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michigan first-time home buyer programs

Michigan’s economy has experienced its ups and downs over the last few decades. Population decline and the national housing crisis have driven prices and mortgage rates down, making it homeownership more attainable in the state. Some cities are even paying people to move there.

Additionally, both the federal and Michigan state governments have created mortgage programs specifically for first-time homebuyers. When paired with grants and tax credits, these can make homeownership both cheaper and more accessible. 

Before you buy a home, you might want to consider enlisting the help of a financial advisor. An advisor can help you understand how a mortgage will impact your financial picture, and help you choose the best loan option for you.

Federal First-Time Homebuyer Programs

Before we break down the loan programs for Michigan residents, we’ll first go over several national homebuying programs offered through the federal government. You want to consider all your options when searching for a mortgage, so make sure to look at both federal and state programs.

FHA Loans

Pros – Low down payment
– Low credit score requirement
Cons – Larger down payment needed for those with a lower credit score
Eligibility – At least 3.5% of the home’s purchase price as down payment
– FICO® credit score of at least 500
Best For – Homebuyers without a strong credit history or sufficient savings

The U.S. Federal Housing Administration backs FHA loans, which third-party lenders provide. Conventional loans typically require a 20% down payment, but you’ll only need to provide 3.5% of your home’s value for an FHA loan.

To get the program’s biggest perk, you’ll need a  credit score of at least 580. If yours falls between 500 and 580, you’ll need to make a 10% down payment. It may seem daunting, but that’s still half of a typical mortgage down payment. Even with the credit score requirement, an FHA loan is one of the easiest federal programs to qualify for.

VA Loans

Pros – Very low down payment
– No private mortgage insurance requirement
– Typically comes with lower closing costs
Cons – Application process can be drawn out
– Requires payment of a VA fee
Eligibility – Must be a current or former military member, spouse, or other beneficiary
– FICO® credit score of at least 620
Best For – Low- to moderate-income veterans with limited savings

The Department of Veterans Affairs insures VA loans from third-party mortgage lenders. The program began after many military members were unable to secure enough income or savings to apply for a mortgage once they completed their service. As such, VA loans do not require any down payment.

To qualify, you will need a FICO® credit score of at least 620. You also need to pay a VA funding fee, which can range anywhere from 1.25% to 2.4% of your home’s value.

Aside from the funding fee, there are very few costs associated with a VA loan. Since the government will back part of your risk, you won’t have to pay private mortgage insurance (PMI), which is typically obligatory if you’re putting down less than 20%. Closing costs are also usually lower than they are with conventional and other mortgages, meaning you could save even more.

USDA Loans

Pros – No down payment
– Low credit score requirement
Cons – Only available in select areas
Eligibility – Adjusted household income must be within 115% of the area median income for guaranteed loan program
– Home must be in a qualified area
Best For – Low- to moderate-income homebuyers looking to live in a rural or semi-rural area

A United States Department of Agriculture, or USDA, loan is legally known as a “Section 502 Single Family Housing Guaranteed Loan Program.” The program was designed to attract homebuyers to rural, or semi-rural, places around the U.S.

USDA mortgages completely eliminate the need for a down payment – so long as you have a decent credit score. Down payments are around 10% for those with lower scores. Note that you may not be eligible for a USDA loan if your adjusted household income level is higher than 115% of the area’s current median income..

Good Neighbor Next Door Program

Pros – Flat 50% discount on the your new home’s value
Cons – Only available in select areas for select individuals
– Must remain for at least three years after purchase
Eligibility – Must be a police officer, firefighter, emergency medical technician or teacher
Best For – Public servants that lack adequate savings for a typical home purchase

The Good Neighbor Next Door Program is more of a discount than a loan. It allows emergency personnel and teachers to pay only half the purchase price of a home. It can be combined with a conventional, VA, or FHA mortgage, or homebuyers can opt to pay cash.

