Great Lake State homebuyers frequently turn to FHA loans in Michigan each year. Approximately 29% of first-time homebuyers used an FHA loan in 2024 alone.
Insured by the Federal Housing Administration (FHA), these loans offer benefits for:
- First-time buyers
- Lower credit scores
- Limited down payments
If you are interested in FHA loans in Michigan, we’ve researched the most common and pressing questions about these home loans and provided answers in one place.
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1. How do I qualify for an FHA loan?
To qualify for a Michigan FHA loan, you need to meet specific requirements set by the Federal Housing Administration:
- Credit score: Scores of 580 or higher allow for a down payment of 3.5%, but a score in the 500 to 579 range requires a 10% down payment.
- Debt-to-income ratio: FHA loans may accept a DTI ratio higher than 43% with compensating factors, like savings or a strong credit history.
- Employment history: You should have at least two years of stable employment or income. Switching jobs within the same industry can also qualify as stable.
- Down payment: If your score is 580 or above, you’ll need a minimum down payment of 3.5%, which can come from personal funds or family gifts.
2. What core requirements might disqualify me from an FHA loan?
While FHA loans are renowned for their flexibility, certain factors can disqualify you.
- Low credit score: A credit score below 500 disqualifies you. Some lenders may require higher scores, so check with them directly.
- High debt-to-income (DTI) ratio: A DTI ratio over 50% may lead to disqualification unless you have strong compensating factors.
- Bankruptcy or foreclosure: Generally, you must wait two years after a Chapter 7 bankruptcy has been discharged or one year after a Chapter 13 filing. Disclosures typically require a three-year waiting period.
- Property usage: FHA loans are only for primary residences. You must use them for something other than vacation homes or investment properties.
3. Can I refinance an FHA loan?
An FHA loan in Michigan doesn’t lock you in forever. You can refinance your FHA loan in the future with different options.
Depending on your goals, you could refinance to:
- Secure a lower interest rate
- Reduce your monthly payment
- Access your home equity
FHA streamline refinance
Those who have an existing FHA loan can access the simplified process of an FHA streamline refinance.
This option typically doesn’t include an appraisal or extensive documentation. However, it might secure you lower monthly payments and a reduced interest rate.
Cash-out refinance
FHA loans also offer a cash-out refinancing option—enabling you to access the equity you’ve paid into your home.
Home appraisals and more documentation are required here compared to streamline refinancing. Still, it can be a good choice if you’re looking to fund major expenses (think home improvements or debt consolidation).
Switching to a conventional loan
Homeowners with sufficient equity (usually 20% or more) may also refinance from FHA to conventional loans.
This can help eliminate mortgage insurance premiums (MIP) required with FHA loans, potentially lowering monthly payments.
4. What are some things I should consider for an FHA loan?
When evaluating an FHA loan, several factors may influence whether it’s the best option for your situation.
Mortgage insurance
There are two types of FHA insurance costs that you need to factor in:
- Upfront mortgage insurance premium (UFMIP)
- Annual mortgage insurance premium (MIP)
While the UFMIP can be rolled into the loan, MIP continues until the loan is paid off or refinanced into a conventional loan with sufficient equity.
Loan limits
FHA loans have maximum loan limits that vary by county in Michigan. These limits are based on local housing costs and can affect eligibility if you purchase a higher-priced home.
Check with a loan officer to see your area’s FHA loan limit.
Primary residence requirement
FHA loans are only available for primary residences—second homes or investment properties won’t qualify.
Closing costs
FHA loans allow a seller to contribute up to 6% of your sale price toward closing costs, making a difference in your upfront expenses.
Remember that the seller is not required to cover these costs, but you can choose to try and negotiate it if you want.
5. What might disqualify me from an FHA loan?
Understanding these factors that may disqualify you from obtaining an FHA loan can help you address potential issues in advance.
Insufficient or inconsistent income
- If you have insufficient income or don’t meet FHA’s guidelines for monthly payments, you may not qualify.
- Inconsistent income or limited work history can be challenging to approve.
Inadequate down payment
FHA loans need a minimum down payment, and you must meet this requirement to qualify.
Down payment assistance programs are available in Michigan, but eligibility varies.
Unresolved credit issues
Serious credit issues, such as unpaid judgments or collections, may affect your eligibility. Addressing these before applying can improve your chances.
Property condition
FHA loans require that homes meet minimum property standards to ensure they are safe and livable. Major issues (e.g., roof damage or outdated plumbing) may mean a home may only qualify for FHA financing once repairs are completed.
Is an FHA loan in Michigan right for you?
For many homebuyers across Michigan, FHA loan features like flexible credit requirements, and a low down payment make them an ideal choice.
Before deciding, consider mortgage insurance, loan limits for your area, and primary residence restrictions. Or consult with MyPerfectMortgage.com to see what sort of FHA loan options you have available.
Reach out to us right now, and we can connect you to the right FHA lender who can secure the mortgage you deserve.
Let MyPerfectMortgage.com match you with the perfect lender.
