Financing
Home financing, without the financial jargon.
Mortgages aren't complicated because you're missing something — they're complicated because nobody explains the terms in order. Let's fix that.
What a mortgage actually is
A mortgage is simply a loan used to buy a home, where the home itself is the collateral. Your monthly payment is usually made up of four parts, often bundled together and referred to by the acronym PITI: principal, interest, taxes, and insurance. Understanding each piece makes the whole payment make sense.
Mortgage terms, translated
The actual amount you borrowed, not counting interest. Every payment chips away at this.
What the lender charges you for borrowing the money, expressed as a percentage rate.
Property taxes billed by your local government, often collected monthly through escrow and paid on your behalf.
Homeowners insurance protecting the home (and often required by your lender), usually collected through escrow too.
An account your lender uses to collect and pay your property taxes and insurance for you, so you're not hit with one huge bill.
Insurance that protects the lender — not you — usually required on conventional loans when you put down less than 20%. It can typically be removed once you build enough equity.
Your interest rate is the cost of borrowing the principal. APR bundles in certain fees and costs too, giving you a fuller (though not perfect) picture of the loan's overall cost.
How many years you have to repay the loan — commonly 30 or 15 years. A shorter term usually means a higher monthly payment but less interest paid overall.
Fees paid at closing beyond your down payment — things like lender fees, title fees, recording fees, and prepaid items.
The total amount of money you actually need on closing day — your down payment plus closing costs, minus any credits or earnest money already paid.
The portion of the home price you pay upfront, in cash, rather than financing through the loan.
Pre-qualification is a quick, informal estimate. Pre-approval means a lender has actually verified your income, assets, and credit — it carries much more weight with sellers.
The process where a lender's underwriter reviews your full financial picture and the property to make a final lending decision.
An agreement with your lender to hold a specific interest rate for a set period of time while your loan is processed, protecting you from rate increases during that window.
Money a seller agrees to contribute toward your closing costs, negotiated as part of your offer — subject to loan program limits.
Money given to you (often by family) to help with your down payment or closing costs. Lenders have specific documentation rules for gift funds, so ask early.
An optional upfront fee you can pay to reduce your interest rate — sometimes called 'buying down' your rate. Whether it's worth it depends on how long you plan to stay in the home.
None of this is a rate quote
Loan types, and who they may fit
This is general education, not a promise that you'll qualify for any specific program. A licensed lender can confirm what you actually qualify for.
Conventional loan
Buyers with steady credit and at least a small down payment saved who don't need a government-backed program.
A conventional loan isn't insured or guaranteed by a government agency — it follows guidelines set by Fannie Mae and Freddie Mac, and most lenders offer it. It's often flexible on property type, and if you eventually put down 20% or reach enough equity, monthly mortgage insurance can go away entirely.
Typical down payment: As low as 3% for many first-time buyers, though the exact minimum depends on the lender and your finances.
Key points
- Available from nearly every bank, credit union, and mortgage lender.
- Can be used for primary homes, second homes, and investment properties.
- Private mortgage insurance (PMI) usually applies below 20% down, but can typically be removed later.
- Often has stricter credit and debt-to-income requirements than government-backed loans.
Worth considering
- Buyers with lower credit scores may qualify for a smaller loan amount or a higher rate compared to an FHA loan.
- Down payment and closing cost gift rules vary by lender — ask early.
FHA loan
First-time buyers with limited savings or a shorter or imperfect credit history.
FHA loans are insured by the Federal Housing Administration, which means the government protects the lender if a borrower doesn't repay the loan. That protection lets FHA lenders approve buyers with lower credit scores and smaller down payments than many conventional programs allow.
Typical down payment: As low as 3.5% for borrowers who meet FHA's credit requirements — confirm current minimums with a lender.
Key points
- Generally more flexible credit score requirements than conventional loans.
- Requires both an upfront and an ongoing mortgage insurance premium (MIP), which — unlike conventional PMI — often lasts for the life of the loan unless you refinance.
- The home must meet FHA minimum property standards, confirmed through an FHA appraisal.
- Loan limits vary by county and are set annually — ask your lender for the current limit in your area.
Worth considering
- Mortgage insurance costs can make FHA more expensive over the long run than a conventional loan, even with a lower rate.
- Some sellers weigh offers with different financing types differently — your agent can help you understand how that plays out in a given market.
VA loan
Eligible active-duty service members, veterans, and some surviving spouses.
VA loans are guaranteed by the U.S. Department of Veterans Affairs and are one of the few loan types that can allow qualified, eligible borrowers to buy a home with no down payment at all. Eligibility is based on service history, and you'll need a Certificate of Eligibility (COE) to confirm it.
Typical down payment: Can be 0% for eligible, qualified borrowers.
Key points
- No down payment required for many eligible borrowers.
- No ongoing monthly mortgage insurance (though a VA funding fee usually applies, with some exemptions).
- The home must meet VA minimum property requirements.
- Can typically be reused for future home purchases.
Worth considering
- Eligibility requirements are specific — confirm your status and request your COE through the VA before assuming eligibility.
- Not every lender processes VA loans the same way; some have more VA experience than others.
USDA loan
Buyers purchasing in eligible rural and some suburban areas who meet household income limits.
USDA loans are backed by the U.S. Department of Agriculture to support homeownership in eligible rural and certain suburban areas. Many parts of Michigan outside dense metro areas qualify — USDA's address lookup tool is the only reliable way to confirm a specific property.
Typical down payment: Can be 0% for eligible borrowers in eligible areas.
Key points
- No down payment required for many eligible borrowers.
- Household income must fall under program limits, which vary by location and household size.
