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.
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.
Benefits of Federal Housing Administration 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:
Small Down Payment Options
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.
Competitive Interest Rates
If you are interested in an FHA loan in Texas, then you should understand the benefits of this option. Here are a few advantages Texas homebuyers will experience with FHA loans.
Flexible Underwriting Guidelines
Underwriting is the process of evaluating a borrower’s risk. Since these borrowers are in more precarious financial situations, most applications are underwritten manually. What loan officers look for during the underwriting process is usually more flexible with FHA loans, whereas a conventional product would have more strict requirements.
Assumable Mortgages (Buyer Can Take over Existing FHA Loan)
An FHA mortgage on a house in Texas may be eligible as an assumable mortgage for a new buyer. Essentially, instead of taking out a new loan to buy a house, you take over the debt and payments for an existing FHA mortgage and become the new owner of the house. This is an excellent option for people with spotty credit reports.
FHA Loan Requirements
Every lender will have their own requirements for the FHA program. However, the typical Texas FHA loan requirements are as follows.
Minimum Credit Score
To qualify for an FHA home loan, you should aim for a credit score of 580 or better, as they will allow you to access the best rates and lowest upfront expenses. Lenders approving FHA mortgages may allow for scores as low as 500 if they offer at least 10% upfront.
Down Payment Amount
As mentioned previously, the minimum down payment for an FHA mortgage is 3.5% for those with a score of 580 or greater; those with scores between 500 and 579 must make a minimum payment of 10%. Although this is a low down payment and makes homes more affordable, it also means you would pay a private mortgage insurance premium (MIP).
We understand that even 3.5% can feel like a challenge depending on your personal finances, but Pride Lending is here to assist. We’ll connect you with local, state, and nationwide down payment assistance programs that can provide you with grants or second liens.
Numerous organizations in Texas offer assistance for those who can’t afford their upfront costs. For example, you may choose DPA programs from the Texas State Affordable Housing Corporation (TSAHC) or the Texas Homebuyer Program from the Texas Department of Housing and Community Affairs.
Debt-To-Income Ratio (DTI)
DTI compares your monthly debt payments to your gross monthly income. You divide your debt total by the gross income each month and then multiply by 100 to get a percentage. The typical lender will require a maximum DTI of 43%. Lenders can make an exception to a maximum DTI of 57% if the borrower has a good credit profile and provides a larger down payment.
Property Standards
Since the government is backing this mortgage, approval for the property type is needed before the loan is given. An appraisal will ensure the property is safe to occupy and up to standards for liveable conditions.
Additionally, this home must become your primary residence to qualify. However, it is possible to purchase a property with up to 4 units and rent up to 3 units, as long as one is used as your permanent residence.
Mortgage Insurance Premiums (MIP)
Everyone, no matter how much they put down, needs to pay the upfront mortgage insurance premium, which is 1.75% of the loan amount. You’ll also have to pay ongoing annual mortgage insurance premiums, though this may not be for the entire length of the loan.
If you make a 10% down payment or more, the MIP will be removed after 11 years, but if you make less than this, you’ll have MIP for the entirety of the loan. It’s also possible to refinance into a conventional loan once you have 20% equity, which would remove mortgage insurance.
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.
See if you meet the requirements
Evaluate if you have a credit score of 580 or greater, a DTI of 43% or lower, and that you meet the down payment requirement of 3.5%. You may still qualify if you have a score as low as 500 or a DTI of 57%, but this may limit your choices.
Contact Pride Lending
When you reach out to us, we’ll begin your loan consultation by reviewing your options with you. FHA-approved lenders are qualified to give out these mortgages, and finding the right loan partner is the key to a positive homebuying experience.
Apply and get pre-approved
Pre-approval will prepare you for a smoother buying experience and help you understand what you can afford. You will need many documents for your application, including tax returns, paychecks, and bank statements.
Shop for the perfect home
Once you’ve been preapproved, we’ll discuss your budget with you and send your preapproval letter to your realtor. You can then begin shopping for the right property in your area.
Submit an offer
You and your realtor will decide on a competitive bid and submit the letter to the seller.
Complete the application
The application is called the Uniform Residential Loan Application and will include many of the same details you needed for preapproval; however, it will also include property details, which the lender will use to determine whether the property meets their standards.
Offer acceptance
The seller will decide if they find your offer acceptable. If they do, then you’ll sign a purchase contract that tentatively agrees to buying the home.
Inspection
While not strictly necessary for the program, the lender will likely require you to have the property inspected, ensuring that there are no significant issues.
Conditions
If you’re happy with the inspection results, then our team at Pride Lending will walk you through the sales contract and make sure everything is correct.
Underwriting
We will submit all the details that you have provided to the lender, whose underwriting team will now take over. They will carefully investigate each facet of the loan and ensure that there are no issues with you or the home.
Appraisal
An approved appraiser will evaluate the property to determine if it is a fair value, is safe to live in, and meets the property requirements for FHA home loans.
Loan approval
Once the appraisal is complete and the details of the loan have been reviewed, the lender will proceed with the final approval of your loan so that you can close on the transaction. We will schedule the closing date with you and the title company will send the information regarding how to pay the upfront expenses.
Close on the home
All the documents will be signed, the title will be transferred to you, the closing costs will be paid, and you will become the new owner of that house with the help of an FHA home loan.
Why Choose Pride Lending for Your Texas FHA Loan?
When you need the right team on your side to navigate the Texas FHA program, a loan officer from Pride Lending is ready to help. We serve all our clients with the same care, offering excellent customer service and a streamlined application process to make homeownership affordable and accessible.
Our team is composed of allies and members of minority communities, including LGBTQ+ and BIPOC individuals. We’re here to help everyone, no matter their identity, and serve as an advocate for those who may feel underserved by the mortgage industry.
First-time homebuyers and repeat buyers alike can work with Pride Lending whether they want to buy a single-family home or learn about an FHA reverse mortgage. Call us today at 725-231-0192 to learn more about Texas FHA loans.