Guides
Michigan First-Time Homebuyer Guide
November 17, 2023
The birthplace of the American automobile industry, Michigan residents take pride in their work and their hometowns. Buying a home can be a major point of pride as a Michigan resident – but is it affordable to purchase a home in 2023?
You might be surprised to learn that a range of first-time homebuyer programs in Michigan can help bring your dream of homeownership closer to reality. Read on to learn more about the benefits of buying a home for the first time, the process of getting a mortgage loan, and the types of loans you might consider as you shop.
Benefits of Being a First-Time Homebuyer in Michigan
Being a first-time homebuyer can have many benefits. These include:
- Specialized loan programs: The MI State Housing Development Authority is a state agency that offers programs and resources to assist first-time homebuyers. One of its primary initiatives is the MI Home Loan program, which may allow you to secure your first home loan with a more competitive interest rate.
- Rural development opportunities: Many areas of Michigan qualify as rural or suburban as defined by the United States Department of Agriculture (USDA). This classification may qualify you to use a USDA loan to purchase a home in one of these rural areas with $0 down.
- Assistance with closing costs: When using the MI Home Loan program, you may qualify for up to $10,000 in down payment and closing cost assistance if you meet income restrictions.
Qualifications for First-Time Homebuyers in Michigan
Who qualifies as a first-time homebuyer in Michigan? You might be surprised to learn that you could still technically be a first-time buyer if you owned a home for more than three years in the past. The MI State Housing Development Authority uses HUD’s definition of a first-time buyer, which is anyone who has not had an ownership interest in a property in the last three years. If you owned a home before this period but you lost or gave up ownership, you might still qualify for first-time buyer programs and benefits.
An important note — these qualifications only apply if you are looking to buy a home using Michigan’s MI Home Loan or a government-backed mortgage loan. There is no state minimum income, credit, or other personal requirement you must legally meet before you’re able to buy a home.
Questions to Ask Before Buying Your First House in Michigan
Asking the right questions helps you buy your first house at a time that’s right for you. Be sure to ask yourself the following questions before beginning the homebuying process.
What are Your Personal Long-Term Goals?
While buying a home can be a solid investment for the future, it’s not always the right time to buy. Before embarking on the journey of purchasing a home, consider your personal long-term goals and how owning a home might fit with them. Are you looking for a forever home, or is this a step in your journey? Do you want to live in your current area long-term, or are you looking for a temporary spot?
Understanding your aspirations can guide your decisions when choosing a home, from the location and size of the property to the amenities it offers. If you’re looking to settle down for a significant period, buying a home can be a smart choice. If you need more flexibility to move when you want, renting for now could be the better option.
What is Your Financial Situation?
One of the most crucial factors in buying a home is your financial situation, as buying a home is a long-term financial commitment. Understanding your budget, including your down payment capabilities, monthly mortgage affordability, and potential hidden costs, will prevent you from overextending yourself financially.
Knowing your credit score and getting pre-approved for a mortgage can also give you a clearer picture of what you can realistically afford. Evaluate your financial standing early in the mortgage process to set the foundation for a smooth and stress-free homebuying experience. You can use our mortgage calculator to get a more holistic idea of what it costs to own a home, including commonly forgotten homeownership expenses like mortgage insurance and homeowners insurance.
What are Your Housing Needs?
Consider your ideal home in terms of space, bedrooms, location, style, and amenities. Take into account not only the size of the space you’re living in today but also how your future needs might change based on your plans. For example, while you and your spouse might be fine in a single-bedroom apartment today, plans to grow your family might require you to set a higher budget and look for spaces with extra bedrooms.
What is the Real Estate Market Trend?
While real estate has traditionally risen in price over time as an asset class, like any market, it experiences its ups and downs. Monitor how real estate prices are changing over time in your area and consider purchasing when prices are lower than usual. Work together with a real estate agent to compare sales data to determine the ideal time to enter the market based on where you want to buy.
What are Your Mortgage Options?
Consider the various mortgage options and find out which ones may help first-time homebuyers purchase a property with less money down. For example, many Michigan residents use Federal Housing Administration (FHA) loans to qualify for their first home because their credit score does not qualify them for a Conventional loan. Review government-backed mortgage options below before ruling out homeownership — when combined with down payment assistance programs, buying a home might be more affordable than you think.
