If you’re considering investing in a multi-family home in Michigan, understanding the Federal Housing Administration (FHA) loan requirements is crucial. FHA loans are a popular choice for many homebuyers due to their flexible qualification criteria and lower down payment options. Below, we outline the essential FHA loan requirements specific to multi-family homes in Michigan.

Property Eligibility

To qualify for an FHA loan, the multi-family property must meet specific criteria:

• The property must be a residential building with 2 to 4 units.
• At least one unit must be occupied by the borrower as their primary residence.
• The property must meet safety, security, and soundness standards set by the FHA.
• The property should have proper zoning and be legally designated for residential use.

Credit Score Requirements

FHA loans have more lenient credit score requirements compared to conventional loans. For multi-family homes in Michigan, the minimum credit score required is:

• 580: Borrowers with a credit score of 580 or higher may qualify for a down payment of only 3.5%.
• 500-579: Borrowers with this score may still qualify, but will need to make a larger down payment of at least 10%.

Debt-to-Income Ratio

The FHA also evaluates a borrower’s debt-to-income (DTI) ratio, which is a measure of the borrower’s monthly debt payments compared to their gross monthly income. For multi-family loans, the standard DTI ratio is:

• Generally, the FHA prefers a DTI ratio of 31% for housing expenses and 43% for total debts.
• In some cases, borrowers may be approved with higher DTI ratios, depending on additional compensating factors such as significant cash reserves or a higher credit score.

Down Payment Requirements

As mentioned earlier, the down payment for an FHA loan can be as low as 3.5% if the borrower has a credit score of at least 580. This is a significant advantage for those looking to invest in multi-family properties in Michigan:

• On a $300,000 multi-family property, a 3.5% down payment would amount to $10,500.
• For a lower credit score (500-579), a 10% down payment on the same property would be $30,000.

Mortgage Insurance Premiums (MIP)

All FHA loans require mortgage insurance, which protects lenders in case of default. For multi-family homes, this translates to:

• An upfront mortgage insurance premium (UFMIP) of 1.75% of the loan amount, which can be rolled into the mortgage.
• A monthly mortgage insurance premium (MIP), which varies based on the loan term and size but typically ranges from 0.45% to 1.05% per year.

Financial Documentation

When applying for an FHA loan for a multi-family home, you will need to provide financial documentation, including:

• Proof of income, such as pay stubs, tax returns, and W-2 forms.
• Bank statements and asset documentation to verify your financial standing.
• A detailed list of debts, including monthly payments to be used in calculating your DTI.

Conclusion

FHA loans can be a viable and attractive financing option for purchasing multi-family homes in Michigan. By meeting the specific requirements outlined above, you can take advantage of lower down payments and flexible credit criteria. Be sure to consult with FHA-approved lenders to best navigate the loan process and ensure compliance with all regulations.