There’s a lot to love about the FHA loan program. They’re not just for first-time home buyers, either. Many of our clients are repeat customers who have used FHA to purchase additional properties. The benefits of an FHA loan in Michigan include the following:
The Federal Housing Administration has announced that FHA loans have grown 1.3% in Michigan over the past year, with a total of $8.7 billion in mortgages issued to borrowers. This growth is driven by both first-time homebuyers and repeat buyers who are seeking lower down payments and lower monthly payments than they would be able to find with other types of financing.
Low Down Payment
You can put down as little as 3.5% of the home’s purchase price. If you receive a gift from a family member or friend, it counts toward your down payment. Check with your lender or local housing agency to find out if the program is available in your area. Some programs match your savings dollar-for-dollar when you put money down on an FHA-approved condo or home built after 2008. The FHA also has a program that helps first-time homebuyers with the closing costs of their home. This is called the First Time Homebuyer Closing Cost Assistance Program. With this program, your lender will pay up to 4% of the purchase price of your home.
You can also get a state or local government grant to help with your closing costs. If you’re buying a home in an underserved area, you may be eligible for additional assistance of up to $8,000.
Flexible Credit Requirements
The FHA loan program is an excellent option for those who have credit challenges and are trying to buy a home. Your credit history may need improvement, and you can still become an FHA borrower.
- You can qualify for an FHA loan with a minimum credit score of 500. This will allow most people to meet the minimum requirements, even if they have no credit or have had issues with their finances.
- You can have a bankruptcy on your credit history; you don’t need to wait ten years from when your bankruptcy was discharged before applying for an FHA loan. There’s no waiting period at all!
- You can also apply with a foreclosure on your record—you won’t be denied based on this alone because it may be evidence that you’ve made poor financial decisions in the past but are ready to make changes moving forward.
No Prepayment Penalties
One of the most significant benefits of an FHA loan in Michigan is that you don’t have to pay the penalty if you want to pay off your mortgage early.
If, for example, you had a 30-year fixed-rate mortgage with an FHA loan and wanted to pay it off in five years instead of 30, there would be no penalty on the remaining 25 years worth of payments. This is not true with other types of loans.
With a regular mortgage, for example, you would have to pay the same penalty as if you had taken out a 15-year fixed-rate mortgage and then wanted to pay it off in five years instead of 15.
Private Mortgage Insurance
Private mortgage insurance, or PMI, is a type of insurance that protects the lender in case you default on your loan. It’s required on loans with less than a 20% down payment and usually higher than a conventional mortgage.
In other words: if your home purchase falls through for any reason, the lender will have some money to cover its losses because PMI insures it.
This is why an FHA loan is an excellent option for first-time homebuyers. With the low-down payment of 3.5%, the flexible credit requirements, and no prepayment penalties, you can get into your dream home with little effort!