Michigan FHA Loan Requirements

Michigan FHA Loan Requirements And Guidelines

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Michigan FHA Loan Requirements And Guidelines For 2022 make FHA loans the most popular loan programs for first-time homebuyers, buyers with credit scores down to 500 and bad credit, recent college graduates, homebuyers of fixer-uppers, and borrowers with higher debt-to-income ratios. The Michigan housing market has been out of control with home prices skyrocketing double digits the past two years. HUD, the parent of FHA has just announced the 2022 FHA loan limits at $420,680. The 2022 FHA loan limit of $420,680 is almost a $100,000 increase from the 2021 FHA loan limit of $356,362. The 2022 FHA loan limit increase marks an increase of the FHA loan limit for the past six years in a row. The Federal Housing Finance Agency (FHFA) has also increased the 2022 conforming loan limits to $647,200 on conventional loans.

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The Michigan Housing Market Forecast For 2022

The Michigan housing market is booming. There is more demand for homes than inventory making it one of the strongest seller’s markets in state history. It is not uncommon to see over a dozen homebuyers the first day when a home is listed. Homes selling over list price was the norm throughout the state of Michigan. Many homebuyers did not stand a chance with fierce aggressive bidders who were offering up to 10% over list price. Many homebuyers turned into looking to buy fixer-uppers with FHA 203k loans. Buyers can buy a tear-down property and do a full gut rehab and customize it to your standards. It will be building a custom brand new home. We will discuss and cover more on FHA 203k renovation loans later in this article.

Historic Low Mortgage Rates Sparking More Renters To Buy Homes

Looking into buying a home can overwhelm many homebuyers. After years of renting, many renters are not sure where to start. The different mortgage lending options and application processes seem complex to many first-time homebuyers. And, given how many people’s finances took a hit during the pandemic, most homebuyers often wonder: is a home something I can afford at all? Fortunately, there are many mortgage options for homebuyers with bad credit. FHA loans are the most popular loan program for first-time homebuyers and buyers with less than perfect credit. There are other mortgage options for homebuyers who cannot qualify for traditional mortgages.

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Mortgage Options For Michigan Homebuyers

There are other mortgage programs for buyers to take out a mortgage on a house—even if they can’t save enough for the standard 20% downpayment. In this guide, We will walk through the requirements to get an FHA loan and other mortgage loan programs for homebuyers. Michigan homebuyers have additional advantages, and we will also discuss ways Michigan residents can combine housing assistance options to save even more. Join the team at Gustan Cho Associates together in starting the homeownership journey and making the dream of homeownership become a reality.

Types Of Government Loans, Conventional Loans, Non-QM Loans For Homebuyers

FHA loans are the best mortgage loan program for first-time homebuyers, borrowers with bad credit, homebuyers with credit scores down to 500 FICO, borrowers with outstanding collections, and charged-off accounts, and homebuyers with high debt to income ratio. FHA loans are the best loan program for homebuyers of fixer-uppers. The FHA 203k loan program enables homebuyers of fixer-uppers an acquisition and construction loan all in one closing. FHA 203k loans enable buyers of fixer-uppers to purchase a home to renovate with acquisition and construction costs with a 3.5% of the after construction value. We will discuss and cover the agency guidelines on Michigan FHA loan requirements and other mortgage loan programs and guidelines for 2022.

Michigan FHA Loan Requirements For Homebuyers

FHA loans are the best mortgage loan program for first-time homebuyers, borrowers with high debt to income ratios, and borrowers with credit scores down to 500 FICO. We will discuss FHA loans, the type of FHA loan programs, and other mortgage loan programs for homebuyers.  Each heading goes into detail about meeting distinct FHA loan requirements. Here’s the summary of the key takeaways:

  • Minimum credit score on FHA loans with credit scores down to 500 FICO: Under 580 and down to 500 credit scores requires a 10% down payment per HUD agency guidelines
  • Minimum down payment: 3.5% down payment home purchase FHA loan with at least a 580 credit score
  • Maximum DTI: 46.9% front-end and 56.9% back end to get an approve/eligible per automated underwriting system
  • Manual underwriting guidelines require timely payments in the past 24 months
  • The debt to income ratio on FHA manual underwriting depends on the number of compensating factors
  • No compensating factors cap debt to income ratio up to 31% front end and 37% back-end debt to income ratio
  • One compensating factor cap debt to income ratio 37% front-end and 47% back-end
  • FHA manual underwriting guidelines allow up to 40% front-end and 50% back-end with two compensating factors
  • HUD maximum FHA loan limit (Michigan): $420,680 unless the property is located in a high-cost area

The maximum 2022 FHA loan limits on single-family homes is capped at $970,800.