To qualify, the home must be located within a Housing and Urban Development (HUD)“Revitalization Area.” Plus, the homebuyer must agree to make the home their primary residence for at least three years. After the three years, buyers can sell the home and retain any equity and profit.

Fannie Mae/Freddie Mac

Pros – Low down payment
– Low credit requirement
– Several loan styles available
Cons – Higher interest rates than other federal programs
Eligibility – In some areas, there are no income requirements
Best For – Anyone that can’t afford a typical down payment and doesn’t qualify for other federal programs

Most federal homebuyer programs necessitate the use of an approved lender. In 1938, the federal government created a public mortgage lender, known colloquially as Fannie Mae. In 1970, the government launched another, known as Freddie Mac. Each lender has a selection of loans for first-time homebuyers.

The HomeReady® loan from Fannie Mae requires down payments as low as 3%, making it a great choice for anyone who hasn’t saved enough for a standard down payment. To qualify, borrowers need a FICO® credit score of at least 620. Borrowers also need to earn an income at or near the U.S. median. With a HomeReady® loan, you must have private mortgage insurance at the time of purchase, though you can cancel it once you’ve accrued 20% equity in your new home.

If that’s not for you, you may prefer the Home Possible® mortgages from Freddie Mac, with a down payment of just 3%. Home Possible® loans are available in 15- to 30-year fixed-rate and 5/5, 5/1, 7/1 and 10/1 adjustable-rate terms. These loans also come with cancelable private mortgage insurance like their HomeReady® counterparts. Perhaps best of all, you won’t need a strong (or any) credit history to qualify.

NADL

Pros – No down payment
– Low credit requirement
– No private mortgage insurance requirement
– Low closing costs
Cons – Only available in select areas for select individuals
Eligibility – Home must be located on allotted lands, Alaska Native corporations, Pacific Island territories or federally-recognized trusts
Best For – Native American veterans without significant savings that are willing to live in certain areas

A Native American Direct Loan (NADL) is another mortgage program backed by the Department of Veteran Affairs. The program’s impressive perks include a 0% down payment requirement and a fixed interest rate. The rate is subject to change based on market fluctuations, but currently sits at just 4.5%.

NADLs don’t require high credit score minimums or the purchase of private mortgage insurance, which is a perk that extends from normal VA loans. To make things even better, NADLs comes with significantly lower closing costs.

Michigan First-Time Homebuyer Programs

michigan first-time home buyer programs

The homeownership division of the Michigan State Housing Development Authority (MSHDA) provides a variety of products to help first-time homebuyers achieve and afford their first home. Some loans have down payments as low as 3% and offer down payment assistance up to $7,500. You can apply these to conventional, FHA, VA and USDA loans, giving you the chance to customize your loan choices as you see fit.

To qualify, homebuyers need a FICO® credit score of at least 640 and a debt-to-income ratio under 45%. Income limits vary by location and the 2019 price limit is $224,500. At the very least, borrowers need 1% of the loan amount in hand at the time of purchase.

MI Home Loan

Pros – Low interest rate
– Can be combined with MSHDA down payment assistance
Cons – Eligibility requirements apply to every adult that will live in the home
Eligibility – Income limits dependent on home location and family size
– Home must be priced under $224,500
– FICO® credit score of at least 640
– Debt-to-income ratio under 45%
Best For – Low- to moderate-income earners who can’t afford typical monthly mortgage payments

The MI Home Loan program provides 30-year fixed-rate mortgages from an experienced participating lender. Thanks to a bond program that subsidizes the program, interest rates are much lower than other market offerings. MI Home Loans can be combined with the Michigan Down Payment Assistance grant, which provides up to $7,500 for the upfront costs of homeownership.

MI Home Loan is designed for first-time homebuyers with low to moderate income. Borrowers need a credit score of at least 640 on the FICO® scale to qualify. For multiple-section manufactured homes, this number is slightly higher at 660. Household limits also apply, and they vary based on family size and property location. The only downside is that all adult residents need to meet these requirements.