First-Time Homebuyer Statistics in Michigan
- Average home price in Michigan: $237,028
- Minimum down payment in Michigan: 0% (VA and USDA loans)
How to Apply for First-Time Homebuyer Loan Programs in Michigan
Now that you understand the basics of homeownership and the benefits of purchasing a property of your own, you might be ready to apply for a loan and move ahead. Here’s how to apply for a first-time homebuyer program and become a homeowner.
Determine Your Budget
The first step in applying for a home loan is to determine if now is the right time to buy. Create a household budget that includes all your recurring expenses and use the mortgage calculator linked above to determine a rough estimate of a reasonable monthly mortgage payment. Browse online real estate databases and compare current housing prices to your budget. If your income looks sufficient to support a home purchase, it could be a good time to move onto the pre-approval stage.
Get Pre-Approved for a First-Time Home Mortgage
Getting pre-approved for a home loan provides you with a more concrete budget to shop for a property. During pre-approval, your mortgage lender reviews your financial information to ensure that you qualify for a home loan. If you’re approved, you will receive a pre-approval letter with the maximum loan amount you qualify for, proving to sellers and real estate agents that you are ready and able to buy a home.
You can also use this time to apply for Michigan’s state down payment assistance program and loan option, the MI Home Loan program. With the MI Home Loan, you can access a 30-year fixed-rate mortgage underwritten as a government-backed loan or Conventional loan option at a competitive interest rate. When using this loan, you can also qualify for the Michigan Down Payment (MDP) program, which offers up to $10,000 in down payment and closing cost assistance after completing a homebuyer education course.
Hire a Real Estate Agent
The next step in the buying process is to hire a real estate agent to help guide your home search. While it isn’t required to get a real estate agent before beginning to look for a new home, agents may have access to exclusive listings before they are available to the general public. NAF Homes,* an affiliate of NAF, can be a valuable tool to explore and connect with licensed real estate professionals near you.
Start the Search for Your Dream Home
After choosing an agent, sit down together and discuss your dream home. Now is the time to make sure that your agent has a complete list of the features that you want and need in your new home, as well as your budgetary restrictions. If possible, bring a few examples of listings that you might be interested in touring as inspiration to continue their search. Your agent will be your primary resource in discovering your local housing market – and touring homes until you find the right match.
Make an Offer
When you find a home that fits your needs, the next step is to submit an offer letter to the seller. Sit down with your real estate agent and discuss pricing as well as contingencies or special conditions that you want to be included with the home sale. Your agent will draft an offer letter and submit it to the seller for their consideration. If you and the seller can agree to a set of sale terms, you can move to the next step.
Conduct Home Inspection
A home inspection is a thorough examination of your property's condition, typically conducted by a certified home inspector. During a home inspection, the inspector will assess the various components of the house, including its structure, systems, roof, foundation, and more. Unlike an appraiser, who determines the market value of the property, a home inspector focuses on identifying potential issues, defects, or safety concerns within the property.
At the end of the home inspection, the inspector will provide you with a list of all issues found. If there are serious concerns with the home, you may be able to work together with the seller to alter the purchase price or include additional repair contingencies in the sale.
Close the Deal and Become a Homeowner
The last step in the mortgage process is to attend a closing meeting, sign off on your new loan, and close on your home. Your mortgage company will schedule closing on your behalf and relay loan paperwork to you ahead of time for review. Be sure to bring your photo identification and proof of down payment funds to closing to keep your meeting on track.
Four Traditional First-Time Homebuyer Programs in Michigan
Michigan is home to a range of first-time buyer programs and loan options you can use to make buying your first home easier. The following are four loan options to consider as you compare mortgage lenders.
Conventional Loan
Conventional loans are the most basic type of mortgage loan and are not limited to first-time purchasers as applicants. However, Conventional loans may be a stronger choice for those with solid credit profiles, as they tend to come with the lowest mortgage rates. The minimum down payment required on a Conventional loan is also 3%, which is less than FHA options.
FHA Loan
FHA loans are government-backed mortgage loans with insurance from the Federal Housing Administration. FHA loans may have more lenient credit requirements, with some lenders allowing you to get a loan with a score as low as 500 points.