Michigan FHA Loan Requirements On Documents Required To Lenders

Required documents:

  • State-issued ID
  • SSN
  • Two years’ proof of income
  • 30 days of paycheck stubs
  • Two years of federal income tax returns
  • 60 days of bank statements
  • Asset or investment account statement showing where the down payment and closing costs money is going to come from
  • Gift income documentation if applicable
  • Letter of explanation for credit disputes, derogatory credit tradelines, or extenuating circumstances

Michigan FHA Loan Requirements On The Subject Property

Property requirements:

  • Principal one to four-unit owner occupant-residence
  • Warrantable HUD-approved condominiums
  • Passes FHA appraisal
  • Approved home type
  • Not for investment or resale

HUD FHA Mortgage Insurance Requirements

HUD requires a one-time FHA mortgage insurance premium of 1.75% which can be rolled into the balance of the loan.  Upfront mortgage insurance premium of 1.75% of the loan amount is mandatory no matter what the loan to value is on a 30-year fixed rate FHA loan. Insurance payment timeline: For the term of the 30 years (or until the home is paid off)

Michigan FHA Loan Requirements After Chapter 7 Bankruptcy

Bankruptcy requirements: wait 2 years after Chapter 7 Bankruptcy discharged date. Timely payments on all payments after bankruptcy. Any late payments after bankruptcy can be a deal killer. Re-establishing credit after bankruptcy is a must. The bankruptcy does not impact mortgage rates.

FHA Loan Requirements During Chapter 13 Bankruptcy In Michigan

Chapter 13 Bankruptcy: Borrowers can qualify for an FHA loan during Chapter 13 Bankruptcy repayment plan with trustee approval via manual underwriting. Borrowers need to be in the repayment plan for the first 12 months. They need to have made timely payments in the past 12 months. No late payment during bankruptcy whether in the payment plan or to outside creditors outside the payment plan.

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FHA Loan Requirements In Michigan After Chapter 13 Bankruptcy Discharged Date

There is no waiting period after the Chapter 13 Bankruptcy discharged date.  If the Chapter 13 Bankruptcy discharge has been seasoned less than two years, it needs to be a manual underwrite. Manual underwriting guidelines apply. Borrowers with no credit scores can qualify for an FHA loan using non-traditional credit tradelines. Non-traditional credit can be used in lieu of traditional credit on borrowers with no credit score with manual underwriting reviews bill payment history.

Michigan FHA Loan Requirements After Foreclosure, Deed In Lieu Of Foreclosure, Short-Sale

There are mandatory waiting period requirements after foreclosure and/or housing event: There is a three-year waiting period after the recorded date of a foreclosure and/or deed in lieu of foreclosure. The waiting period start date is the date the title has changed hands to the new owner or the bank or the date of the sheriff’s sale. There is a three-year waiting period from the date of the short sale which is reflected on the Closing Disclosure (CD).

This summary outlines the basics of the Michigan FHA loan requirements and qualifications. Now, we will explore each element in greater detail.

What Are FHA Loans?

An FHA loan is a government-backed home mortgage with lenient mortgage guidelines and low down payment requirements. Unlike other mortgage options, FHA loans are insured by the Federal Housing Administration. The FHA’s mortgage insurance empowers lenders to offer mortgages to a wide range of individuals and families. Lenders consider most FHA loan recipients “too high risk” for conventional loans, often due to their credit profiles and credit scores. Most FHA loan recipients are buying a home for the first time. The FHA loan program is part of the U.S. Department of Housing and Urban Development. Congress created the FHA in 1934. During the Great Depression, most Americans couldn’t afford to meet the terms of conventional mortgages. FHA loans made homeownership more attainable. They’re still a great option for first-time homeownership today. Getting a loan is doable.

Obtaining an FHA Loan: HUD Agency Minimum Mortgage Qualifications

FHA loans are easier to qualify for than conventional mortgages. Lenders can be flexible in their judgments of an applicant’s qualifications. But, applicants still must meet certain minimum standards to qualify. If I’m looking to get an FHA loan in Michigan, I’ll have to keep my eye on certain rules and requirements. Most of these minimum qualifications are standard across the United States.

