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HL1Housing Living 101

Michigan Down Payment Help Through MSHDA

By Tanika Patel
8 minute read

What MSHDA Down Payment Assistance Covers

MSHDA (Michigan State Housing Development Authority) offers down payment and closing cost help through its Homebuyer Assistance Mortgage Loan Program. The program provides a second mortgage — a loan you take out alongside your primary mortgage — that covers part or all of your down payment and closing costs. You repay this second loan over time, though some versions forgive a portion if you stay in the home long enough.

The amount you can borrow depends on your income, the purchase price of the home, and which MSHDA program you use. MSHDA does not give the money directly to you; instead, it works through approved lenders who originate both your first mortgage and the MSHDA second mortgage at the same time. This means you apply through a lender, not through MSHDA itself.

The program is open to first-time homebuyers in Michigan — someone who has not owned a home in the past three years. You must buy a single-family home, condo, or townhouse that will be your primary residence, and the purchase price cannot exceed the limit set for your county (these limits vary and change yearly).

Key Takeaways

  • MSHDA down payment assistance is a second mortgage that covers your down payment and closing costs, and you repay it over time alongside your primary mortgage.
  • You apply through an MSHDA-approved lender, not directly through MSHDA, and both mortgages close on the same day.
  • You must be a first-time homebuyer, have a household income below the limit for your county, and purchase a home under the county price cap.
  • Some MSHDA programs include forgiveness — a portion of the second mortgage is erased if you live in the home for a set number of years.
  • Your credit score, debt-to-income ratio, and down payment savings (even if small) all affect whether a lender will approve you.

Income and Purchase Price Limits by County

MSHDA sets maximum household income and maximum home purchase prices for each Michigan county. These limits exist because the program is designed for moderate-income buyers, not high-income households. If your income or the home price exceeds your county's limit, you will not be able to use MSHDA assistance.

Income limits are usually two to three times the federal poverty line for your household size and vary significantly by county. Purchase price limits also vary — a home that qualifies in one county may exceed the limit in another. You can find your county's current limits on the MSHDA website or by calling an approved lender in your area and asking them to check for you.

These limits change once per year, usually in the spring. If you are close to a limit, ask your lender to confirm the current year's numbers before you make an offer on a home.

How to Find an MSHDA-Approved Lender

MSHDA does not lend money itself — it sets the rules and insures the loans, but approved lenders are the ones who actually originate your mortgages. You must work with a lender on MSHDA's approved list. Not every bank or mortgage company participates, so you cannot simply call your local bank and assume they offer MSHDA programs.

The MSHDA website has a searchable list of approved lenders by county. You can also contact your local housing counselor — most communities have a HUD-certified counselor who works with first-time buyers and can refer you to lenders in your area. If you do not know where to find a counselor, call 211 (a free referral line) and ask for homebuyer counseling in your county.

When you contact a lender, tell them you are interested in MSHDA down payment assistance. They will walk you through their application process, explain which MSHDA program you may may have access to for, and tell you what documents you need to gather.

Documents and Information You Will Need

MSHDA lenders require standard mortgage paperwork plus a few items specific to down payment assistance. Have these ready before you start the application:

  • Two recent pay stubs and two recent months of bank statements
  • Last two years of tax returns (personal and business if self-employed)
  • Proof of employment or a letter from your employer
  • A list of all debts — credit cards, car loans, student loans, medical debt
  • Proof of your down payment savings (bank statements showing the money is yours)
  • A copy of the purchase agreement once you have made an offer on a home
  • Proof of homebuyer counseling (most MSHDA programs require you to complete a counseling course before closing)

The lender will order a credit report and may ask for explanations if you have late payments, collections, or gaps in employment. Be honest and thorough — lenders want to understand your financial history, not be surprised by it later.

Forgiveness and Repayment Terms

MSHDA offers several different programs, and the repayment terms vary. Some programs require you to repay the full second mortgage over 10 or 15 years. Others include forgiveness — a portion of the loan is erased (forgiven) if you live in the home for a certain number of years, usually 5 to 10 years depending on the program.

For example, one common program might forgive 20 percent of the second mortgage for each year you stay in the home, meaning the entire loan is forgiven after five years. Another might forgive the full amount after 10 years. Your lender will explain which programs you may have access to for and what forgiveness, if any, applies to each one.

Forgiveness is not automatic — you must stay in the home as your primary residence for the full period. If you sell or move before the forgiveness period ends, you will owe the remaining balance of the second mortgage at closing. This is an important detail to understand before you commit.

Credit Score and Debt-to-Income Requirements

MSHDA programs have minimum credit score requirements, though they are usually lower than conventional mortgages. Most programs require a credit score of 580 to 620, though some lenders may go lower if you have compensating factors (like a large down payment or very low debt). If your score is below 580, ask the lender whether they have any programs that might work for you.

Your debt-to-income ratio — the percentage of your gross monthly income that goes to debt payments — also matters. Most MSHDA programs allow a ratio up to 43 to 50 percent, depending on the program. This includes your new mortgage payment plus all other debts. If your ratio is too high, you may need to pay down debt before you apply or wait until your income increases.

The lender will calculate both your credit score and debt-to-income ratio during the application process. If either is a barrier, ask what you can do to improve your chances — sometimes paying off a small debt or waiting a few months for late payments to age can make the difference.

The Timeline From Application to Closing

The process typically takes 30 to 45 days from the time you submit your application to the day you close on the home. This assumes you have already found a home and made an offer. Here is the general order:

  1. You contact an approved MSHDA lender and submit your application with supporting documents.
  2. The lender orders a credit report, appraisal, and title search on the home you are buying.
  3. You complete homebuyer counseling (usually online or in-person, takes a few hours to a full day).
  4. The lender underwrites your application — a detailed review of your finances and the home's value.
  5. You receive a Closing Disclosure document at least three business days before closing, showing all loan terms and costs.
  6. You close on both the first mortgage and the MSHDA second mortgage on the same day.

The appraisal is often the slowest step. If the home appraises for less than the purchase price, the lender may reduce the amount they will lend, which could affect your down payment assistance. This is rare but possible, so do not assume the deal is locked until the appraisal comes back.

Frequently Asked Questions

Can I use MSHDA assistance if I have had credit problems in the past?

Yes. MSHDA programs are designed for people with imperfect credit. A score of 580 to 620 is acceptable for most programs, and late payments older than two years matter less than recent ones. The lender will review your full financial picture, not just your score. If you have recent late payments, explain what happened and show that your finances have stabilized since then.

What happens if the home appraises for less than the purchase price?

The lender will reduce the loan amount to match the lower appraisal value. This means your down payment assistance may be reduced, and you may need to come up with more cash at closing. You can renegotiate the purchase price with the seller, walk away from the deal, or cover the gap yourself if you have the funds.

Do I have to take the full down payment assistance amount the lender offers?

No. You can choose to borrow less and put more of your own money down. This reduces your second mortgage balance and the amount you repay over time. Some buyers do this to lower their monthly payment or to reach forgiveness faster.

What if I sell the home before the forgiveness period ends?

You will owe the remaining balance of the second mortgage at closing. For example, if you have a $20,000 second mortgage with five-year forgiveness and you sell after three years, you would owe the remaining balance (usually around $8,000 to $12,000, depending on how much has been forgiven) when you sell. This comes out of your home sale proceeds.

Can I use MSHDA assistance to buy a home outside Michigan?

No. MSHDA programs are only for homes located in Michigan. You must also be buying the home as your primary residence — you cannot use MSHDA to purchase an investment property or a vacation home.