FHA Guidelines in Michigan
- Originating in 1934 and part of the U.S. Department Housing and Urban Development (HUD) since 1965, the FHA loan program is an alternative to conventional loans for borrowers unable to make a 20 percent down payment on their mortgage. FHA loans require only a 3.5 percent down payment and offer much less restrictive credit qualifications and typically lower closing costs on loan. Though originally intended for first-time homebuyers, others without significant savings and some real estate investors also regularly use this government-backed mortgage program.
- FHA borrowers in all states are required to pay mortgage insurance, which protects lenders from risky loans. Mortgage insurance covers monthly payments when an FHA borrower defaults on his loan. Typically, borrowers pay an upfront mortgage insurance premium of 1.5 percent of the loan balance at closing. Another 1.1 percent to 1.15 percent of the loan balance is paid toward insurance annually, and divided into 12 equal installments. Premiums are usually included in monthly mortgage payments.
- The maximum debt-to-income ratio for FHA lending is 41 percent, which means your mortgage, car loan and personal loan payments can only constitute 41 percent of gross monthly income. Another major loan protection are maximum loan amounts. The FHA establishes loan limits by county and periodically adjusts them for changes in property values in given areas. Homebuyers can search current loan maximums by state and county on the HUD website.
- Michigan has few areas that are not considered typically priced housing markets by the FHA. The FHA has common loan limits it uses in most counties for purchases of one- to four-unit properties. These common maximum loans, which are noted for most Michigan counties by FHA.com as of May 2011 are $271,050, $347,000, $419,425 and $521,250, for one to four units, respectively. Washtenaw County, where Ann Arbor and the University of Michigan are located, is the only Michigan county with single-unit loan limits over $300,000. The one- to four-unit maximums in Washtenaw are $345,000, $441,650, $533,850 and $663,450, respectively.