Michigan First-Time Home Buying Assistance Programs & Grants for 2022

Michigan First-Time Home Buying Guide

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    By Walecia Konrad

    (Last Updated – 06/2022)

    With Detroit’s revitalization, the resort towns on the shores of the Great Lakes, and the proximity to wilderness in the Upper Peninsula, Michigan real estate is hot. The good news for first-time homebuyers: The Wolverine State is still relatively affordable.

    The median sales price rose 7% year-over-year in April 2022, to $240,300, Redfin found. That’s far below the national median existing-home sales price of $391,200 in April and the estimated 2022 median price for newly constructed homes, over $412,000.

    In April, more than half of Michigan homes that sold went for more than the asking price. Shrinkage in inventory has made the market more competitive.

    Who Is Considered a First-Time Homebuyer in Michigan?

    First things first: A first-time homebuyer in Michigan, as elsewhere in the country, can be someone who is buying their first home ever, but it also can be a repeat buyer who has not owned a primary home in the past three years.

    The Michigan State Housing Development Authority will waive the first-time homebuyer requirement for some of its programs for buyers in certain targeted areas.

    Recommended: First Time Home Buyer Guide and Information

    5 Michigan Programs for First-Time Homebuyers

    First-time homebuyers looking to settle in Michigan may find help through the Michigan State Housing Development Authority . Here are details about the agency’s mortgage and down payment assistance programs.

    1. MI Home Loan Program

    This program offers 30-year fixed-rate conventional, FHA, VA, and USDA mortgages at below-market interest rates to first-time homebuyers and those who buy in targeted areas . The loan can be paired with the Michigan Housing down payment assistance program described below.

    Household income limits apply, and depend on location and family size. Your purchase price may not exceed $224,500, and in most cases the lot size cannot exceed 2 acres.

    A credit score of 640 is required (660 for multiple-section manufactured homes). If you’re using the down payment assistance program, all adult household members need to complete a housing education course (which can help buyers understand how much mortgage they can afford).

    2. MI Home Loan Program Flex

    This is the same program as described above, but with one difference that may help first-time homebuyers get approved. The credit score requirement for a loan is a minimum of 660, but the Flex option does not require all household members who plan to live in the house to apply.

    That means a spouse or other person in the household with a lower credit score won’t necessarily impede qualification. The Flex option also has no restrictions on lot size.

    3. Michigan Down Payment Program

    Michigan Home Loan borrowers may find down payment help in the form of loans for $7,500 and up to $10,000 in specific ZIP codes . These second mortgages come with no interest or monthly payments. The loan must be paid back when you sell, refinance, or pay off your first mortgage.

    To qualify, borrowers must have a Michigan Home Loan or Michigan Home Loan Flex, have less than $20,000 in cash assets, have 1% of the home’s purchase price available, and complete a homebuyer education course.

    4. Mortgage Credit Certificate

    Michigan’s home mortgage credit allows first-time buyers and repeat buyers in targeted areas to claim a federal tax credit equal to 20% of their annual mortgage interest, up to $2,000 a year. Unfortunately, the Michigan Home Loan and Flex programs do not cover a mortgage credit certificate. Borrowers using conventional mortgages may be able to take the credit.

    There are fees associated with applying for and receiving a mortgage credit certificate that vary by state. Often the savings from the lifetime of the credit can outweigh the fees.

    Recommended: Understanding the Different Types of Mortgage Loans

    5. Local Homebuyer Assistance Programs

    Local housing initiatives in urban areas such as Detroit and Grand Rapids offer help with down payments, closing costs, and other assistance for first-time buyers in certain areas.

    How to Apply to Michigan Programs for First-Time Homebuyers

    A housing counselor or experienced lender can help determine which programs you might be eligible for, based on income, debt, credit score, and purchase price.

    State Loan and Assistance Programs

    Find and contact counseling agencies and loan officers by county if you’re interested in a Michigan housing authority mortgage and down payment assistance program.

    Local Programs

    Many local assistance programs are offered through lenders themselves, so it’s important to compare lending options.

    HUD lists local contacts that may be of help to first-time homebuyers.

    MCC Program

    To apply for a mortgage credit certificate, homebuyers must contact a lender approved by the Michigan State Housing Development Authority.

    Federal Programs for First-Time Homebuyers

    Several federal government programs are designed for people who have low credit scores or limited cash for a down payment. Although most of these programs are available to repeat homeowners, they can be especially helpful for true first-time buyers or people who haven’t owned a home in several years.

