be around $8,700, which does not include closing costs. Thankfully, Pride Lending has access to local, state, and national assistance programs that can provide second mortgages or grants to help make up the difference.

A popular program in the Great Lakes State is the MI 10K DPA program administered by the Michigan State Housing Development Authority. Recently expanded to cover the entire state, this offers a $10,000 loan for those who meet the income and loan amount limits. There are also a variety of local programs, such as those in Detroit and Grand Rapids, as well as national options that we can review for eligibility. 

Debt-To-Income Ratio (DTI)

A debt-to-income ratio is a metric that compares your monthly debt payments to your gross monthly income. If you have few debts and a steady income, your ratio will be lower, which is more desirable. For an FHA loan, your maximum DTI ratio should be 43%. Again, exceptions up to 57% are common if you are in a solid financial position elsewhere, such as higher credit scores or larger down payments. 

Property Standards

Michigan FHA loans are only approved if the properties meet the standards set by the federal government. First, homes purchased with FHA loans must serve as primary residences for the buyers; however, they can have up to four units. Second, a property has to pass the appraisal, which evaluates the safety and livability of the home. These appraisals are typically more strict than those for conventional mortgages. As long as the property meets these FHA loan requirements, it is eligible for this type of mortgage. 

Mortgage Insurance Premiums (MIP)

Private mortgage insurance is a tool used by mortgage lenders to reduce the risk of lending to specific borrowers. Since FHA loans require lower down payments, private mortgage insurance premiums cover the additional risk. These premiums are paid monthly on top of your mortgage payments. Mortgage insurance is required for all FHA loans, no matter how large the down payments. 

FHA Loan Limits in Michigan

The Michigan FHA loan limits can vary from county to county, with hotter markets having a higher maximum loan amount.

Additionally, there is a difference in the loan limits if you are buying a single-family home versus a multi-family home. Here are the numbers across most Michigan counties to give you an idea of the FHA loan limit you might be facing.

• Single-family homes – $498,257
• Two-family homes – $637,950
• Three-family homes – $771,125
• Four-family homes – $958,350 [2]

The FHA Loan Process

Pride Lending is proud to provide a streamlined application process to borrowers in Michigan. Our mission is to make your journey toward homeownership as simple as possible with an FHA loan. Here are the steps you will follow to acquire your FHA mortgage. 

1. Check the eligibility requirements – First, you should determine if you meet the majority of the criteria for FHA loans, including a 580 credit score, a DTI of 43% or lower, and a low down payment of at least 3.5%. Those with scores between 500 and 579 may be considered if they provide a 10% down payment.
2. Contact Pride Lending – The right lending team can help you achieve your dream of homeownership in Michigan, so contact Pride Lending for excellent customer service and FHA mortgage expertise. During your loan consultation, we’ll learn more about your goals and match you to products that meet your needs. 
3. Submit your details – We make it easier than ever to access financing through our online application process. This application includes information like your credit score, bank statements, and debts so that we can develop a potential loan amount you can afford. We’ll then send your preapproval letter to your realtor so you can begin house hunting.
4. Get pre-approved and start shopping – Pre-approval for Michigan FHA loans is crucial as it gives you an advantage over other buyers, allowing you to act quickly when making an offer. Additionally, with pre-approval, you will know the maximum loan amount you can afford. With this in hand, you can hunt for your dream home with a trusted real estate agent.
5. Submit an offer – You and your realtor will work together to identify a fair price and submit it to the seller.
6. Complete the loan application – The Uniform Residential Loan Application is the standard application for FHA mortgages. This includes much of the same information that you previously submitted to Pride Lending, as well as information about the property that you intend to purchase, which the lender will use to get a better idea of its value.
7. Offer acceptance – The seller will decide whether they feel that your offer is fair. If they agree to it, you’ll sign a purchase contract, and you and your realtor can schedule an inspection.
8. Property inspection – Your lender will likely require you to undergo an inspection. This ensures that there are no significant issues with the home. If there are any issues uncovered, you will need to negotiate with the seller to determine who will be responsible for fixing them. 
9. Conditions – If you’re happy with the inspection and still want to go forward with the sale, then one of our helpful loan officers will review the contract and ensure that all the details are correct with you.
10. Begin underwriting – At this stage, we send the information you’ve provided over to the lender, whose underwriting department will begin to double-check all the details. This includes ensuring that all your financial details are correct, as well as ordering an appraisal to make sure the property’s price matches its value. They may need further information from you, so stay responsive; we’re also here to answer any questions you might have.
11. Undergo an appraisal – A professional will evaluate the property to ensure it meets safety standards and is suitable as your primary residence.
12. Clear to close – This is the second-to-last step to getting a Michigan FHA loan; it means that the underwriting process is complete, and the lender has determined that your loan is of acceptable risk. At this point, we will schedule the closing date with you, and the title company will reach out to provide wire transfer details regarding your down payment and closing costs. 
13. Close –  On closing day, you will sign all necessary documents, pay your upfront expenses, and the title will be transferred to you, finalizing the deal. 

Why Choose Pride Lending for Your Michigan FHA Loan?

The qualification requirements for Michigan FHA loans are typically lower than for conventional mortgages. That makes homeownership more accessible for more borrowers. With a lower down payment, a less-than-perfect credit score, and a preferred DTI of 43%, you can still qualify for an FHA loan to buy your first house. It’s even possible to secure a loan with a FICO score as low as 500 or a DTI as high as 57%.

Pride Lending simplifies the process of determining FHA loan eligibility and completing the application with outstanding customer service. We are here to help everyone, regardless of their background, secure financing for their dream home in the Wolverine State. Our team is composed of allies and members of marginalized communities, including LGBTQ+ and BIPOC individuals, who are passionate about ensuring access to financing for every qualified buyer. 

We’re here for you throughout the life of your loan, too. Whether you want to pursue an FHA streamline refinance to save money on interest, or you’d like a cash-out refinance to pay for home improvements, we can help with that too!

If you have questions about closing costs or down payment assistance programs in Michigan, we can provide the answers you need. Call our team today at 407-885-5444 to start discussing your mortgage loan options.