First-Time Homebuyer Programs in Michigan

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Edited byLilian Mironga
Edited byLilian Mironga

Updated: April 28, 2023

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When you're buying a home for the first time, it can be a very intimidating experience. Fortunately, a first-time homebuyer in Michigan has several programs available to explore and pick.

MoneyGeek highlights multiple loan programs, such as zero- and low-down-payment options. We also explain first-time homebuyer programs in Michigan, so you can select the one that best meets your requirements.

What Is a First-Time Homebuyer Program & How Can It Help?

When you decide to buy your first home, a good starting point would be to calculate costs in advance. Typically, the down payment on a mortgage is among the highest expenses you'll incur.

A down payment — typically 20% of the total cost of your house — impacts the type of mortgage you can obtain.

The more money you put down, the lower the interest rate on your loan. Despite how modest it may seem, it's not uncommon to have trouble coming up with a 20% down payment. Consider obtaining a lower rate through Michigan first-time homebuyer programs.

The USDA, VA, conventional, FHA and FHA 203(k) loans are available in Michigan. Additionally, the state offers exclusive programs to its citizens, like the MI Home Loan program and various local homeownership initiatives per city or county.

Each loan program has unique qualification requirements, so it is crucial to determine which ones you meet.

Zero-Down-Payment Loan Programs

A zero-down-payment loan program helps first-time buyers acquire property without a down payment. USDA and VA loans are the two government-backed programs with zero down.

USDA Loans

A zero-down-payment loan program helps first-time buyers acquire property without a down payment. USDA and VA loans are the two government-backed programs with zero down.

The U.S. Department of Agriculture grants USDA home loans to low- and moderate-income rural residents in eligible areas. These mortgages are less expensive than the Fannie and Freddie (conventional) loans.

A USDA loan has three different programs:

  • Single-Family Housing Direct Home Loans: This program is available if you live on a low or very low income.
  • Section 502 Guaranteed Rural Housing Loan: Homebuyers with low to moderate incomes have the opportunity to finance their house purchase at a fixed interest rate for terms of up to 30 years.
  • Section 504 Home Repair Program: Primarily for homeowners who need to repair or improve a home.

To qualify for a USDA loan, applicants must occupy the property as their primary residence. They must also fulfill specific income criteria and other lender terms. Moreover, an applicant's home must be less than 2,000 square feet and situated in a rural area with a population of 35,000.

VA Loans

VA home loans are available to eligible service members and their families. The Department of Veterans Affairs issues VA loans to its borrowers. You don't need to make a down payment with this type of mortgage.

First-time buyers can use VA loans to finance various properties, including single-family homes, condominiums and new homes. Alternatively, they might obtain a construction loan to buy an existing property to improve, reconstruct or renovate it.

Borrowers need to fulfill property type, credit rating and income requirements established by the lender to qualify for a VA loan. While no down payment is required, qualifying requirements may differ.

VA loans are loaded with advantages for those who qualify. For instance, borrowers can get affordable rates and terms and avoid prepayment penalties. In addition, you can get lower closing expenses and avoid purchasing private mortgage insurance.

However, consider that this type of loan has a one-time VA funding fee.

Low-Down-Payment Loan Programs

Residents can also choose Michigan first-time homebuyer programs that allow house purchases with less than a 20% down payment. Conventional and FHA loans are two options offered.

Fannie and Freddie (Conventional) Loans

Conventional loans, often known as Fannie and Freddie mortgages, are private loans. Although the government does not back conventional loans, they are readily available with flexible loan terms. Borrowers who can't pay their taxes or other government obligations may want to consider Fannie or Freddie loans.

While the average down payment is 20% of the home's price, some lenders will only require a 3% down payment. Consequently, conventional loans remain a reasonable alternative for many first-time homebuyers aspiring to acquire a residential property.

The minimum credit score for a conventional mortgage is typically 620. To qualify, you will require a debt-to-income ratio (DTI) of 45% or less. However, these eligibility requirements might vary from lender to lender. MoneyGeek recommends shopping around for a lender who can accommodate your financial history and needs.

There are also other types of conventional loans, including conforming and non-conforming home loans.

FHA Loans

FHA loans are ideal for those with damaged or insufficient credit histories. Private lenders offer FHA loans as low-down-payment mortgages in compliance with Federal Housing Administration (FHA) criteria and regulations.

Compared to other home loans, FHA loans are less restrictive. A minimum credit score of 500 is mandatory, with a maximum debt-to-income ratio of 56.9% and a minimum down payment of 3.5%. FHA home loans have a fixed interest rate and come in 15- or 30-year repayment terms.

Although these are the basic requirements, they are not the only ones you need to qualify for an FHA loan. Loan limits differ depending on your area (county and state).

An online tool is available through the Department of Housing and Urban Development (HUD) to determine the maximum loan amount you may qualify for.

FHA 203(k)

The FHA 203(k) loan program allows you to finance a construction loan in addition to your regular home loan. It is a mortgage with two purposes, allowing homebuyers to acquire and remodel existing properties.

If you are looking for an FHA 203(k) loan, it's best to examine the two loan types:

  • A Standard 203(k) loan is meant for homebuyers who require major repairs like kitchen or bathroom renovations.
  • A Simplified 203(k) or Limited 203(k) loan is for cosmetic repairs that typically do not exceed $35,000.

It is important to note that FHA 203(k) loans are only available to prospective buyers who intend to occupy the home they purchase as their primary residence.

To qualify, applicants typically need a credit score between 500 and 580, a 3.5% down payment and a front-end debt-to-income ratio of 31% or below.

Key Takeaways

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Zero-down-payment loans: These mortgages have lower interest rates, but approval may be challenging.

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USDA loans: Ideal for homebuyers in rural regions with less than 35,000 residents.

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VA loans: This program is available to eligible service personnel and surviving spouses looking to finance a house purchase.

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Fannie & Freddie loans: Conventional loans typically require a 3% down payment, significantly less than the typical 20%.

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FHA loans: One of the home loans with the most flexibility, particularly for borrowers with poor credit.

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FHA 203(k) loans: An ideal option for homebuyers who want to restore or upgrade their newly acquired fixer-upper.

Michigan Homebuyer Programs

Borrowers looking for alternatives to government-backed mortgages can look to the Michigan first-time homebuyer programs. Note that they are only available to Michigan residents.

MI Home Loan

The MI Home Loan program is a mortgage product accessible to first-time buyers throughout the state and recurring purchasers in specific areas. Every potential homeowner works directly with a partner lender.

MSHDA Down Payment Assistance

The Michigan State Housing Development Authority (MSHDA) offers a Down Payment Assistance program to help homebuyers realize their dream of homeownership. Qualifying borrowers must meet specific eligibility requirements for income level, credit history and property type can benefit from the loan.

Housing Choice Voucher Program

The Housing Choice Voucher Program provides rent assistance to borrowers with very low incomes who look for housing in apartments and private homes. MSHDA administers approximately 28,000 housing choice vouchers.

FAQs for First-Time Homebuyers in Michigan

MoneyGeek answered some commonly asked questions about Michigan first-time homebuyer programs to assist residents pursuing homeownership.

Does Michigan have any first-time homebuyer programs?
What qualifies me as a first-time homebuyer in Michigan?
Can you buy a house in Michigan with no down payment?
Who can help me with my down payment on a house in Michigan?
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