Only a few—loan limits, for example—will be different in Michigan than they are in other states. The key qualifications I need to keep track of are:

  • My credit score
  • My initial downpayment
  • My payment-to-income ratio
  • My debt-to-income ratio

I needed to keep these numbers in the forefront of my mind. When I made a financial plan with an FHA loan as my goal, I used these as my goalposts. Then, I was ready to start applying for a loan.

Michigan FHA Loan Requirements And Guidelines For 2022: Minimum Credit Score

The absolute minimum credit score for a successful FHA loan application is 500

The absolute minimum credit score for a successful FHA loan application is 500. But, you need a score of at least 580 to counterbalance a high PTI. Note that 500 is the minimum score set by the FHA. But, individual lenders often impose higher requirements. Lenders are not legally obligated to lend to everyone. Setting a higher minimum credit score lets lenders maintain a risk level they’re comfortable with. So, it’s wise to compare lenders as individuals. Discover and compare the minimum credit score qualifications each lender sets. In general, the higher a borrower’s credit score is, the better the terms of the FHA loan will be. Recipients with higher credit scores pay lower interest rates.

Michigan FHA Loan Requirements And Guidelines For 2022: Minimum Down Payment

FHA loans require recipients to make a down payment of at least 3.5%. That’s 3.5% of the market value of the home. The FHA determines the market value of a home with an appraisal. The appraiser first inspects the home the recipient is buying. Then the appraiser compares recent sales of similar properties in the area. The required down payment is some percentage of the market value of the home. Note that 3.5% is only the minimum required downpayment for recipients with decent credit. To land an FHA loan with a 3.5% minimum downpayment, an applicant needs a minimum credit score of 580. If my minimum credit score is 500-570, the lowest down payment option is 10%.

Zero Down Payment FHA Loan Options in Michigan

It is possible to get an FHA loan in Michigan with zero money down. Technically, the FHA loan itself will still require a down payment of 3.5% or more. But, an applicant can make the initial down payment without spending their own money. This way, the loan recipient doesn’t need to save up the down payment sum themselves.

FHA Loan Requirements On Gift Funds

Gift Funds:

HUD, the parent of FHA, allows gift funds to be used for the down payment and closing costs on a home purchase. In every state, applicants can set up FHA gift funds. Relatives, employers, friends, non-profit groups, and credit unions can deposit money in a gift fund. Gift funds aren’t loans. The recipient must provide written documents proving they have no obligation to repay the funds. Then, they can use the gift funds towards the down payment and closing costs.

FHA Guidelines On Down Payment Assistance Grants

DPA Grants:

In Michigan, residents can apply for down payment assistance (DPA) grants through MSHDA. This program is exclusively for first-time homebuyers. For more on DPA programs in Michigan, read the FAQs.

FHA Requirements On Seller Concessions

Seller’s Concession:

Michigan homebuyers need to come up with the down payment and closing costs on a home purchase. Most Michigan homebuyers do not have to worry about closing costs. Most buyers cover closing costs with a seller concession from the home sellers. Most home sellers with giving homebuyers sellers concessions to cover the homebuyer’s closing costs. If the closing costs are short, the lender can give a lender credit to cover the closing costs in lieu of a higher mortgage rate. The seller’s concession may be up to 6% of the market value of the home. Seller concessions cannot be used for the down payment of the home purchase. Seller concessions can only be used for closing costs. The homebuyer needs to come up with a 3.5% down payment on a home purchase. The seller will typically negotiate a higher asking price in return for the concession.

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Maximum Payment-to-Income (PTI) Ratio

To secure an FHA loan, an applicant needs a PTI of 40%—or lower.

To calculate an applicant’s PTI, the lender looks at the total of an applicant’s proposed monthly mortgage payment. Then, the lender divides that total by their effective gross income (EGI). The resulting ratio (or quotient) must be 40% or lower. HUD began calculating PTI with effective gross income in 1989. Department leaders believed this is a fairer way to determine the risk a given recipient may not pay back the loan than the metrics HUD used before.

An individual’s EGI is the sum of all income sources. To determine my EDI, I can add up my:

  • Salary
  • Wages
  • Tips
  • Overtime pay
  • Commissions
  • Passive income streams
  • Income from assistance programs

The higher my EGI, the lower my PTI ratio. It’s wise to add together as many income streams as possible to maintain a low PTI. An applicant can also try to decrease the proposed monthly mortgage payment. This can decrease PTI, but it increases the length of the loan and the interest rate.

