If you’re a Michigan home buyer boasting a small down payment or poor credit score, you’ll be happy to know that you can still purchase a home. How? You can do so with the help of an FHA loan in Michigan.
There’s a plethora of lenders across Michigan offering FHA loans. However, before applying for a loan, you must understand its basics. Let’s take a closer look at how first-time buyers can qualify for an FHA loan in Michigan and whether you can benefit from one or not:
What is an FHA loan in Michigan?
FHA loans in Michigan refer to loans funded by the government. These help first-time, as well as recurring home buyers, purchase a new home.
Scoring a Michigan FHA loan boasts many requirements to help the government ensure that the loan will be repaid if the borrower defaults. Consequently, lenders are increasingly willing to lend mortgages to people boasting FHA (Federal Housing Administration). Here are a couple of pointers to keep in your mind:
- Since they are federally-backed mortgages, FHA loans are perfect for low-income borrowers with credit scores that are lower than average
- FHA loans need a comparatively lower minimum down payment and credit score
- Both lenders and banks need to receive approvals to issue FHA loans
- There are specific rules and regulations, as well as limits to applying for an FHA loan
What does FHA Look for During an Inspection?
Before providing you with a loan, a mortgage lender requires an appraisal of a home’s actual value. FHA loan inspections are typically conducted by an assessment boasting the necessary licenses and certifications.
During the inspection, the inspector will ensure that the home meets the FHA form’s standards and reports. Here’s a list of things inspectors will look for during an FHA appraisal:
- Structure and size
- Heating, electricity, and water
- Safety Hazards
What are the requirements of an FHA loan in Michigan?
All states across the United States offer the exact down payment requirements for an FHA loan. It is as follows:
- The minimum requirement for an FHA loan is 3.5%
- In case your credit score is lower than 580, your down payment shoots up to 10%
Remember that you need a solid track record of on-time payment alongside a decent credit history is the quickest way to expedite your chances of acquiring an FHA loan in Michigan.
How do You Qualify for an FHA loan in Michigan?
FHA provides a list of basic loan requirements to make sure you qualify for an FHA loan. Let’s dive deeper to discover the eligibility criteria and whether you meet the requirements:
- The employment history of two years. However, there are some exceptions
- A credit score of 580 or better
- Down payment that’s either 3.5% or 10%, depending on your credit score
- Fully and appropriately documented income of the past two years
- A minimum FICO score requirement of 500- keep in mind that down payment may vary
- Mortgage Insurance Premium is necessary for FHA loans
- Maximum debt to income ratio of 43%
A lack of bankruptcies or foreclosures in the previous two years
The home should be your primary residence
What Disqualifies You from an FHA Loan?
- If you’re wondering whether you can be denied an FHA loan in Michigan, the answer is yes, for a variety of different reasons. Let’s find out the primary reasons that are discussed below:
- The Department of Housing and Urban Development requires you to boast a credit score of at least 500 to be eligible. A lower credit score may make it challenging for you to qualify for an FHA loan.
- If you have additional debt, there’s a high chance of FHA denying you a loan.
- Before acquiring an FHA loan, you need to have enough money in the bank to cover both your down payment and closing costs. In case you lack these funds, you won’t be able to gain an FHA loan.
- If you’ve suffered from bankruptcy, FHA guidelines require one year gap between the bankruptcy or foreclosure event and acquiring a loan.
Can You Buy a Home with Bad Credit?
According to The Department of Housing and Urban Development, anything below 580 is considered a poor score. However, bad credit doesn’t necessarily mean that you cannot buy a home.
Instead, a better idea is to use the cash towards a down payment. If you’re able to cover the difference with the help of money, you can afford the home of your dreams.
Do FHA Loans Come with Income Limits?
Every county across the United States offers maximum loan limits for single-family homes and 2-4 unit properties. Let’s take a look at the base FHA loan limit in Michigan
FHA Loan Limit
What are the Benefits of an FHA Loan?
FHA loans offer first-time and retaining home buyers a variety of benefits. Let’s discuss some of them here:
- FHA loans in Michigan are ideal for novice homebuyers, especially those who are unable to or don’t wish to put down a sizeable down payment
- FHA mortgages are typically lower than conventional mortgage rates. Moreover, FHA down payment and credit scores are also lower
- Sellers may contribute up to 6% of the appraised value towards the buyer’s closing costs
- You can enjoy the flexibility of paying a mortgage at any time without suffering from pre-payment penalties
- Choose between 15, 20, 25, and 30-year terms with the help of FHA home loans
- You can even access 5-year adjustable rate mortgages
Which Lenders Use FHA Loans?
Before mortgage lenders offer FHA insured-home loans, these must be approved by the federal agency. As a result of its increasing popularity, most banks and lenders today offer this type of financing.
To Sum it Up
Your eligibility for an FHA loan in Michigan largely depends on your credit score, debt-to-income ratio, as well as income or employment. Once you understand the eligibility criteria and qualify for a loan, it’s always a good idea to make sure you connect with the proper FHA lender.
The ideal FHA lender will allow you to acquire a loan for credit scores below 500 while providing FHA 203k loans. Moreover, they typically boast a fantastic processing and underwriting team that assists you throughout the loan process. Lastly, they’ll also offer you competitive fees. Therefore, it’s imperative that before requesting a loan, be sure to read on the lender to avoid getting scammed.