What is an FHA loan?
An FHA loan is a mortgage insured by the Federal Housing Administration. The loan itself is made by a private lender (a bank, credit union, or mortgage broker like Rapid Home Loans), but the FHA's insurance lets lenders accept lower credit scores and smaller down payments than they'd otherwise allow.
FHA loans are popular with first-time buyers and borrowers whose credit or savings don't yet support a conventional loan. About 1 in 5 home purchases in the U.S. uses an FHA loan.
FHA loan limits in Michigan
FHA loan limits are set by HUD each year and vary by county. The "floor" applies to low-cost areas; the "ceiling" applies to high-cost areas like California and DC. Every county in Michigan is at the FHA floor, including Wayne, Oakland, Macomb, Washtenaw, and Genesee.
Current limits (1-unit property):
- Wayne County (Dearborn, Detroit): approximately $524,225
- Oakland County: approximately $524,225
- Macomb County: approximately $524,225
- Washtenaw County (Ann Arbor): approximately $524,225
- Genesee County (Flint): approximately $524,225
Multi-unit properties (2-, 3-, and 4-unit) have higher limits. Limits update annually each year — call us for the current figure in your specific county.
FHA loan eligibility
Credit score
- 580+: qualify for the standard 3.5% down option
- 500–579: qualify for FHA but must put 10% down
- Below 500: not eligible
Most FHA wholesale lenders apply "overlays" — additional minimums above FHA's floor — so the practical minimum is usually 580–620 depending on the lender. We work with multiple FHA wholesale lenders, so we can usually find a path for borrowers in the 580–600 range.
Down payment
3.5% of the purchase price minimum with 580+ credit. Sources can include personal savings, a gift from family, or down payment assistance programs like the MSHDA $10,000 DPA. Combined with MSHDA, an FHA purchase in Michigan can be a near-zero-out-of-pocket transaction.
Debt-to-income (DTI)
FHA allows higher DTI than conventional — typically up to 50% total back-end ratio (sometimes higher with compensating factors). That means you can qualify with more existing debt than a conventional loan would allow.
Property type
Owner-occupied primary residences only. Single-family homes, condos (project must be FHA-approved), 2-4 unit properties (you must occupy one unit), and approved manufactured homes.
Employment and income
Two-year employment history, with steady or increasing income. Self-employed borrowers need two years of tax returns. Gaps in employment can be explained but require documentation.
FHA mortgage insurance (MIP) explained
FHA loans have two MIP charges:
Upfront MIP (UFMIP)
1.75% of the loan amount, charged at closing. On a $200,000 loan that's $3,500. Almost always financed into the loan rather than paid in cash.
Annual MIP
0.55% of the loan balance per year for most FHA loans, paid in monthly installments along with your mortgage. On a $200,000 loan that's roughly $92/month.
Can I get rid of FHA MIP?
For loans originated after June 2013 with less than 10% down, MIP stays for the life of the loan. The standard exit is to refinance into a conventional loan once you have 20% equity. Conventional loans cancel PMI automatically at 78% loan-to-value.
FHA vs Conventional: side-by-side
| FHA | Conventional | |
|---|---|---|
| Minimum credit score | 580 (3.5% down) | 620 (typical) |
| Minimum down payment | 3.5% | 3% (first-time buyer) or 5% |
| Mortgage insurance | UFMIP + monthly MIP for life of loan | PMI cancellable at 80% LTV |
| Max DTI | ~50% (sometimes higher) | ~45% (rarely 50%) |
| Loan limit (Wayne County) | ~$524,225 | $806,500 (2026) |
| Property type | Owner-occupied only | Owner, second home, investment |
| Best for | Lower credit, lower down payment | Stronger credit, want to drop PMI later |
Rule of thumb: if your credit is 720+ and you can put 5%+ down, conventional usually wins on total cost. If your credit is 580–680 or your down payment is tight, FHA is the better path. We'll run both quotes side by side.
The FHA loan process
- Pre-approval (1 day). We pull credit, verify income, and issue a pre-approval letter.
- Find your home. The home must pass an FHA appraisal — FHA standards are stricter on safety, structural integrity, and habitability than conventional appraisals.
- Offer accepted. Lock the rate or float.
- FHA appraisal. An FHA-approved appraiser inspects the property. Repairs may be required before closing if the appraiser flags safety issues (peeling paint on pre-1978 homes, exposed wiring, missing handrails).
- Underwriting (2–4 weeks). Income, asset, and credit verification.
- Closing. Sign documents, receive keys.
Common FHA pitfalls
- Appraisal repairs. FHA appraisals are stricter than conventional. Older homes in Detroit, Dearborn, and metro areas sometimes need pre-closing repairs (peeling paint, broken windows, handrails) — budget time and money for these.
- Condo eligibility. Not every condo project is FHA-approved. Verify on HUD's website before writing an offer.
- MIP over the long run. If you'll keep the loan more than 5–7 years, the lifetime MIP cost can exceed conventional PMI costs. Plan to refinance to conventional once you have equity.
- Investment properties not eligible. FHA is for primary residences only. If you want to buy a rental, you need a conventional or DSCR loan instead.
Frequently asked questions
Can I have two FHA loans at once?
Generally no — FHA is owner-occupied only. Exceptions exist for relocations, family size changes, and certain hardship cases.
Does FHA require a higher rate than conventional?
FHA rates are often slightly lower than conventional rates, but the MIP makes the all-in monthly cost higher than a conventional loan with PMI for borrowers with strong credit. We'll show you both numbers.
Can the seller pay my closing costs on an FHA loan?
Yes. FHA allows up to 6% of the sales price in seller concessions toward closing costs and prepaids. This is a powerful tool to lower your out-of-pocket cash.
Are FHA loans only for first-time buyers?
No. Anyone meeting the credit, income, and property-use requirements can use an FHA loan. It's most popular with first-time buyers because of the lower down payment and credit threshold, but repeat buyers use it too.
Can I use FHA to buy a 2-unit or 4-unit property?
Yes, as long as you live in one of the units. This is a powerful "house hacking" path: buy a duplex with 3.5% down, live in one unit, rent the other, and the rental income can help you qualify.
See if you qualify for an FHA loan
Free pre-approval, ~15 minutes, no commitment. We'll tell you exactly what your monthly payment would be including MIP and taxes — not just principal and interest.