One thing to note is that with an FHA loan, there is an upfront mortgage insurance premium and monthly MI payments for the life of the loan. These payments are for the insurance that allows the government to guarantee your loan. You may be able to eliminate mortgage insurance later if you can refinance into a Conventional loan.
FHA loans may be appealing options for those with rockier credit histories as well as those who have more debt relative to their incomes.
VA Loan
If you are an active member of the armed forces or you have served in the past, you could be able to buy a home with 0% down using a VA loan. United States Department of Veterans Affairs (VA) loans have insurance from the VA and have more affordable funding fees when compared to FHA loans. To qualify, you will need to provide your mortgage lender with documentation of your service alongside standard mortgage paperwork.
USDA Loan
USDA loans were developed to promote homeownership in rural areas, with large portions of Michigan qualifying for loan use. USDA loans, like VA loans, may allow buyers to purchase a home with 0% down, removing a major financial barrier to owning a home. It also has lower credit requirements, with a minimum score of 580 points.
To qualify for a USDA loan, your home will need to be located in a sufficiently rural area as defined by the USDA. You will also need to meet income restrictions relative to the median income in your area.
What are the Mortgage Rates in Michigan?
When you agree to a mortgage loan, you’ll pay a percentage of the loan’s outstanding value each year in interest. This percentage is your interest rate, and it plays a major role in determining your monthly mortgage payment.
Mortgage interest rates are dynamic and may change on a day-to-day basis. Review average mortgage rates and take note of how they’re changing over time.
Becoming a Michigan Homeowner
When buying your first home, think about the full cost of homeownership and how a mortgage loan will influence the flexibility you have renting. As a general rule, you will need a credit score of at least 580 points and a down payment of 3% to buy a home, but there are exceptions. For example, government-backed mortgage loans like VA and USDA loans can allow you to purchase a property with $0 down.
Ready to start shopping for your dream home in Michigan? The first step is to apply for a loan and get preapproved when you’re ready. Connect with NAF today and a Loan Officer will be happy to answer any questions you may have and help you choose the loan that’s right for your needs.
Michigan First-Time Homebuyer FAQs
Is there an income limit for first-time homebuyers in Michigan?
Income limits for first-time buyer programs may be relative to the specific rules of the program. On a statewide level, there is no minimum or maximum income related to buying a home as a resident of Michigan.
Can a person with a low income buy a house in Michigan?
Yes, a person with a low income can buy a house in Michigan. Various first-time homebuyer programs offered by state and local organizations can make homeownership more accessible if you have limited financial resources.
How much does a first-time buyer have to put down in Michigan?
Most first-time buyers will need to put down at least 3% of their loan’s value when buying a home, as this is the minimum for Conventional loan borrowers. If you qualify for a VA or USDA loan, you may be able to buy a home with no money down. Ultimately, the loan you choose, and your lender’s requirements will dictate your minimum down payment.
Does Michigan have first-time buyers programs?
Yes, Michigan’s first-time homebuyer program is the MI Home Loan, which offers more competitive rates on 30-year Conventional loans and government-sponsored loan programs. Buying a home with the MI Home Loan can allow you to apply for the MDP program, which can offer up to $10,000 in down payment assistance.
Do you have to pay back down payment assistance in Michigan?
Yes, you need to pay back state-sponsored down payment assistance that you receive through the MDP program. Down payment assistance is issued as a 0% interest second mortgage and is due to be repaid when you sell the home or refinance your loan. Other types of independent assistance may or may not need to be paid back depending on its specific terms.
* NAF Homes, Inc. is an affiliate of New American Funding and does not originate mortgage loans or issue loan commitments. NAF Homes, Inc. is an MI Real Estate Broker #6505431109, Tel. 844-626-1300.
NMLS #6606. www.nmlsconsumeraccess.org. Terms and Conditions Apply. This is not a loan commitment or guarantee of any kind. Loan approval and rate depend on borrower credit, collateral, financial history, and program availability at origination. Rates and terms are subject to change without notice. All mortgage loan products are subject to credit and property approval. © New American Funding, LLC. New American and New American Funding are registered trademarks of New American Funding, LLC. All Rights Reserved. Corp Office 14511 Myford Rd, Ste 100, Tustin, CA 92780. Ph 800-450-2010.
