Special Types of Mortgages

In the previous article, we discussed the basic types and characteristics of mortgages. The table below shows some of the more specialized types of mortgages, as well as government programs and tax credits, available to you as a northern Michigan buyer, as well as eligibility requirements and pros and cons of each. Knowing your options is key; you may discover that one of these types of loans meets your needs much better than a typical fixed rate or adjustable rate mortgage.

Loan Name Description Pros Cons
Federal Housing Administration (FHA) Loans The FHA approves certain lenders to issue FHA loans, which are insured by the FHA in order to protect the lender. FHA loans are popular for first-time buyers because they are easier to qualify for and require lower down payments than other types of loans.
  • Easier to qualify than conventional loan types
  • Minimum 3.5% down payment
  • Buyers may be able to finance additional cash for necessary repairs
  • Assumable, meaning if you sell your home, the new buyer can “assume” the loan with its current rates
  • Can also qualify for MSHDA Down Payment Assistance
  • Requires payment of Mortgage Insurance Premiums (MIP), both up front (1.75% one-time cost) and monthly (up to 1.05% annually on top of your monthly payments)
  • New FHA loans are only available for primary residency
  • Property must be appraised by an FHA-approved appraiser
United States Department of Agriculture (USDA) Loans USDA loans, also called Rural Development (RD) loans, offer many financial benefits for those who qualify. Eligibility is limited to buyers who earn up to 115% of the county’s median income, and only for homes in certain areas as identified by the USDA. Many areas in Bellaire, Mancelona, and other parts of Antrim County qualify. To check income and area qualifications, click here.
  • Easier to qualify than conventional loan types
  • No down payment required
  • No MIP payments required (as opposed to FHA loans)
  • Can also qualify for MSHDA Down Payment Assistance
  • Requires payment of an additional 2% Guarantee Fee (one-time)
  • Requires payment of a 0.4% annual fee
  • Buyer and property must meet eligibility requirements based on income and location
Department of Veterans Affairs (VA) Loans VA mortgages are available to any veterans of the United States armed services, as well as widows or widowers of veterans. VA loans are flexible and are increasing significantly in popularity.
  • Easier to qualify than conventional loan types
  • Most VA loans require no down payment
  • No Private Mortgage Insurance (PMI) (typically required for conventional loans that don’t include at least a 20% down payment)
  • No prepayment penalties
  • Requires payment of a VA funding fee. The cost can be financed into the loan, but still needs to be considered
  • New VA loans are only available for primary residency
Construction Loans Construction loans are used to purchase homes that are newly-built or in the process of being built. Construction loans can either have two steps – a short-term loan during construction that rolls over into a mortgage once the home is occupied – or be a single loan from construction through occupancy. Construction loans are a small part of the mortgage market, but may be an attractive option for those looking to build. There’s no shortage of available land in northern Michigan!
  • Can be used to finance the land as well as the building expenses of the new home
  • Functions as a line of credit, so interest does not accumulate until purchases are made (typically via draw requests) by the builder
  • Can be inflexible and difficult to qualify for, since there is no existing home to offer as collateral to the lender
  • Lenders often require and monitor construction timelines
Land Loans Land loans, also called lot loans, are used to purchase land planned for residential use in the near future.
  • Useful for buyers who want to buy land, but are not yet ready to build
  • Often require less favorable borrowing terms (shorter terms, higher down payments, etc.) due to the lack of collateral value of the land itself

Michigan State Housing Development Authority (MSHDA) offers different programs to provide financial assistance to qualified homebuyers. Be sure to ask your local lenders if you qualify for these programs.

MSHDA Down Payment Assistance

The MSDHA offers down payment assistance, in the form of an additional loan of up to $7,500, on qualifying FHA and RD loans. This program is available to help both first-time and repeat homebuyers in targeted areas of Michigan, including all of Antrim County. This additional loan is treated as a second mortgage, but charges no interest and has no monthly payments. Repayment is due at sale or transfer of the property, or when the first mortgage is refinanced or paid in full.

MSHDA Mortgage Certificate Credit

In some cases, homebuyers may qualify for a tax credit, called the MSDHA Mortgage Certificate Credit, equal to 20% of their annual mortgage interest. Antrim County is one of the eligible areas for this program.

If you are interested in learning more about these types of mortgages and which may be best for you, contact your local bank or mortgage lender.

If you are interested in hiring a professional realtor who can guide you through this process, Donna Gundle-Krieg loves working with people and would be happy to provide you with more information. She has many exciting listings available in great Antrim County locations, which you can view here. You can contact her at (231) 350-8507 or dokrieg@gmail.com to learn more.

Next: Costs of Buying a Home

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