What is an FHA loan?

Michigan is an excellent place to live because it offers a high quality of life. It is an affordable state where the cost of living is 10 percent below the national average. Nearly 72% of people living in Michigan own a house. However, some people in Michigan, who do not own a house, have limited savings and low credit scores. What do they do when they want to buy a home? They cannot avail of conventional loans. However, an FHA loan in Michigan helps these people. The loan is available with lower credit scores and down payments. It is designed to help low and moderate-income families to own a home. It is the most affordable mortgage option for first-time home buyers.

FHA loan requirements

An FHA-approved appraiser in Michigan must appraise the home a person wants to buy through an FHA loan.

The loan is sanctioned only when the home a person considers will become the primary residence, not a second home or investment property.

The house must be occupied within 60 days of closing the deal.

An inspection is needed, and it must report that the property meets minimum property standards.

A 3.5% down payment is required for credit scores of 580 or higher.

The FHA loan requires a mortgage insurance premium to insure the FHA lender against losses.

Types of FHA loans 

FHA section 203(b) loan: The most popular home loan program offers fixed rates on properties.

Home equity conversion mortgage: A reverse mortgage option permits seniors above age 62 to convert equity to cash. 

203(k) mortgage program: This loan is designed to help home buyers who want to make improvements to their new home.

Energy-efficient mortgage program: These loans are offered to purchase or refinance homes and make energy-efficient improvements.

Section 245(a) loan: These are loans where the monthly payments increase over time. It is for borrowers who expect their incomes to grow in the future.

FHA loan vs. Conventional loan

FHA loans are available for lower credit scores than conventional loans 

FHA rules are very liberal regarding the down payment money, and down payments are made through gifts from employers, charitable organizations and family. Only family members can help a person make the down payment on a conventional loan.

FHA loans may involve closing costs that are not required for conventional loans.

Benefits of FHA loans

FHA loans have easier credit qualifications that benefit people with low credit scores. It is the best option for people with less than perfect credit scores.

Bankrupts make a mortgage challenging. FHA loans are available two years after bankruptcy, whereas conventional loans require four years.

FHA loans require a low down payment. It is an additional benefit for first-time home buyers and cash-strapped shoppers. It allows any family member to help by giving money for the down payment. FHA loan gift funds can come from friends, family or employers.

The FHA offers lenders mortgage insurance because it doesn’t lend money. The insurance protects the lender and enables them to provide loans willingly.

FHA loans have a higher Debt-to-Income ratio. The highest Debt-to-Income ratio for an FHA loan is 43%. The amount includes mortgage payments, installment loans, interest, and a minimum of credit cards. 

FHA loans have very meager interest rates when compared to conventional loans. However, the FHA’s mortgage insurance premium remains for the life of the loan.

The FHA loan in Michigan is popular with first-time home buyers with credit issues and limited savings. People availing of the loan are happy to purchase a home with lower down payments and credit scores. Even people with low to moderate income can buy a home in Michigan by availing of the FHA loan.


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