HUD Debt-to-Income (DTI) Ratio Guidelines On FHA Loans

To qualify for an FHA loan and get an approve/eligible per automated underwriting system, an applicant needs a DTI of 46.9% front-end and 56.9% back-end DTI. That means an applicant cannot have monthly bill payments including the proposed new mortgage payments (PITI) exceeding 56.9% of their current gross income. Back-end debts include mortgage payments, homeowners insurance, property taxes, and FHA mortgage insurance. The less income spent on debts, the better. That said, to secure an FHA loan with a 50% DTI or higher, it is recommended the applicant should have a credit score of 580 or higher. If my credit score is 500-570, my DTI, the borrower should have a lower debt to income ratio to get an approve/eligible per AUS. Different lenders set different maximum DTIs to qualify for an FHA loan. Lenders can have higher lending requirements than the minimum FHA loan requirements set by HUD. Mortgage loan applicants can use a calculator tool to figure out their proposed housing payments before applying.

2022 Michigan FHA Loan Limits

The FHA sets the maximum loan amount it’s willing to insure.

The limits vary by property type. They also vary by location, as housing markets are incredibly regional. In most counties in Michigan, the FHA loan limits are as follows:

  • Single-family home: $420,680 with a ceiling of $970,800 in high-cost counties
  • Duplex: $538,650 with a ceiling of $1,243,050 in high-cost counties
  • Three-unit: $651,050 with a ceiling of $1,502,475 in high-cost counties
  • Four-Unit: $809,150 with a ceiling of $1,867,275 in high-cost counties

The FHA includes condominiums in the category “single-family home.” A Michigan resident can apply for an FHA loan to buy an approved single-unit condo. Condo loan limits are the same as those for single-family homes.

Beyond Income: Additional Michigan FHA Loan Requirements And Rules

Applicants must meet requirements beyond debt and income. To apply for an FHA loan, an applicant needs specific documents on hand. Some rules specifically regulate the FHA loan process for individuals who’ve filed for bankruptcy. The home in question also must meet the FHA’s standards. Not all homes qualify for funding through FHA loans.

Documentation Requirements

When I was applying for a loan through an FHA-approved lender, I needed to get my documents together. Fortunately, there are options for qualifying documents.

Legal Residency

First, the FHA requires documents to prove the applicant is a U.S. citizen, a legal permanent resident, or a legal non-permanent resident alien. These documents may include:

  • State ID
  • Driver’s license
  • Social Security card
  • Valid green card (Form I-551)
  • Valid Employment Authorization Document (EAD)
  • Valid non-immigrant work visa (i.e. H-1B visa)

Anyone who wants a primary residence in the United States can apply for an FHA loan. The USCIS hosts a list of valid EAD’s. That page also explains the process to get the document you need.

Employment And Income Requirements

Proof of Income is one of the most important factors when it comes to qualifying for a mortgage.

Income Documentation Requirement

After that, the FHA requires income-related documents. Applicants must have at least two years of income. These documents can be:

  • W-2’s
  • Profit & Loss sheets (self-employed)
  • Tax returns
  • Pay stubs
  • Written verification of employment
  • Documents from third party verification (TPV) services

If an applicant was not employed for the past two years, consecutively, there are options. Applicants may secure FHA loans with documents proving school or military enrollment.

HUD offers this in-depth guide to qualifying documents. It was last updated in 2019.

Proof of Assets

Finally, the FHA requires documents for any other assets the applicant will use towards the down payment, or to repay the loan. This includes gift funds. Asset-proving documents include:

  • Verification of Deposit (VOD)
  • Gift fund documentation
  • Bank statement
  • Written statements from all joint-account owners

All co-owners of a joint account must consent to the applicant’s use of funds within the account. That is, all co-owners must affirm the applicant’s right to use joint funds to repay the FHA loan. This must be written affirmation.

Michigan FHA Loan Requirements: Property Requirements

The FHA will only back mortgages on certain properties. To qualify for an FHA loan, a home must meet these specifications:

  • Principal residence
  • Single-family or multi-family home (up to four units)
  • Pass FHA’s minimum property standards appraisal
  • FHA loan recipient takes property title in the name (or in name of the living trust)

Principal residence means the home must be the loan recipient’s primary residence. It can’t sit unoccupied.

Nor can it be an investment property. The FHA loan program is meant to increase housing stability. So, a person who intends to be a landlord or to flip houses can’t take out an FHA loan.