    Federal Housing Administration (FHA) Loans

    The FHA, which is part of the U.S. Department of Housing and Urban Development (HUD), insures mortgages for borrowers with lower credit scores. Homebuyers choose from a list of approved lenders. Loans have competitive interest rates and require a down payment of 3.5% of the purchase price for borrowers with FICO® credit scores of 580 or higher. Those with scores as low as 500 must put at least 10% down.

    Gift money for the down payment is allowed from certain donors and will be documented in a gift letter for the mortgage.

    FHA loans always require mortgage insurance: a 1.75% upfront fee and annual premiums for the life of the loan, unless you make a down payment of at least 10%, which allows the removal of mortgage insurance after 11 years.

    You can learn more about FHA loans and FHA lending limits by area.

    Freddie Mac Home Possible Mortgages

    Very low- and low-income borrowers may make a 3% down payment on a Home Possible® mortgage. These loans allow various sources for down payments, including co-borrowers, family gifts, employer assistance, secondary financing, and sweat equity.

    The Home Possible mortgage is for buyers who have a credit score of at least 660.

    Once you pay 20% of your loan, the Home Possible mortgage insurance will be canceled, which will lower your mortgage payments.

    Fannie Mae HomeReady Mortgages

    Fannie Mae, or formally, the Federal National Mortgage Association, is a publicly traded government-sponsored enterprise that dates back to the Great Depression.

    Fannie Mae HomeReady® Mortgages allow down payments as low as 3% for low-income borrowers. Applicants generally need a credit score of at least 620; pricing may be better for credit scores of 680 and above. HomeReady loans allow flexibility for down payment financing, such as gifts and grants.

    For income limits, a comparison to an FHA loan, and other information, go to this Fannie Mae site .

    Fannie Mae Standard 97 LTV Loan

    The conventional 97 LTV loan is for first-time homebuyers of any income level who have a credit score of at least 620 and meet debt-to-income criteria. The 97% loan-to-value mortgage requires 3% down. Borrowers can get down payment and closing cost assistance from third-party sources.

    Department of Veterans Affairs (VA) Loans

    Active-duty members of the military, veterans, and some surviving spouses may apply for loans backed by the Department of Veterans Affairs. VA loans , to buy, build, or improve homes, have lower interest rates than most other mortgages and don’t require a down payment. Most borrowers pay a one-time funding fee that can be rolled into the mortgage.

    Native American Veteran Direct Loans (NADLs)

    Eligible Native American veterans and their spouses may use these no-down-payment loans to buy, improve, or build a home on federal trust land. Unlike the VA loans listed above, the Department of Veterans Affairs is the mortgage lender on NADLs. The VA requires no mortgage insurance, but it does charge a funding fee.

    U.S. Department of Agriculture (USDA) Loans

    No down payment is required on these loans to moderate-income borrowers that are guaranteed by the USDA in specified rural areas. Borrowers pay an upfront guarantee fee and an annual fee that serves as mortgage insurance.

    The USDA also directly issues loans to low- and very low-income people. For loan basics and income and property eligibility, head to this USDA site .

    HUD Good Neighbor Next Door Program

    This program helps police officers, firefighters, emergency medical technicians, and teachers qualify for mortgages in the areas they serve. Borrowers can receive 50% off a home in what HUD calls a “revitalization area.” They must live in the home for at least three years.

    HUD also offers general information on homeownership in Michigan .

    Michigan First-Time Homebuyer Stats for 2022

    The year started with buzz of bidding wars nationwide. But CoreLogic, a real estate research firm, named three Michigan metropolitan areas — Niles, Kalamazoo, and Muskegon — among 13 likely to have declining home values this year. The areas were close to overvalued, the data crunchers said.

    Then what’s hot? These five spots, according to Norada Real Estate Investments.

    •  Zeeland: In April 2022, Zeeland home prices had risen 48.9% compared with last year, for a median sales price of $350,000.

    •  Northview: In April 2022, Northview home prices were up 40.5% year-over-year, for a median selling price of $295,000.

    •  Grandville: Grandville home prices saw a 30.7% one-year increase by April 2022, for a median selling price of $346,000.

    •  Walker: Walker home prices rose 17.7% year-over-year to reach a median price of $305,000.

    •  Jenison: Home prices here rose 20.2% in a year, reaching a median sales price of $310,000.

