Requirements for Getting an FHA Loan in Michigan

Getting an FHA loan to buy a home in Michigan can be a great option for many homebuyers FHA loans require lower down payments and credit scores than conventional mortgages, But there are specific requirements you’ll need to meet to qualify for an FHA mortgage in Michigan,

Overview of FHA Loan Requirements in Michigan

In general here are the main requirements to get an FHA loan in Michigan

• FICO Credit Score of at Least 580 – This allows you to qualify for a 3.5% down payment. The minimum score is 500 with a 10% down payment.

• Private Mortgage Insurance (PMI) – FHA loans require you to pay PMI, which protects the lender in case you default.

• Use as Primary Residence – FHA loans must be used to purchase a primary residence where you’ll live at least 50% of the time.

• Proof of Income and Employment – You’ll need to document a steady income history and employment to show you can repay the loan.

• Debt-to-Income Ratio Below 43% – Your total monthly debt payments can’t exceed 43% of your gross monthly income.

• Meet FHA Loan Limits – The mortgage amount must be under FHA lending limits, which vary by county.

• Home Inspection – An FHA appraiser must inspect the home and ensure it meets FHA property standards.

Let’s take a closer look at each of these key FHA loan requirements for homebuyers in Michigan.

FHA Credit Score Requirements in Michigan

Your credit score is one of the most important factors in determining if you’ll qualify for an FHA loan in Michigan. Here are the FHA credit score guidelines:

• Minimum FICO Score of 580 – This allows you to qualify for the minimum FHA down payment of 3.5%.

• FICO Score 500-579 – You can still get approved with a 10% down payment and additional underwriting requirements.

• No Minimum Spouse Credit Score – If you have a spouse or partner on the loan who doesn’t work, they don’t need a minimum score.

• Use Lower Score if Different – If your scores vary between bureaus, the lender will use the lowest score.

As you can see, FHA has flexible credit requirements, especially compared to conventional loans that typically require scores of 620-680. Just make sure you meet the 580 FICO minimum to get the lowest 3.5% down payment option.

Down Payment Amount Needed for FHA

The down payment is another major factor in FHA loan eligibility. Here’s an overview of the FHA down payment guidelines:

• 3.5% Down Payment – This is the minimum for FHA loans with a 580 credit score. On a $300,000 mortgage, it equals around $10,500.

• 10% Down Payment – Required with a FICO score of 500-579. This provides added risk protection for the lender.

• No Monthly PMI – FHA loans require upfront and annual PMI premiums. Monthly PMI isn’t charged.

• No First-Time Homebuyer Requirement – FHA loans are open to both first-time and repeat homebuyers.

• Gifts Allowed for Down Payment – Your down payment can come from gifted funds from family, non-profits, or your employer.

With the low 3.5% down payment, FHA loans open homeownership to buyers who don’t have 20% to put down like most conventional loans require. Just make sure your credit score meets the 580 minimum.

Using FHA Loans as a Primary Residence

FHA loans are only available for primary residences where you’ll live at least 50% of the year. Here are some tips for meeting this FHA occupancy requirement:

• Move in After Closing – You’re not required to move in immediately. But you must intend to make it your primary home.

• No Rental or Second Homes – FHA loans can’t be used to buy rental properties or vacation homes. Traditional financing is required instead.

• One-Year Occupancy Minimum – You’re expected to live in the home as your primary residence for at least 12 months.

• No Co-Signers – Non-occupant co-borrowers aren’t allowed on FHA loans. All borrowers must live in the home.

Meeting this primary residence requirement is key to getting approved for an FHA loan and avoiding issues down the road. Talk to your lender if you have any questions or unique circumstances.

Documenting Your Income and Employment

Lenders need to verify your income and employment history to ensure you can repay an FHA loan. Here are some tips for providing proper documentation:

• Pay Stubs – Have pay stubs covering the most recent 30 days ready. Two years of W-2s can also be used.

• Written VOE – Your employer can provide a written Verification of Employment letter documenting your income, position, and time employed.

• Tax Returns – Two years of personal and business tax returns may be required if you’re self-employed.

• Child Support – Get documentation from the court or state agency if using child support or alimony as qualifying income.

• Retirement/Disability – Award letters are required to use retirement, social security, or disability income to qualify.

Taking time to gather these income documents will speed up the loan process. Ask your lender if you need help determining what paperwork is required.

FHA Debt-to-Income Ratio Rules

Your debt-to-income (DTI) ratio compares your total monthly debt payments to your gross monthly income. FHA has set maximum DTI limits:

• 43% Maximum DTI – Your total monthly debt payments can’t exceed 43% of your total income.

• 15% Maximum Payment-to-Income – Specifically for your mortgage payment and mortgage insurance premiums.

• Compensating Factors – Your lender may allow higher DTIs with positive compensating factors like large savings or retirement funds.

• Include All Debt – When calculating DTI, include credit card payments, auto, student, and personal loans, child support, and any other regular debts.

Keeping your DTI lower improves your chances of approval and sets you up for an affordable mortgage payment. Pay down debts or increase your income to lower your ratios.

Finding the FHA Loan Limits in Your County

FHA sets maximum mortgage limits that vary by county. You can look up the limits to see how much you can borrow:

• Check FHA Mortgage Limits Map – The U.S. Department of Housing and Urban Development (HUD) provides an interactive map to find limits by state and county.

• Maximum of $970,800 – In more expensive counties, the limit goes up to $970,800 for a single-family home in 2023.

• Minimum of $420,680 – Even lower-cost counties have floors of at least $420,680.

• Lower Limit for Condos – FHA limits for condos are lower, maxing out at $891,250 in 2023.

As long as your loan amount is under the limit for your specific area, you’ll meet this key FHA eligibility requirement.

Importance of FHA Home Appraisal

To get an FHA loan, a HUD-approved appraiser must evaluate the home to ensure it’s in acceptable condition. Here’s what to expect with the appraisal:

• Home Visit – The appraiser will complete an interior and exterior inspection to gauge the home’s value and condition.

• Meet Safety and Soundness Standards – The home must meet FHA minimum property requirements to pass.

• Review Recently Sold Homes – The appraiser looks at comparable sales to estimate the market value.

• Order Repairs if Needed – Minor repairs may need to be completed before closing if safety issues are found.

The appraisal verifies the home is a sound investment for both you and the lender. Be prepared to make minor repairs if required.

Other Standard FHA Loan Requirements

Beyond the major requirements we’ve covered, here are a few other standard eligibility rules for FHA loans:

• Meet Debt and Foreclosure Timelines – You must be at least three years removed from bankruptcy, foreclosure, or deed-in-lieu. One year for short sales.

• Have Sufficient Savings – While not a firm requirement, three months of mortgage payments in savings is recommended.

• Pay Upfront Mortgage Insurance Premium – This 1.75% insurance premium is due at closing.

• Pass FHA Underwriting – Even if you meet all requirements, the underwriter still has to approve the loan.

Carefully review these standard FHA policies when applying for financing. Being aware of the eligibility criteria can help avoid surprises.

Alternatives if You Don’t Qualify for FHA