Michigan 203(k) Loans

What are Michigan 203(k) loans

Michigan 203(k) loans are mortgages that are insured by the federal government through the FHA (Federal Housing Administration). These loans provide financing for both the purchase (or refinance) and renovation of a home. The financing is rolled into a single loan. There are two types of 203(k) loans: the Standard 203(k) loan and the Limited 203(k) loan, also refer to as the Streamline 203(k) loan. Depending on the type of loan, there are different guidelines, qualifications, requirements, and restrictions.

The actual mortages are provided via a Michigan licensed lender. You can search for Michigan lenders above.

Check out FHA Standard 203(k) loan vs Streamline 203(k) loan to learn about the two different types of Michigan 203(k) loans.

What’s the benefit of a Michigan 203(k) loan?

• Low down payment (You just have to put 3.5% down if your credit score is above 580. Some Michigan lenders will lend to those with a credit score between 500 and 579. In those cases, you have to put down 10%.)
• Renovate your home as you’d like without dipping into other resources
• One single loan for both the mortgage and renovation

What are the disadvantages of a Michigan 203(k) loan?

• FHA mortgage insurance required for the entire duration of the loans
• Loan amount cannot exceed the limit amount for the area the property is in
• Renovations must be completed within 6 months after closing
• Strict approval process that could prolong purchase
• Property must meet strict health and safety standards

How do you get Michigan 203(k) loans

There are typically more steps involved in getting a Michigan 203(k) loan than a traditional mortgage or refinance loan.

1. Find an eligible property that you want to purchase and renovate
2. Reach out to a Michigan licensed lender that provides 203(k) loans and get pre-approved by the lender (we list licensed lenders by state in our table)
3. Create a sales agreement with 203(k) contingencies (e.g. contract is contingent on 203(k) mortgage approval) and make an offer on the property
4. If you’re getting a Standard 203(k) mortgage, select a certified 203(k) Consultant who’ll complete an inspection, provide estimates, and determine what fixes are needed with you
5. Find a licensed contractor to draw up cost estimates for the renovations
6. The lender will the get an appraisal with both the current value of the property, and the future value of the home after renovations
7. Obtain final loan approval from the lender
8. Once approved, a portion of the loan proceeds is used to pay the seller, or, if a refinance, to pay off the existing mortgage, and the remaining funds are placed in an escrow account and released as work is completed
9. The contractor starts the construction work, which must be completed within 6 months of closing and inspections will take place throughout the construction period
10. Once all work is completed and conditions are met after a final inspection, the funds are disbursed to you and all liens on the home are release

Note: You may do all of the work yourself and not hire a contractor, but additional documentation may be required for that.

How much can you borrow?

The FHA has limits on how much you can borrow based on the area of the property. Generally, for the year 2020, the limit is $331,760 for a one-family unit to $638,100 for a four-family unit in an area with lower median home sale price and $765,600 for a one-family unit to $1,472,550 for a four-family unit in an area with a higher median home sale price. You can find the limit for Michigan 203(k) loans here.

What’s required to qualify for a Michigan 203(k) loan?

To qualify for Michigan 203(k) loan, you must have the following requirements:

• Minimum credit score of 500
• Minimum of 3.5% for down payment if your credit score is 580 or higher
• Minimum of 10% for down payment if your credit score is between 500 and 579
• Debt-to-income ratio (DTI) of under 50 (i.e. your total debt must be under 50% of your pre-tax income, including debt you’re not actively paying)
• Valid Social Security number
• Proof of U.S. citizenship, legal permanent residency, or eligibility to work in the U.S.
• Bank statements for at least the last 30 days.
• Documentation for any deposits made during that time (usually pay stubs)