The home needs to be safe and high-quality. An FHA-vetted appraiser will determine if a home is up to par.

There is only one circumstance where someone can take out an FHA loan to buy a home that needs repairs. That requires a 203(k) FHA loan. 203(k) FHA loans can fund both home purchase and renovation.

Mortgage Insurance Requirements

The FHA program is a mortgage insurance program. Recipients pay for that insurance. Insurance payments are bundled into the monthly loan repayments (mortgage payments). If the recipient makes a down payment of 10% or more, they can stop paying into the insurance after 11 years. But, if their down payment was less than 10%, they will pay the insurance for the full duration of the mortgage.

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Foreclosure Waiting Period Rules

Let’s say a homeowner loses their home due to financial hardship and the home gets foreclosed. lose a home to foreclosure. Most folks will recover after losing their home. Some recover financially sooner than others. If a homeowner has a foreclosure, deed in lieu of foreclosure, or short sale, there is a three-year waiting period after the recorded date of the housing event. No late payments after the housing event. Rebuild and re-established credit after the housing event is highly recommended.

FHA Loan Requirements After Bankruptcy

Bankruptcy does not prevent anyone from applying for a loan permanently. People in a Chapter 13 bankruptcy can be eligible to apply for an FHA loan after one year passes into the Chapter 13 repayment plan with trustee approval. Chapter 13 does not need to be discharged. Needs to be manually underwritten. There is no waiting period after the Chapter 13 Bankruptcy discharged date to qualify for an FHA loan. Borrowers with a Chapter 7 bankruptcy need to wait two years after the discharge date. After the discharge date, they can apply.

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Michigan FHA Loan Requirements: State Rules and Requirements

The FHA loan program is a federal program. Most requirements are the same in every state. The main difference is the lending limits. The maximum FHA loan limit in Michigan is different than the maximum in, say, California. FHA loan recipients can combine funding sources. First-time homebuyers in Michigan should look into state-based financial assistance options.

FAQs About FHA Loans in Michigan

Michigan residents have questions about how FHA loans work in our state. I’m happy to answer the most frequently asked questions. Let’s dive in.

Can I Apply For an FHA Loan With No Credit?

Yes. You can apply for an FHA loan even if you don’t have a credit score. It is illegal for lenders to discriminate against individuals with no credit. You’ll just need to take a few additional steps. Before you can apply, you’ll need to confer with a manual underwriter. A manual can assess a non-traditional credit history. A manual underwriter can determine the probability that someone will repay an FHA loan. Rather than use a credit score, the underwriter looks at your history of rent or utility payments. Once a manual underwriter has assessed these factors (and others), you can apply for an FHA loan.

How Does An FHA Lender Determine My Interest Rate?

Different lenders might offer you different interest rates on the same home. The lender sets the interest rate according to three factors:

  • Credit history
  • Down payment size
  • Home’s market value

You can use online calculators to predict possible FHA loan interest rates. Lenders’ equations vary. Don’t hesitate to shop around and compare rates.

Can I Finance Home Repairs With an FHA Loan in Michigan?

Yes. You can finance home repairs with an FHA 203(k) loan. If you’re interested in buying a fixer-upper with an FHA loan, check out this guide. FHA 203(k) loans are valid in Michigan. They’re also a decent mortgage option in every U.S. state.

Can I Combine FHA Loan With Other Financial Help in Michigan?

Yes! You can definitely combine an FHA loan with other forms of financial assistance in Michigan. There are five popular options for homebuyers:

  • MI Home Loan
  • Michigan DPA
  • Habitat for Humanity MI
  • Municipal homebuyer assistance funds

I can outline the main benefits of each of these programs. I encourage you to explore each of them further.

Michigan Down Payment Assistance Mortgage Programs For Homebuyers

Also, keep in mind there are other home loan programs dedicated to specific demographics, like veterans. If you’re a member of a unique demographic, there might be loans dedicated to people like you.

MI Home Loan:

  • MI Home Loan is a project through MSHDA.
  • It empowers first-time homebuyers across the state.
  • Repeat homebuyers are eligible in targeted areas in Michigan.
  • MI Home Loans have low, fixed interest rates and low down payment options
  • If I were to take out an MI Home Loan, I could choose from an FHA loan, a USDA loan, or a VA loan.

MI Home Loan Flex is a variant of the program that requires buyers to take an education course. Flex lets an individual take out a home loan while living with other adults. It’s available for qualified applicants, even when other resident adults don’t qualify.

