Mortgage Programs for Refinancing
Below you will find the top programs for refinancing a home in Michigan. These Michigan home refinancing programs will be separated into 5 categories; Conventional Refinancing, FHA Refinancing, USDA Rural Development (RD) Refinancing, VA Refinancing, & Renovation Loans.
Each category will cover the following homeÂ refinancingÂ guidelines; maximum LTV, PMI requirements, minimum credit score, and debt ratio or DTI for short. Additional guidelines will apply but this will give you the general information needed to refi your house.
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 Michigan Mortgage Solutions at (248) 674-6450 and we’ll walk you through refinancing your house.
Conventional Refinancing in Michigan
A conventional home loan is not insured by the federal government like FHA, VA or USDA. This means that if you don’t have at least 20% in equity in your home, you will need to pay for Private Mortgage Insurance or PMI for short. PMI is a fee that is paid by the borrower to insure the lenders risk of that borrower defaulting on the house.
Conventional also offers some of the best financing options including a low rate and lower PMI that cancels when you reach 78% LTV. This can provide you with a lower payment when refinancing as well as the least resistance during the home refi process.
Conventional Refinancing Guidelines
Loan to ValueÂ (LTV for short)
The maximum LTV for a standard Conventional refinance is 95%. However, LTV can exceed 150% if it is Fannie Mae or Freddie Mac backed and qualifies for the Home Affordable Refinancing Program. To learn more about a HARP refinancing call us at (248) 674-6450.
The maximum LTV for ConventionalÂ cash-out is 80%.
Conventional requires that you pay PMI if you have less than 20% equity in your home. The PMI payment will be determined by your LTV, the term of your refi and your score. It’s calculated based on a small percentage of your mortgage, usually between 0.27 and 1.1%, divided by twelve.
You’re home is valued at $150,000 and your mortgage is $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 score, your LTV, and the term. The PMI payments automatically cancel when you pay your equity down to 78% of the original mortgage.
The minimum score for a Conventional is 660 but can sometimes go lower with compensating factors such as low LTV, large cash reserves, or a low debt ratio.
The maximum debt ratio for a Conventional is 45% with no exceptions.
Michigan FHA Streamline
FHA financing is backed by Federal Housing Administration insurance. FHA insured loans are a type of federal assistance and have historically allowed lower income Americans with marginal credit to refinance.
FHA also has restrictions on the total you can borrow. These totals are based on area specific census data including median household income. Most of Michigan has a max FHA mortgage of $297,500 but some areas are lower.
In order to qualify for FHA, you will be required to pay an upfront mortgage insurance premium(MIP) as well as monthly. We’ll break down the math for the FHA MIP below.
FHA Streamline Requirements
The maximum LTV for FHA refinancing is 97.75%. Unlike conventional, you can cash-out up to 85% LTV with FHA. However, if you’re just looking to complete a rate and term refinance, you can do a Streamline without an appraisal in most cases.
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 and it gets financed into the mortgage. The monthly Mortgage Insurance is 0.85% of the mortgage divided by twelve.
You’re refinancing a home valued at $150,000 and you need finance $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 $147,283 ($144,750 + $2,533).
Next we have to determine your MIP at 0.85% of the amount financed using the calculation below;
MIP = $144,750 x 0.85% = $1,230.36 / 12 = $102.53 per month
FHA MIP is paid for the entire term of the FHA mortgage and does not cancel like Conventional.
The minimum score for FHA is 600 but it would need a manual underwrite which can be harder to get approved. However, anything under a 640 score will require a verification of 12 months mortgage history. If you have lower credit we can help you, just call (248) 674-6450 today and ask for Jason.
The maximum debt ratio for FHA is 45% but it can go higher if there are compensating factors such as high credit or a large portfolio of assets.
Michigan USDA Rural Development Refinance
A USDA Rural Development Refinance is backed by the United States Department of Agriculture. There are 3 Refinance Options for RD, the Standard, the Streamline, and the Pilot. In order to complete any of the 3 RD refinance options you must first have an existing RD mortgage on your house. These also require an upfront and MIP. We’ll break down the math to determine the RD Loan MIP below.
