Are you a resident of Michigan in search of a new home or interested in moving to the Great Lakes state?
Either way, there’s a good chance you’re searching for a loan to pay for it.
Conventional mortgage loans are one of the most popular loan products among homebuyers. It could be the perfect loan for you if you’re looking to settle down in Michigan.
If you’re ready to buy in the Midwest state, keep reading to learn more about securing a conventional mortgage in Michigan.
What is a conventional mortgage loan?
In simple terms, a conventional mortgage is a conforming loan, meaning that it meets Fannie Mae or Freddie Mac requirements.
These two organizations are government-sponsored enterprises but the conventional loan isn’t a government-backed product such as an FHA or VA loan.
They’re instead backed by private investors, which helps lenders qualify more borrowers.
What are the requirements of a conventional loan?
Conventional loans have strict credit requirements, but that shouldn’t stop you from applying. Many homebuyers find that they’re eligible for this type of loan, despite its strict requirements.
The down payment required varies based on factors such as the type of property you’re buying, the type of loan, and your personal financial circumstances. Let’s look at some requirements for a conventional down payment:
- Qualified borrowers may be able to put as little as 3% down
- Repeat homebuyers have a minimum down payment requirement of 5%
- Buyers who earn 80% (or less) of the area’s median income have a 5% down payment requirement
- Conventional down payment required on a second home is 10%
- Conventional down payment on a property that’s not a single-family home is 15%
Remember, you always have the opportunity to put down more than the minimum requirement. The larger your down payment, the more equity you start out with.
Use a mortgage payment calculator to calculate the impact of a down payment on your monthly payment.
Private mortgage insurance
Many homebuyers find it beneficial to put down less than 20%, as it allows them to purchase a property when they otherwise may not have been able to.
However, a down payment of less than 20% triggers the need to purchase private mortgage insurance (PMI). The lender requires this as protection if you default on your loan.
The cost of PMI is based on factors such as:
- Credit score
- Loan type
- Down payment
- The amount of money you’re borrowing
While nobody wants to pay PMI, there are some benefits.
For example, you can combine it with your monthly payment, making it more convenient to manage. Additionally, once you reach 20% equity in your home, you can contact your lender to request it to be removed.
To qualify for a conventional mortgage in Michigan, requirements include:
- Credit score of 620 or higher
- Loan doesn’t exceed the conforming limit of $647,200 (for 2022)
- Debt-to-income ratio (DTI) of 50% or less
If you’re struggling to meet any of these requirements at the present time, you can work to improve in the applicable area before applying.Check your mortgage options
The pros and cons of a conventional mortgage
Generally speaking, there are more pros than cons associated with a conventional mortgage.
However, it always makes sense to compare the good and the bad to ensure that you’re getting the best loan for your situation.
- You can qualify with a down payment as small as 3%
- Various mortgage types — such as adjustable and fixed-rate — and terms to choose from. Use our loan comparison calculator to compare your options.
- Jumbo loans are available if you meet additional loan requirements
- Strict requirements for DTI and credit
- A bankruptcy or foreclosure on your credit report can make it difficult to qualify
- PMI is required without a 20% down payment
If you’re concerned about one or more of these drawbacks, talk to your lender about other loan types available.
What types of documentation do you need?
Collecting the proper documentation upfront allows you to easily apply for and hopefully qualify for a conventional mortgage. Required documents will vary by lender but generally include:
- Tax returns for the last two (or more) years
- Proof of income, such as pay stubs and W-2s
- Bank statements
- Photo identification, such as a driver’s license
- Rental history (unless you currently own your home)
Even if you think you have all the necessary documentation, there’s always a chance that your lender will request something else.
Work with them to provide it as quickly as possible. You don’t want to do anything that holds back the process.
Things to know about the Michigan housing market
According to Redfin, home prices in Michigan started to fall in December 2022 by .57%. Additionally, the number of homes sold fell by nearly 30%, with the available homes for sale increasing by 3.8%.
In other words, it’s quickly becoming a buyer’s market. Inventory is increasing while demand is starting to slow, allowing for more negotiating room for buyers.
The median home price in Michigan as of December 2022 was $215,100. If you’re purchasing a home in this general price range, you don’t have to worry about the conventional loan borrowing limit of $647,200.
The 10 metro areas in Michigan with the fastest growing sales price include:
- Spring Lake
- Swartz Creek
- Dearborn Heights
- Madison Heights
Apply today for a conventional mortgage loan in Michigan
Are you interested in learning more about applying for a conventional mortgage?
At AAA Banking, we’re available to answer your questions, provide feedback, and walk you through the application process.
For those who are still searching for their dream home, our partnership with HomeScout is sure to help. Use the service to find and compare homes, connect with real estate professionals, and more.
Contact us via phone at (844) 897-2265 M-F, 8-8:00 pm EST to speak with one of our experienced mortgage professionals.