Michigan State Housing Development Authority (MSHDA)

  • The MSHDA runs all state housing programs in Michigan.
  • It offers rental assistance, housing choice vouchers, fixed-rate home loans, and emergency housing programs for homeless people.

In addition to the FHA loan program, MSHDA offers the Mortgage Credit Certificate (MCC) program. The MCC is a federal tax credit. The MCC lets homebuyers credit up to 20% of their annual mortgage interest against their taxes owed. That means homebuyers can subtract 20% of their mortgage insurance payments from the total amount of taxes they owe. So, say I, an FHA loan recipient, paid $500 in interest on my mortgage payments last year. With an MCC, I could subtract $100 from my taxes at the end of the year. Michigan Down Payment Assistance (DPA). MSHDA offers a down payment assistance program. The DPA is a zero-interest second mortgage. Qualified homebuyers can take out a loan of up to $7500 through the DPA program. This loan covers the cost of a down payment and other closing costs. The recipient must make a minimum investment of 1% of the purchase price.

DPA loans are zero-interest. The borrower makes no payments until the first mortgage is paid off. Or, the borrower must begin paying back the DPA if the home is sold or refinanced.

Habitat For Humanity in Michigan:

  • Habitat for Humanity is a non-profit organization.
  • Homebuyers who meet requirements set by the organization can purchase a home with a guaranteed low monthly payment.

Habitat for Humanity makes sure their homebuyers spend less than 30% of their income on housing every month. This rate combines the homebuyer’s mortgage, insurance, and property tax payments. Qualified homebuyers can work with Habitat for Humanity to pay less, on top of receiving an FHA loan. This non-profit sets qualifications city by city. This page lists the qualifications an applicant needs to buy an HfH home in Detroit.

Habitat for Humanity is unique because it asks for “sweat equity.” Homebuyers trade volunteer hours for reduced rates.

Municipal Homebuyer Assistance Funds in Michigan. Homebuyer assistance funds are held by local or regional departments. These municipal funds are, typically, grants. Grants do not need to be repaid. To find funds you qualify for, look up “housing development funds” in your city or town. For example, this page describes homebuyer grants available in Grand Rapids, Michigan. Also, search for regional “non-profit housing corporations.” A certified FHA lending partner can help you find grants you qualify for. I know my lender helped me when I applied. Gustan Cho Associates created a guide to low-down-payment home purchase programs.

These sorts of resources proved invaluable when I sought out an FHA loan. Now, hopefully, all homebuyers in Michigan have a place to start.

Get Qualified For Home Loans Today

Looking for an FHA loan, Michigan residents? Get a quote in less than five minutes. If you have any questions about qualifying for an FHA loan or other loan program, please contact us at Gustan Cho Associates at 800-900-8569 or text us for a faster response. Or email us at alex@gustancho.com. The team at Gustan Cho Associates is a mortgage company licensed in multiple states with no lender overlays on government and conventional loans. Over 75% of our borrowers are folks who could not qualify at other lenders due to their lender overlays. The team at Gustan Cho Associates is available 7 days a week, evenings, weekends, and holidays.

Apply now, and our expert lenders will be in touch ASAP.

FHA 203k Loan Requirements On Michigan Fixer-Uppers

FHA 203k Loan Requirements On Michigan Fixer-Uppers allows homebuyers to purchase a house that needs either minor or full renovation and fix it to their standards. The housing market in Michigan is booming with strong demand for homes. Many homebuyers are facing fierce competition where many face bidding was on homes they are interested in putting a home purchase offer. It is not uncommon for homebuyers to bid higher than the list price. In the first half of 2021, average homes in Michigan sold  8% of the list price. Buying a home over the list price presents a problem. Mortgage companies will only lender based on the loan to value from the appraised value and not the actual purchase price. This means homebuyers need to come up with 100% of the funding that is higher than the appraised value of the home.

Case Scenario Of A Home Purchase Selling Over List Price And Higher Than Appraised Value

For example, let’s take a case scenario where a home sold over list price. Say the list price and the appraised value on a home in Michigan were $100,000. HUD requires a 3.5% down payment on a home purchase FHA loan. If the seller and buyer agreed to a $110,000 purchase price, the homebuyer needs to come up with an additional $10,000 besides the 3.5% down payment on the $100,000 appraised value of the home. Therefore, the homebuyer needs to come up with a $13,500 down payment versus a 3.5% down payment on this home purchase. Even though buyers needed to come up with 100% of the funds over the appraised value, homebuyers were desperate to buy the home they still went through with the home purchase transaction.