    Financing Tips for First-Time Homebuyers

    Along with federal and state government-sponsored lending programs, there are other financial strategies that may help you become a homeowner. Some examples:

    •  Traditional IRA withdrawals. The IRS allows qualifying first-time homebuyers a one-time, penalty-free withdrawal of up to $10,000 from their IRA if the money is used to buy, build, or rebuild a home. The IRS considers anyone who has not owned a primary residence in the past three years a first-time homebuyer. You will still owe income tax on the IRA withdrawal. If you’re married and your spouse has an IRA, they may also make a penalty-free withdrawal of $10,000 to purchase a home. The downside, of course, is that large withdrawals may jeopardize your retirement savings.

    •  Roth IRA withdrawals. Because Roth IRA contributions are made with after-tax money, the IRS allows tax- and penalty-free withdrawals of contributions for any reason as long as you’ve held the account for five years. You may also withdraw up to $10,000 in earnings from your Roth IRA without paying taxes or penalties if you are a qualifying first-time homebuyer and you have had the account for five years. With accounts held for less than five years, homebuyers will pay income tax on earnings withdrawn.

    •  401(k) loans. If your employer allows borrowing from the 401(k) plan that it sponsors, you may consider taking a loan against the 401(k) account to help finance your home purchase. With most plans, you can borrow up to 50% of your 401(k) balance, up to $50,000, without incurring taxes or penalties. You pay interest on the loan, which is paid into your 401(k) account. You usually have to pay back the loan within five years, but if you’re using the money to buy a house, you may have up to 15 years to repay.

    •  State and local down payment assistance programs. Usually offered at the regional or county level, these programs provide flexible second mortgages for first-time buyers looking into how to afford a down payment.

    •  The mortgage credit certificate program. First-time homeowners and those who buy in targeted areas can claim a portion of their mortgage interest as a tax credit, up to $2,000. Any additional interest paid can still be used as an itemized deduction. To qualify for the credit, you must be a first-time homebuyer, live in the home, and meet income and purchase price requirements, which vary by state. If you refinance, the credit disappears, and if you sell the house before nine years, you may have to pay some of the tax credit back. There are fees associated with applying for and receiving the mortgage credit certificate that vary by state. Often the savings from the lifetime of the credit can outweigh these fees.

    •  Your employer. Your employer may offer access to lower-cost lenders and real estate agents in your area, as well as home buying education courses.

    •  Your lender. Always ask your lender about any first-time homebuyer grant or down payment assistance programs available from government, nonprofit, and community organizations in your area.

    The Takeaway

    First-time buyers may be able to get help with a mortgage and down payment from an active state of Michigan program as well as local initiatives. But conventional loans from private lenders also have advantages.

    Make your dream of being a homeowner come true with SoFi’s competitive mortgage rates and down payments as low as 3% for qualifying first-time homebuyers.

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    Should I take first-time homebuyer classes?

    Yes! Good information is key to a successful home buying experience for anyone, but especially for newcomers who can easily be overwhelmed by the jargon, technicalities and magnitude of applying for a mortgage and purchasing a home. First-time homebuyer classes can help. Indeed they are required for some federal and Michigan government-sponsored loan programs.

    Do first-time homebuyers with bad credit qualify for homeownership assistance?

    Often they do. Many government and nonprofit homeowner assistance programs are available to people with low credit scores, with interest rates and other loan pricing competitive with those of loans available to borrowers with higher credit scores. That said, almost any lending program has credit qualifications. That’s why it’s important to take all possible steps to improve your credit standing before you go house hunting.

    Is there a first-time homebuyer tax credit in Michigan?

    Yes. As explained above, homebuyers are allowed a credit for up to 20% of the mortgage interest they pay each year, up to $2,000 a year. Upfront fees apply, but the credit can be taken each year for the life of the loan. Unfortunately, borrowers who have loans from the Michigan State Housing Development Authority are not eligible for the tax credit.

    Is there a first-time veteran homebuyer assistance program in Michigan?

    Many of Michigan’s homebuyer programs include veteran benefits. Michigan veterans also may find options in the federal Department of Veterans Affairs and Native American Veteran Direct Loan programs described earlier.

    What credit score do I need for first-time homebuyer assistance in Michigan?

    Most programs administered by the Michigan State Housing Development Authority require a credit score of 640 or above. But there are other private, state, and federal loan programs that borrowers with lower scores may be able to access.

    What is the average age of first-time homebuyers in Michigan?

    There seems to be little data on first-time homebuyers in Michigan, but the typical age of first-time buyers nationally is 33, according to the National Association of Realtors®.

    Photo credit: iStock/Peeter Viisimaa
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