An FHA loan is a mortgage insured by the Federal Housing Administration. It is not a government handout; it is a regular loan from a regular lender, but because it is government-insured, lenders can offer more flexible terms. That is why FHA loans are a favorite for first-time and lower-down-payment buyers.
Low down payment and flexible credit
The headline feature is the low down payment: as little as 3.5% of the purchase price. FHA loans are also generally more forgiving on credit than conventional loans, which makes them a strong fit for buyers who are still building their credit history.
This is also exactly why FHA loans pair so well with down payment assistance, which can cover much of that 3.5% and part of your closing costs.
The trade-off: mortgage insurance
In exchange for the low down payment, FHA loans include mortgage insurance. There are two pieces: an upfront amount that is usually rolled into the loan, and an annual amount that is split into your monthly payment.
Mortgage insurance protects the lender, not you, and it is the main cost trade-off of an FHA loan. For many buyers it is well worth it to get into a home sooner, and there are paths to reduce or remove it later.
FHA loan limits in Michigan
FHA sets a maximum loan amount, and it varies by county. For most of Southeast Michigan the limit comfortably covers typical first-home price points, but it is worth confirming for your specific area and budget. We can check the current limit for the county you are buying in.
FHA vs conventional, the short version
Conventional loans can be a better fit if you have strong credit and a larger down payment, since you can often avoid the long-term mortgage insurance. FHA tends to win when your down payment is small or your credit is still improving.
There is no single right answer; it depends on your numbers. We help you compare both so you pick the one that costs you less over the time you plan to own.
Pairing FHA with down payment assistance
This is the combination that gets a lot of first-time buyers into a home: an FHA loan for the low down payment and flexible credit, plus down payment assistance to cover much of the cash. See what assistance is available in your city on our down payment assistance pages.