FHA Loan Requirements In Michigan

FHA loans are the most popular loan program in Michigan for first-time homebuyers, borrowers with lower credit scores, homebuyers with credit scores down to 500 FICO, borrowers with bad credit and outstanding collections, and borrowers with less than perfect credit or credit/income issues. HUD, the parent of FHA is the federal government agency in charge of the administration of FHA loans.

What Are Government-Backed Mortgage Loans

FHA loans are one of the three government-backed home loan programs. VA and USDA are the other two government-back mortgage loan programs. Government-backed loans are only for owner-occupant homes. You cannot have a second home or investment property financed with government loans. The role of HUD is to promote homeownership to hard-working families with low down payments, less than perfect credit, and easy lending requirements. Millions of hard-working families realized the dream of homeownership become a reality due to the role and mission of the U.S. Department of Urban Development (HUD).

It Takes Minutes To Qualify For An FHA Loan

FHA Loans And The Role And Mission Of HUD 

HUD is not a lender nor does not do anything with the origination, processing, underwriting, funding, or servicing of FHA loans. The United States Department of Housing and Urban Development is a giant federal agency whose role is to insure and partially guarantee lenders against losses from defaulted FHA loans. HUD acts as a federal government mortgage insurance agency. Lenders offer FHA loans to borrowers with a 3.5% down payment, credit scores down to 500 FICO, high debt to income ratio, and to borrowers with less than perfect credit at competitive rates due to the government guarantee from the U.S. Department of Housing and Urban Development (HUD). There are several different types of FHA loan programs available. One of those FHA loan programs we will be discussing in this blog is the FHA 203k renovation mortgage loan program.

Michigan FHA 203k Loans

The fierce competitive Michigan housing market has turned many homebuyers turn to buying fixer-uppers and qualifying for FHA 203k renovation loans. FHA 203k loan requirements in Michigan are the same as the traditional FHA loan requirements in Michigan. However, FHA 203k loan requirements have lender overlays depending on the lender due to being considered riskier loans by lenders. We will discuss more on the FHA 203k loan requirements and its lender overlays implemented by mortgage companies.

One Time Acquisition And Construction FHA 203k Loans With A 3.5% Down Payment Requirement On The After Improved Value

HUD, the parent of FHA, has a special one-time close acquisition and renovation program called FHA 203k renovation loans. FHA 203k loans are an acquisition and construction loan program all in one mortgage loan. There is one closing for home buyers and homeowners. 203k renovation loans are for home purchase and refinance transactions. Homebuyers can purchase a fixer-upper with an acquisition and construction loan all in one closing and fix it to their likings. Homeowners can refinance their existing home, pay off their existing mortgage and get funding for renovation with an FHA 203k loan. With an FHA 203k loan, a home buyer can purchase a fixer-upper or a foreclosed property that is not habitable. FHA 203k loan requirements have lenient lending requirements than any other mortgage loan program.

Qualifying For An FHA Loan Versus Other Loan Programs

HUD the parent of FHA loans have lenient mortgage loan requirements versus other loan programs. You can qualify for an FHA 203k loan with a 3.5% down payment of the after improved value. You can qualify for the maximum FHA loan limit in your county with an FHA 203k renovation loan. Many homebuyers and homeowners who cannot qualify for standard conventional or other mortgage loan programs can easily qualify for an FHA 203k loan. The beauty of an FHA 203k Loan is that you can pretty much do anything to your home. This holds true whether it is basic kitchen and bathroom remodeling or complete gut rehab including room additions. Homeowners can do a complete teardown and build a new home on its current foundation.

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Maximum 2022 Michigan Conforming Loan Limit 

The Federal Housing Finance Agency (FHFA) has announced the 2022 conforming loan limit on conventional loans at $647,200. The new 2022 conforming loan limit is substantially higher than the 2021 conforming loan limit of $548,250. The 2022 conventional loan limit has increased by $98,950 over the 2021 conforming loan limit. The 2022 conforming loan limit ceiling on high-cost counties is capped at $970,800 on conventional loans.