- Property must be in a USDA-eligible area — this changes periodically, so always check the current map.
- Includes an upfront and ongoing guarantee fee, generally lower than FHA mortgage insurance.
Worth considering
- Not available in every Michigan city or suburb — eligibility is address-specific.
- Income limits can disqualify higher-earning households even in an eligible area.
Michigan first-time homebuyer programs
These programs are administered by outside agencies, and the details below change periodically. Always confirm current terms directly with the program administrator or your lender before relying on them.
Program details need periodic verification
MI Home Loan
Michigan State Housing Development Authority (MSHDA)
A 30-year, fixed-rate first mortgage offered through MSHDA-participating lenders statewide, for income-eligible buyers — often paired with the MI 10K DPA Loan below.
Who it may be for
- First-time homebuyers statewide (defined by MSHDA as not having owned a home in the previous three years)
- Repeat homebuyers purchasing in a designated targeted area
- Buyers who meet MSHDA's current income limit for their household size and county
- Program type
- 30-year fixed-rate first mortgage
- Minimum credit score
- 640, per MSHDA's current published guidelines
- Purchase price limit
- $566,355 statewide, effective June 1, 2026
- Income limits
- Vary by household size and county — MSHDA publishes the current table rather than one statewide number; check your county before assuming you do or don't qualify
- Can be paired with
- The MI 10K DPA Loan (see below)
Last verified: 2026-09-30
View official program page ↗MI 10K DPA Loan
Michigan State Housing Development Authority (MSHDA)
Up to $10,000 in interest-free, deferred down payment and closing cost assistance, available statewide alongside an MI Home Loan.
Who it may be for
- Buyers using an MI Home Loan who need help covering down payment, closing costs, or prepaid expenses
- Buyers willing to complete a required homebuyer education course
- Assistance amount
- Up to $10,000 toward down payment, closing costs, and prepaid expenses
- Repayment structure
- Interest-free and non-amortizing (no monthly payments). Deferred until you sell, refinance, pay off the first mortgage, or no longer live in the home as your primary residence
- Requirement
- Must be paired with an MI Home Loan; homebuyer education certificate required
Last verified: 2026-09-30
View official program page ↗Mortgage Credit Certificate (MCC)
Michigan State Housing Development Authority (MSHDA)
A federal tax credit equal to 20% of the mortgage interest you pay each year, claimed as a dollar-for-dollar reduction in your federal tax liability for the life of the loan.
Who it may be for
- First-time buyers statewide (3-year non-ownership rule applies in most cases)
- Repeat buyers purchasing in a designated targeted area
- Buyers who apply and are approved for an MCC before closing — it cannot be added after the fact
- Benefit type
- Annual federal tax credit, not a cash grant
- Credit rate
- 20% of annual mortgage interest paid, credited dollar-for-dollar against federal tax liability
- Duration
- Every year for the life of the original mortgage, up to 30 years
- Purchase price limit
- $544,233 statewide, effective May 1, 2025 (confirm current figure — MSHDA updates this periodically)
- Timing
- Must be applied for and approved through an MCC-approved lender before you buy — not retroactive
Last verified: 2026-09-30
View official program page ↗Mortgage payment calculator
Plug in some numbers to see an estimated monthly payment. This is educational only — not a loan offer or guarantee of terms.
3.5% of home price
Use a current rate from your lender — this is not a rate quote
Only applies if your down payment is under 20%
Estimated monthly payment
$2,214/mo
- Principal & interest
- $1,677
- Property taxes
- $300
- Homeowners insurance
- $117
- PMI / other
- $120
This is an educational estimate only, not a loan offer, quote, or guarantee of terms. Actual payments depend on your lender, credit profile, loan program, and current rates. Loan amount shown: $265,375.
How much cash might I need?
Beyond your down payment, most buyers need cash for closing costs, an inspection, and prepaid expenses. Here's a rough, educational range to help you plan.
Try 0% (VA/USDA-eligible), 3–3.5% (conventional/FHA), or 20%.
Educational estimate range
$16,800 – $28,150
- Down payment
- $9,625
- Estimated closing costs
- $5,500 – $13,750
- Home inspection
- $300 – $650
- Prepaid taxes/insurance
- $1,375 – $4,125
- Suggested emergency reserve*
- $1,000 – $5,000
*A reserve isn't cash you bring to closing — it's money we'd suggest keeping available afterward, separate from your down payment and closing funds. These are broad, educational estimates only, not a quote, loan estimate, or guarantee. Your lender's Loan Estimate will show your actual costs.
Financing questions, answered
There isn't one universal number — required credit scores vary by loan type and lender. FHA loans generally allow lower credit scores than many conventional programs, but the exact minimums are set by individual lenders and can change. Ask a lender directly about your specific situation.
It depends on the loan type. Some conventional loans allow as little as 3% down, FHA loans often allow 3.5%, and VA or USDA loans may allow 0% down for eligible borrowers. Beyond the down payment, you'll also want to budget for closing costs and reserves — see our 'How Much Cash Might I Need?' calculator for an educational estimate.
Pre-qualification is typically a quick, informal estimate based on information you self-report. Pre-approval involves the lender actually verifying your income, assets, and credit, which results in a more reliable figure and a formal pre-approval letter you can use when making offers.
Many are, but not all — some programs use a broader definition of 'first-time buyer' that includes people who haven't owned a home in the past three years, and some programs are also open to repeat buyers in specific areas. Always check the current eligibility rules on the official program page.
Ready when you are
Ready to see what this looks like with your actual numbers?
A Michigan lender and a first-time buyer specialist agent can turn these estimates into a real plan.