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Everything You Need to Know About Michigan Refinance Programs

For the purpose of this guide, we will break down the available Michigan refinance programs into 5 categories; Conventional, FHA, USDA Rural Development (RD) Loans, VA, & Renovation Loans.

Each category will cover the following requirements; maximum loan to value(LTV), private mortgage insurance requirements(PMI), minimum credit required, and debt ratio. There are additional requirements but these are the main ones.

This information can be a little dry and can be easily explained in a quick phone call. If you don’t feel like reading the information provided you can always call us at (248) 674-6450.

Conventional Refinancing in Michigan

Conventional financing is not insured by the federal government like FHA, USDA or VA. This means that if you don’t have at least 20% in equity, you will be required to pay for Private Mortgage Insurance. PMI is a fee that is paid by the borrower to insure the lenders risk of that borrower defaulting.

Conventional financing also offers some of the best options including a low rate and lower PMI that cancels when you reach 78% LTV. This can provide you with a lower payment as well as the least amount of resistance during the process.

Conventional Financing Requirements

LTV

The maximum LTV for a standard Conventional rate and term refinance in Michigan is 95%. However, LTV can exceed 150% if it is owned by Fannie Mae or Freddie Mac and qualifies for the Home Affordable Refinance Programs. To learn more about a HARP call us at (248) 674-6450

The maximum LTV for a cash-out Conventional refinance is 80%. However, if the LTV exceeds 80% it will require monthly PMI

PMI

Conventional financing requires that you pay PMI on a monthly basis if you have less than 20% equity. The PMI payment will be determined by your LTV, the term and your credit. It’s calculated based on a small percentage of your mortgage, usually between 0.27 and 1.1%, divided by twelve.

Example

You’re home is valued at $150,000 and you refi for $142,500 which puts us at 95% LTV. We’ll assume the PMI is 0.67% which would give us the following PMI Calculation;

PMI = $142,500 x 0.67% = $954.75 / 12 = $79.56 per month

You won’t know your PMI percentage until you get pre-approved. As stated earlier, it will be based on your credit, your LTV, and the term. The monthly PMI will automatically cancel when you pay your home down to 78% of the original amount.

Credit

The minimum credit score for Conventional is 660 but can sometimes go lower with compensating factors such as low LTV, large cash reserves, or a low debt ratio.

Debt Ratio

In Michigan the maximum debt ratio for a Conventional is 45% with no exceptions.

The Michigan FHA Refinance Programs

An FHA refinance is a refi that gets backed by Federal Housing Administration mortgage insurance. If you refi an existing FHA it is called an FHA Streamline refinance and requires less paperwork and no appraisal. FHA insured mortgages are a type of federal assistance and have historically allowed lower income Americans with marginal credit to refi.

FHA also has restrictions on the total amount you can borrow. These maximum amounts are based on area specific census data including median household income. Most of Michigan has a max loan amount of $271,050 but some areas are lower.

In order to qualify for a Michigan FHA refi, you will be required to pay an upfront mortgage insurance premium(MIP) as well as month to month MIP. We’ll break down the math for the FHA MIP below.

FHA Refi Requirements

LTV

The maximum LTV for an FHA refi is 97.5%. Unlike conventional, you can cash-out up to 85% LTV with an FHA refi. However, if you’re just looking to complete a rate and term refi on an existing FHA, you can do a Streamline without an appraisal in most cases.

MIP

As stated above, the FHA MIP is charged both up front and on a monthly basis. The upfront MIP is 1.75% of the loan amount and it gets financed into the mortgage. The monthly MIP is 0.85% of the loan amount divided by twelve.

Example

You’re refinancing a home valued at $150,000 and you need a refinance for $144,750.

First we have to determine the upfront FHA MIP which is 1.75% of $144,750, or $2,533. This $2,533 will be financed making the total amount $147,283 ($144,750 + $2,533).

Next we have to determine your Monthly MIP at 0.85% of the refi amount using the calculation below;

MIP = $144,750 x 0.85% = $1,230.36 / 12 = $102.53 per month

FHA Monthly MIP is paid for the entire term and does not cancel like conventional PMI.

Credit

The minimum score for FHA is 600 but it would require a manual underwrite which can be harder to get approved. However, anything under a 640 score will require a verification of 12 months home payment history. If you have low credit we can help you, just call Michigan Mortgage solutions at (248) 674-6450.

Debt Ratio

In Michigan the maximum debt ratio for an FHA is 45% but it can go higher if there are compensating factors such as a really good credit or a large amount of assets.

USDA Rural Development Refinance Programs

A USDA Rural Development Refinance is a refi of an existing USDA home loan backed by the United States Department of Agriculture. There are 3 Home Refinance Options for the USDA, the Standard, the Streamline, and the Pilot. In order to complete any of the 3 RD refi options you must first have your existing home financed with the USDA. All Michigan RD Refinances require an upfront and monthly MIP. We’ll break down the math to determine the RD MIP below.

USDA also has income restrictions based on what Michigan city you’re home is located as well as how many people are in your household. One important factor to keep in mind when considering the USDA RD Refi is that it’s only available those that have existing USDA RD financing.

USDA Refi Requirements

LTV

For the Streamline and Pilot refi options there is no appraisal required so LTV is irrelevant. If you go with the Standard refinance, the maximum LTV is 100% and an appraisal is required.

MIP

As stated above, the RD MIP is charged both up front and each month. The upfront MIP is 2.0% of the loan amount and it gets financed into the refi. The monthly MIP is 0.4% of the loan amount divided by twelve.