HUD Maximum 2022 Michigan FHA Loan Limit

HUD, the parent of FHA, has followed the conforming loan limit increase from the FHFA and increased the 2022 FHA loan limit to $420,680. HUD’s 2021 FHA loan limit was capped at $356,362. The maximum high-balance FHA loan limit in high-cost counties for 2022 is capped at $970,800. The maximum loan limit applies to FHA 203k loans. Borrowers of FHA 203k loans can go as high as the FHA loan limits as long as the property appraises on an after improved value. FHA 203k renovation loans are becoming very popular among homebuyers in Michigan.

Two Different Types Of FHA 203k Loans

There are two types of FHA 203k Loans.

  • The FHA 203k Loan Streamline Rehab Loan
  • Standard Full FHA 203k Loan Program.

In this article, we will discuss and cover FHA 203k Loan Requirements On Michigan Fixer-Uppers.

FHA 203k Loan Requirements On Streamlines

The FHA 203k Streamline Rehab Loan is limited to a construction budget of $35,000. You can do any type of remodeling with the FHA 203k Streamline Rehab Loan.

Examples of work that can be done with streamline 203k’s are the following:

  • Kitchen remodeling
  • Bathroom remodeling
  • Basement remodeling
  • Attic remodeling
  • Millwork
  • Painting
  • Windows
  • Siding
  • Gutters
  • HVAC
  • Appliances
  • Other types of work

However, you cannot do any structural changes to your existing home nor can you do any room additions or add new square footage to your existing house:

  • FHA 203k Loan Requirements mandate that luxury types of rehabs such as installations of new swimming pools, installing a lake and/or pond, tennis courts, or other types of luxury items cannot be done with 203k Loans
  • 203k Loans are limited to improvements of the home and not luxury improvements such as outdoor kitchens or other luxury amenities

These FHA 203k Loan Requirements are both for FHA 203k Streamline Rehab Loans and the Full Standard FHA 203k Loans.

FHA 203k Loan Requirements On Full Standard Rehab Loans

The state of Michigan was one of the hardest-hit states after the Great Recession of 2008. Due to being home to major automakers, when the Recession hit our country, citizens of Detroit and its surrounding suburbs were the most affected. Not only Detroit and surrounding areas, but the whole state of Michigan has also felt the drop in real estate values like a sudden earthquake without any warning. Home values have dropped over 60% in some areas. Bankruptcies and foreclosure numbers were among the highest in the country. Countless business owners had to shut down their businesses after being in business for many generations. Finally, in mid-2012, the economy and home values started recovering. There are still many vacant and fixer-uppers in the market. Michigan home buyers can benefit from buying foreclosures, short sales, and fixer-uppers with HUD’s FHA 203k Renovation Loans.

About HUD FHA 203k Renovation Loans

There is no construction budget with the full standard FHA 203k Rehab Loan Program as long as the after improved value appraises after the improvement and the home loan meets the maximum FHA Loan Limit.

For example, here is a case scenario:

  • The 2022 maximum FHA Loan Limit is $420,800
  • The home buyer is buying a fixer-upper for $100,000
  • Needs $150,000 to do a complete gut rehab remodeling project on this subject property
  • The home buyer can qualify for a Full Standard FHA 203k Loan for $250,000
  • This holds true as long as the after improved value of the home is appraised at $250,000

Since the $250,000 is below the maximum FHA Loan Limit of $420,800 the homeowner is good to go.

Full Standard FHA 203k Loans

With the full standard FHA 203k Loan Program, homeowners can do structural changes to their home:

  • They can do second-story additions
  • Can add on to existing home
  • Can do a complete gut rehab
  • Can even do a complete teardown and rebuild on its existing foundation

One of the greatest benefits for FHA 203k Loans is that the home buyer only needs a 3.5% down payment of the after improved value to qualify for both 203k Streamline as well as the full standard 203k Loan.

Minimum FHA Loan Requirements On 203k Renovation Loans

FHA 203k loan requirements fall within FHA mortgage lending guidelines. Borrowers needs at least a 580 credit score, need a 3.5% down payment on the after improved value, and must meet all other FHA Mortgage Lending Guidelines.  We do not have any mortgage lender overlays. So as long as borrowers meet the minimum FHA Guidelines and get an approve/eligible per Automated Underwriting System, we can get FHA 203k loan approved, closed, and funded. Please contact us at Gustan Cho Associates at 800-900-8569 or text us for a faster response. Buyers of fixer-uppers can also email us at gcho@gustancho.com if you are interested in getting an FHA 203k Loan. The team at Gustan Cho Associates are FHA 203k loan experts with no lender overlays on government and conventional loans.

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