USDA RD Loans also have income restrictions based on what city you’re house is located as well as how many people are in your household. One important factor to keep in mind when considering the USDA RD Refinance is it’s only available in certain geographic locations that are considered Rural. With that being said, the maps used to determine rural areas have not been redrawn in over 20 years so you may be surprised when you find out what is considered Rural.
USDA Rural Development Requirements
For the Streamline and Pilot refinance options there is no appraisal required so LTV is irrelevant. If you go with the Standard refinance, the maximum LTV is 100% and a full house appraisal is required.
As stated above, the RD MIP is charged both up front and on a monthly basis. The upfront MIP is 2.0% of the loan and it gets financed into the mortgage. The MIP is 0.4% of the amount financed divided by twelve.
RD MIP is paid for the full 30 year term, there is no cancellation.
You’re buying a $150,000 home with no down payment. This leaves us with $150,000.
First we have to determine the upfront MIP 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 MIP at 0.4% of the amount financed using the calculation below;
PMI = $150,000 x 0.4% = $600 / 12 = $50 per month
The minimum score for RD is 600. However, anything under a 640 score will need a verification of 12 months rental history
The maximum debt ratio RD is 41% with no exceptions
VA Refinancing in Michigan
A VA loan is guaranteed by the U.S. Department of Veterans Affairs (VA). The VA loan was designed to offer long-term financing to eligible American veterans or their surviving spouses (provided they do not remarry). When refinancing, the VA offers a program called the Interest Rate Reduction Refinance Loan or IRRRL for short. The basic intention of the VA IRRRL program is to supply eligible veterans with the ability to lower their interest rate and save money on their house payment.
VA Refinancing Guidelines
There is no LTV requirement for a VA IRRRL since an appraisal is not required.
VA Funding Fee
VA IRRRLs don’t require a monthly Mortgage insurance but they do require something similar to upfront MIP which is called a Funding Fee. This VA Funding fee is 2.125% of the mortgage and it will be financed over the term of the mortgage.
You’re refinancing $150,000. 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).
The minimum credit for a VA IRRRL is 600. However, anything under a 640 score will need a verification of 12 months house payment history
The maximum debt ration on VA IRRRLs is 45%
Renovation Refinancing in Michigan
Renovation Refinancing was established to allow buyers to finance renovations or repairs to their home. 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 but we are now limited to one program; the 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 refinancing takes longer to complete and requires a lot of buyer interaction because you have to get bids for the house 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 refis 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 house renovation 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 house 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
Federal Housing Administration’s rehab product, the FHA 203K, was designed for individuals who want to rehabilitate or repair a house they live in as their primary residence. These are endorsed by the government to encourage lenders to offer what would otherwise be considered a risky product.
There are two types of 203K’s, 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.
FHA 203Ks 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 FHA. See below:
Michigan FHA 203K Requirements
The maximum LTV for an FHA 203K is 110%.
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 and it gets financed. The MIP is 0.85% of the mortgage divided by twelve.
You’re refinancing a home for $120,000 that will require $30,000 in repairs. This gives us $150,000.
First we have to determine the upfront FHA MIPÂ which is 1.75% of $150,000, or $2,625. This $2,625 will be financed making the total $152,625 ($150,000 + $2,625).
Next we have to determine your MIP at 0.85% using the calculation below;
MIP = $152,625 x 0.85% = $1,297.31 / 12 = $108.11 per month
FHA MIP is paid for the entire term of 30 years.
The minimum credit for an FHA 203K 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 640 score will require a verification of 12 months rental history. If you have a low credit score we can help you refi your house, just call Michigan Mortgage solutions at (248) 674-6450.
The maximum debt ratio for an FHA 203K is 45% with no exceptions.
As you can see you have several options when refinancing a home in Michigan. Depending on what your house and needs require, I’m sure one of these home refinancing programs will be suitable.