MI Home Loan Flex

Pros – Low interest rate
– Can be combined with MSHDA down payment assistance
Cons – Cannot be used for every type of home
Eligibility – Income limits dependent on home location and family size
– Home must be priced under $224,500
– FICO® credit score of at least 660
– Debt-to-income ratio under 45%
Best For – Low- to moderate-income earners who can’t afford monthly mortgage payments

The MI Home Loan Flex program feature 30-year fixed-rate mortgages through participating lenders. As its name would suggest, it is a bit more flexible than the standard MI Home Loan program. Income requirements are the same, but do not extend to every adult in the household. Collections and judgements do not necessarily need to be paid off, either.

There are some ways that the MI Home Loan Flex program is actually more strict, though. For one, the minimum FICO® credit score is 660. Again, this doesn’t extend to every adult in the house. Unfortunately, not all flex loans can be used to purchase a manufactured home. Plus, if you borrow more than 95% of the home’s value, you will need to complete a homebuyer education course.

The MI Home Loan Flex program isn’t subsidized by a state bond program, so interest rates are a bit higher than they would be with a standard MI Home Loan. Flex loans can, however, be combined with the Michigan Down Payment Assistance grant, which provides up to $7,500 for the upfront costs of homeownership.

MSHDA Down Payment Assistance

Pros – Up to $7,500 to help cover the upfront costs of homeownership
– 0% interest rate
Cons – Must be repaid
Eligibility – Must be an MSHDA lender
– Must complete a homeownership education class
Best For – Anyone taking advantage of a MI Home Loan or MI Home Loan Flex program

The Michigan State Housing Development Authority offers a no-interest loan to help MI Home Loan and MI Home Loan Flex participants cover the initial costs of homeownership (down payment, closing costs, homeowners insurance, etc.). The amount will be either $7,500 or 4% of the home’s purchase price, whichever is less.

The MSHDA Down Payment Assistance loan doesn’t require regular monthly payments, but it must be repaid before the home is sold, refinanced or paid off in full. Remember that homebuyers still need to provide at least 1% of the total loan amount on their own as a down payment.

Mortgage Credit Certificate

Pros – Reduced federal tax bill
Cons – Must meet income limits from both the MSHDA and HUD
Eligibility – Income limits dependent on home location and family size
– Home must be priced under $224,500
Best For – First-time homebuyers that can’t afford both tax bills and mortgage payments on their own

Any first-time homebuyer in the state of Michigan should consider filing for the Mortgage Credit Certificate (MCC) program. An MCC allows homeowners to claim 20% of their annual mortgage interest as a tax credit on their federal return, providing a dollar for dollar reduction in tax liability every year for the life of the original mortgage. Pair these benefits with those of a MSHDA loan and you could save some serious cash.

Just keep in mind that you’ll need to meet MSHDA and HUD income requirements to qualify for these lowered taxes and increased savings. Your house must also cost less than $224,500. You can contact a lender from the MCC network to determine any additional eligibility requirements.

Tips for Your Mortgage Research

michigan first-time home buyer programs

  • You shouldn’t apply for a mortgage just because you qualify. Investigate lenders, interest rates and down payment requirements for each option before you make the choice.
  • No matter where you buy a home, it’s a huge purchase with big implications for your finances. The SmartAsset financial advisor matching tool can connect you to certified financial advisors in your area that can help you navigate the transition into homeownership.

Photo credit: ©iStock.com/AndreyPopov, ©iStock.com/monkeybusinessimages, ©iStock.com/Tinpixels

Liz Smith Liz Smith is a graduate of New York University and has been passionate about helping people make better financial decisions since her college days. Liz has been writing for SmartAsset for more than four years. Her areas of expertise include retirement, credit cards and savings. She also focuses on all money issues for millennials. Liz's articles have been featured across the web, including on AOL Finance, Business Insider and WNBC. The biggest personal finance mistake she sees people making: not contributing to retirement early in their careers.
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