RD MIP is paid for the full term of the mortgage, there is no cancellation.

Example

You’re refinancing a $150,000 home.

First we have to determine the upfront MIPÂ which is 2.0% of $150,000 or $3,000. This $3,000 will be financed making the total $153,000 ($150,000 + $3,000).

Next we have to determine your Monthly MIP at 0.4% of the loan amount using the calculation below;

MIP = $150,000 x 0.4% = $600 / 12 = $50 per month

Credit

The minimum score for an RD is 620. However, anything under a 660 score will require a verification of 12 months home payment history

Debt Ratio In Michigan the maximum debt ratio for RD is 41% with no exceptions

Michigan VA Refinance Programs

VA offers two refinance programs to veterans; the VA Interest Rate Reduction Loan(IRRL) and the VA cash out refinance. Both are home loans made in the United States guaranteed by the U.S. Department of Veterans Affairs (VA). The basic intention of the VA IRRRL programs is to supply eligible veterans with the ability to lower their interest rate and save money. The VA Cash Out refinance allows eligible veterans the ability to pull cash out of their homes equity up to 100% LTV.

VA Refinance Programs Requirements

LTV

There is no LTV requirement for a VA IRRRL since an appraisal is not required. An appraisal is required for the cash out refinance and the LTV is limited to 100%

VA Funding Fee

VA doesn’t require a monthly MIP but they do require something similar to upfront MIP which is called a Funding Fee. This VA Funding fee is different for both the IRRL and cash out but it will range from 0.5% to 2.125% of the loan amount and it will be financed over the term.

Example

You’re refinancing a $150,000 home. To determine the VA Funding Fee we must find 2.125% of $150,000 which is $3,188. This $3,188 will be financed making the total $153,188 ($150,000 + $3,188).

Credit

The minimum score for VA is 620. However, anything under a 660 score will require a verification of 12 months history

Debt Ratio

In Michigan the maximum debt ratio for VA is 45%

Michigan Renovation Refinance Programs

Renovation Refinance programs were established to allow buyers to finance renovations or repairs within their home loan. These repairs can range from a new kitchen, new windows, a new roof, or simply replacing carpet and flooring. In some cases, you can even finance new appliances into this type of refinance.

There used to be a lot more refinancing options for renovation and construction financing in Michigan but we are now limited to one program; the Michigan FHA 203K loan.

However, there are some very important things to know about renovation financing before deciding it’s the way to complete your remodeling or renovation project. One issue is that the appraisal will cost more money because you’ll be required to get an after repair value as well as an existing value with no repairs.

Additionally, there will be future inspections as work gets complete and each inspection costs you about $150. This can really add up depending on the work that needs to be completed.

The next issue is this type of refinance takes longer to complete and requires a lot of buyer interaction because you have to get bids for the repairs from licensed contractors. You can not do the work yourself even if you are a licensed contractor.

Another issue is the fact that renovation loans work on a reimbursement basis where work gets completed, inspected, and then paid for through a draw process. The way this works is the repair money will be held in escrow with a title company. It will be paid in draws based off of work being completed and then inspected by the appraiser that originally appraised the home.

This means that if your project requires a new kitchen costing $10,000, the contractor hired to do the job will have to install the kitchen to full functionality before they get paid anything. Once they complete the repairs, the appraiser will re-inspect the property to confirm the work is done.

After the inspection is completed and everything checks out, the contractor will get paid by the title company and sign waivers stating that they’ve been paid for the work completed. If you don’t have a contractor willing to work under these conditions, you will have to pay for the repairs yourself and then get reimbursed with a draw once the work is inspected. This is why it’s considered a reimbursement program.

Michigan FHA 203K Refinancing Programs

Federal Housing Administration’s rehab product, the FHA 203K loan, was designed for individuals who want to rehabilitate or repair a home they live in as their primary residence. These home renovation loans are endorsed by the government to encourage lenders to offer what would otherwise be considered a risky lending product.

There are two 203K Programs, the Streamline 203K which allows repairs up to $35,000 and the regular 203K which allows you to go above $35,000 in repairs. The streamline 203K is a lot easier to complete because the repairs are less extensive and there is less paperwork.

Michigan FHA 203K Programs have identical guidelines to the standard FHA guidelines accept for the fact that the 203K is more strict with debt ratio and offer a slightly higher rate than a typical FHA refinance. See below:

The FHA 203K Programs Requirements

LTV

The maximum LTV for FHA 203K programs is 110%.

MIP

As stated above, the FHA MIP is charged both up front and on a month to month basis. The upfront MIP is 1.75% of the loan amount and it gets financed. The monthly MIP is 0.85% of the loan amount divided by twelve.

Example

You’re refinancing a home for $120,000 that will require $30,000 in repairs. This gives us a total of $150,000.

First we have to determine the upfront FHA MIP which is 1.75% of $150,000, or $2,625. This $2,625 will be financed making the total amount $152,625 ($150,000 + $2,625).

Next we have to determine your Monthly MIP at 1.35% of the loan amount using the calculation below;

MIPÂ = $152,625 x 0.85% = $1,297.31 / 12 = $108.11 per month

FHA Monthly MIP is paid for the entire term of the home loan

Credit

The minimum credit for FHA 203K programs is 640 but it would require a manual underwrite which means a human will review the file and determine the borrowers eligibility. However, anything under a 660 score will require a verification of 12 months rental history. If you have a low score we can help you, just call Michigan Mortgage solutions at (248) 674-6450.

Debt Ratio

In Michigan the maximum debt ratio for FHA 203K programs is 45% with no exceptions.

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