Updated: Jun 8
A couple months ago, we wrote about Michigan's student loan forgiveness programs and how they can help thousands of Michiganders get out of student debt faster. Arguably the biggest perk of getting rid of student debt is the additional financial flexibility you'll gain in other areas of your life.
Things like buying a home will become easier and more realistic, for example.
You'll probably be pleasantly surprised to find out that Michigan also has state programs in place to encourage first time homeownership. This article will cover Michigan's various mortgage, down payment assistance, and grant programs for first-time home buyers.
Buying a home in Michigan
Purchasing a home in Michigan has gotten more competitive and expensive over the past few years, just like it has in much of the United States. According to Zillow, the average home price in Michigan is $234,954, as of May 2022.
And while this increase may not be quite as steep as it is in other parts of the country, there is no doubt that, combined with rising interest rates, some buyers have been priced out of the real estate market for the time being.
Here are some estimated costs as you consider purchasing your first home in Michigan:
Average home price
3.5% down payment (FHA loan min)
10% down payment
20% down payment
Within the scope of this article, we will cover the following types of programs, some of which are offered by The Michigan State Housing Development Authority (MSHDA):
First-time buyer mortgage loans
First-time buyer down payment assistance
Related: A Guide for First-Time Home Buyers
Michigan first-time home buyer loans
Depending on your financial situation, you may qualify for a conventional mortgage outright, especially if you have close to 20% of a home's purchase price saved up to use as your down payment. But you definitely do not need to have this much cash on hand to get a home loan.
Remember to consider the below as potential mortgage loans to pursue.
1. FHA loans in Michigan
The U.S. Federal Housing Administration (FHA) offers federally backed loans for those that have never purchased a home before. They typically require you to put at least 3.5% down and have a credit score of 580, meaning those that have declared bankruptcy in the not too distant past may even qualify. If your credit score is below 580, you can still be approved, though it will require a heftier down payment.
You'll also need to demonstrate that you:
Have a debt-to-income ratio under 43%
Have steady income and employment
FHA loans can be found through approved lenders in Michigan.
2. VA loans
VA home loans are only an option for Veterans, service members, and surviving spouses, and contain a number of added benefits, including:
No down payments required
No need for private mortgage insurance (PMI)
Competitive interest rates
Low closing costs
VA home loans are also lifetime benefits - you do not need to be buying your first-home to qualify.
3. USDA loans
The United States Department of Agriculture provides home mortgage loans to low and moderate income Americans buying homes in USDA designated rural areas.
Plenty of areas of Michigan qualifies, and you may even qualify for a zero down payment mortgage if you meet the following requirements:
Be a U.S. citizen or non-citizen national
Occupy the purchased home as your primary residence
Meet income requirements in your area (cannot exceed 115% of the median household income in your area)
4. Conventional 97 loans
Conventional 97 loans are another option for Michigan buyers, and they require just a 3% down payment. An alternative to FHA loans, Conventional 97 loans are beneficial since they carry the possibility of cancellable PMI once you reach 20% equity.
They also carry less upfront fees than FHA loans, and carry the following terms and program guidelines:
Loan amounts below $647,200
The property must be used as a primary residence
On top of these four loan types, future buyers in Michigan may consider taking out a loan through MSHDA, complete with competitive interest rates and the ability to take advantage of down payment or closing cost programs.
Michigan first-time home buyer mortgage programs
The Michigan State Housing Development Authority (MSHDA) offers a program known as the MI Home Loan. The MI Home Loan program is reserved for first-time homebuyers across Michigan, in addition to repeat homebuyers in targeted areas of the state.
Under the guidelines of the program, you can buy a home for up to $224,500, a harder feat than it was just a couple years ago. To be eligible, you'll need to:
Meet household income limits set by MSHDA (these vary by area and household size)
Have a credit score of at least 640, or 660 if you're buying a manufactured house
Have a down payment of at least 3% of home's purchase price
The MI Home Loan mortgage credit certificate (MCC)
MI Home Loans also carry potential eligibility for a mortgage credit certificate, which can provide a substantial tax credit on your federal return. The MI Home Loan program allows qualified homebuyers to "credit 20% of their annual mortgage interest paid against their year-end tax liability."
The credit is available every single year for the life of your mortgage, up to 30 years. We are oftentimes asked whether this program then excludes you from deducting the remainder of your mortgage interest, and it does not.
First-time home buyer grants in Michigan
The MSHDA also offers two down payment assistance programs for buyers in Michigan to take advantage of. Both of these programs effectively put a second mortgage on your home, at 0% interest, and only require repayment once you sell, refinance, or finish paying off your mortgage.
These two programs are:
The MI 10K Down Payment Assistance (DPA) Loan Program
The MI DPA Loan Program
1. MI 10K DPA Loan Program
The first down payment program is the MI 10K DPA program, which allows eligible borrowers the opportunity to borrow up to $10,000 if:
Living in one of 236 zip codes statewide (including Ann Arbor, Detroit, Flint, Grand Rapids, Kalamazoo, and Lansing)
You have less than $20,000 in liquid cash assets
You complete a homebuyer education course
There are other purchase price and income caps that you must be within too.
2. MI DPA Loan Program
The second such program is the MI DPA program, also offering a zero-interest second mortgage. Offering up to $7,500 to use towards your down payment, this program is more open and accessible than the $10,000 program. This program carries the following eligibility requirements:
You complete a homebuyer education course
You must be a first-time homebuyer or a repeat buyer in a "targeted" area
A minimum credit score of 640
All "non full-time students" must coapply and be listed on home loan
Remember - these two programs are DPA programs associated with with MSHDA, but statewide, there are plenty of others too.
Among these are Michigan's Step Forward Program, which can be used in certain areas around Detroit.
Download our MI mortgage calculator
We've found that many first-time home buyer readers of our site struggle to understand how much home they can feasibly afford. To make this an easier process, we built a free mortgage calculator especially for you.
Our calculator will help you to:
Gauge how much home you can afford
Understand how your home's purchase price and your loan's interest rate, term, and other factors will impact your monthly payments
Prepare for homeownership
Play around with the tool too to understand how different prices, rates, and terms may impact your monthly payments.
Consider the mental toll of home buying
What oftentimes goes unspoken is the mental toll of shopping for a home. We always encourage first-time buyers, in Michigan and elsewhere, to see the process as exactly that - a process. There will be many ups and downs along the way, as buying a home is extremely competitive and can be stressful.
To help minimize your stress, you'll want to consider the following tips:
Getting preapproved for a mortgage from a qualified lender
Knowing exactly what your must haves are in a new home
Identifying and prioritizing target neighborhoods that are of interest to you
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