Purchasing a home in Michigan can save you a substantial sum of money compared to the average American homebuyer. As of July, the state’s average sales price of $273,661 was significantly lower than the nationwide average of $520,500.
Keep in mind that those are just averages, and home prices can change drastically based on location. For example, the Emmett Association of Realtors, at the northern end of the lower peninsula, reported an average sales price of $552,945 for the month of July, while the Detroit Board of Realtors reported an average of $118,798.
Regardless of where you decide to buy a home, you might be able to afford more than you think. Choosing the right mortgage loan or taking advantage of available down payment and closing cost assistance programs can help you make the most of your budget.
What Are Today’s Mortgage Rates in Michigan?
For Wednesday, February 01, 2023, here are the current mortgage rates in Michigan. The average 30-year fixed mortgage rate is 6.430%. The average 30-year fixed mortgage refinance rate is 6.470%. Today, the average 15-year fixed mortgage rate is 5.720%.
Looking at variable rate loans, the average 5/1 adjustable-rate mortgage (ARM) rate is 5.630%.
This information is from Bankrate’s latest survey of the nation’s largest mortgage lenders.
Current Mortgage Rates in Michigan
How Much of a Mortgage Do You Need to Buy a Home in Michigan
The amount you’ll need for a down payment is largely determined by the type of loan you choose. Some mortgages, such as VA loans, may not require any down payment at all, while other types of home loans may require as much as 20%.
Conventional loans allow for as little as 3% for a down payment, although 20% is needed to avoid the added monthly expense of private mortgage insurance. FHA loans require a slightly larger down payment of 3.5%, but can be a good option if you can’t get approved for a conventional loan.
If you have enough cash, you could opt for a larger down payment to reduce your monthly payments. However, you’ll need to consider your personal circumstances and goals to determine if you’re comfortable with parting with that cash in exchange for a lower mortgage payment.
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Types of Home Loans Available in Michigan
It’s important to weigh the benefits and drawbacks of various lenders and loan programs to ensure you are making the best financial decision, says Dina Maeweather, a Realtor at Keller Williams. “While many buyers believe that shopping for the lowest possible interest rate is the best way to shop for a mortgage loan, the type and terms of the loan you select can often save you the most money.”
Common loans available in Michigan include conventional loans, FHA loans, and VA loans. In addition to having a combination of different rates and fees, you may also be able to choose the length of your loan and whether you want a fixed or adjustable rate mortgage, so it’s a good idea to consider multiple mortgage lenders before making any final decisions.
Conventional loans are a popular choice for many borrowers, as these types of mortgages can offer highly competitive interest rates. It’s possible to qualify with just a 3% down payment, a credit score of at least 620, and a debt-to-income ratio below 45%. However, many lenders utilize an automated system to evaluate your loan as a whole, so it is possible that you may not qualify even if you meet those requirements.
While conventional loans can require just a 3% down payment, 20% is needed if you want to avoid the added monthly expense of private mortgage insurance (PMI). However, if you’re not able to come up with a 20% down payment up front, know that you can ask your lender to get rid of PMI at a later date, once you have 20% equity in the home.
If you don’t qualify for a conventional loan, consider looking into an FHA loan. FHA loans are insured by the Federal Housing Administration and offer more flexibility on things like credit score and debt-to-income requirements. If you can come up with a 3.5% down payment, you can qualify with a credit score of 580. But with a 10% down payment, you can qualify for an FHA loan with a credit score as low as 500.
If you’re considering an FHA loan because of issues qualifying for a conventional mortgage, be aware that these types of loans can be more expensive. FHA loans require upfront mortgage insurance in addition to monthly mortgage insurance premiums, and removing mortgage insurance from an FHA loan can be more difficult than removing it on a conventional loan.
Insured by the Department of Veterans Affairs, VA loans are typically only available to borrowers with qualifying military service. However, those who are eligible can use a VA loan to get into a home with no down payment and no requirement for monthly mortgage insurance.
When it comes to qualifying for a VA loan, lenders can each have their own unique requirements with regards to things like debt-to-income ratio and credit scores. So if you are turned down for a VA loan, it’s worth trying another lender that might have more flexible criteria.
First-Time Homebuyer Programs in Michigan
In deciding how much house you can afford, don’t forget to look into first-time homebuyer programs. Several of these programs exist for the state of Michigan, and can provide you with funds needed to cover down payment requirements or closing costs.
- MI Home Loan: Offered by the MI State Housing Development Authority (MSHDA), first-time homebuyers and repeat homebuyers can work with a participating lender to take advantage of this program. A minimum credit score of 640 is required, and household income limits apply based on family size and property location.
- MI DPA Loan: The MSHDA also provides programs offering down payment assistance up to $10,000. Borrowers must take an approved Housing Education Class to be eligible.
- Homebuyer Assistance Fund: Available for those located in Grand Rapids, the Homebuyer Assistance Fund provides up to $7,500 to cover down payment requirements, closing costs, and prepaid expenses. You must meet income and asset limits, have not owned a home in the last three years, and agree to occupy the property for at least five years.
- Mortgage Credit Certificate: A mortgage credit certificate (MCC) can offer a federal tax credit, minimizing your total out-of-pocket expenses. Household income limits do apply, but if eligible, you can get a credit of 20% of your annual mortgage interest paid against your year-end tax liability.
First-time homebuyer assistance programs can help keep more money in your pocket by covering closing costs, down payment requirements, and even reducing your year-end tax liability.