MSHDA Loans – What You Need to Know
Michelle Wilson from Mortgage 1 joins us to talk about MSHDA – what it is, how it works, how it can empower you as a buyer, and a handful of bite-sized details you may not know.
You can contact Kristi, Laura and Michelle here with any questions:
Kristi Roberts - 810.844.1392 - KNE Realty 360
Laura Pinozzi - 810.824.8551 - KNE Realty 360
Michelle Wilson - 248.486.1117 - Mortgage 1
Well hey, good morning everyone, this is Laura Pinozzi, I’m with KNE Realty and we're starting our first podcast today with Michelle Wilson from Mortgage 1 and Kristi Roberts, owner of KNE is here with us today as well, and we're starting a series on MSHDA; what do you need to know about MSHDA? So we're excited to be here because there's just a lot to know about it and a lot of ways we can help people out there.
Absolutely, it's a great program.
It absolutely is. And Mortgage 1 is number one so we're very familiar with it and that's the key component of it, is knowing the information because there's many, many, many misguided information on what that means. People will come up to me or call and they'll say, Hey can I do this? No that's not correct. Or no I can't do it because they said I didn't have this credit score, or didn't have this money, and there's ways to guide around it so you have to really understand the program but it's fabulous to work with it.
So why don't you tell us in normal buyer terms, what is MSHDA and how can a buyer benefit from it?
So MSHDA is a state program that is offering assistance with home ownership. So they can be a first-time buyer, they can be a repeat buyer. The buyer is going to or have to qualify for a program. So they have to qualify for FHA, they have to qualify for conventional, rural development, VA, something that - a program. So they come to you with a pre-approval that says I am pre-approved, but I don't have money. So okay borrow your 401k borrow against a friend or family you know where's this money coming from? Or, the state has money available that says we want to help you purchase this home so if the state was to say i will give you seventy-five hundred dollars or ten thousand dollars depending on the zip code you purchase in to help you purchase so now if you need to bring $20,000 into the bank you have 10 coming from the state and 10 from your own money. If you need to bring in $7,000 the state's got different programs that can bring your payment down so it just depends on what program you're purchasing with, how much you need, and instead of liquidating your bank account, because we all know you have moving expenses, you might have to paint the house, you might have to repair something, so you're still qualifying for a loan, all it is is a second lien to assist you on purchasing. So what that means is you do have to pay it back. And a lot of people are getting out there and saying oh no, I've had it for nine years, I don't have to pay it back anymore, or I’ve had it for whatever - it is a lien on the house. So it's like me or the state offering and saying, hey if i give you this ten thousand dollars, when you sell or refinance you can go ahead and just give it back to me with the value in the home. So if you make $50,000 on your home, just give me my 10 back and keep your 40. You know whether it's 10 years, 20 years, 30 years. There's zero interest on it and it's the balance of what it is. So it does have the payback mode but the advantage to it is you're not liquidating your bank account. You're not shorting yourself all this money. And you can be a repeat buyer, you can - there's different perks and benefits to it.
So is there so many years before you can - if you're a repeat buyer, is there a timeline?
Well, so MSHDA classifies a first-time home owner as not owning a home in the past three years. So you could have owned a home for 20 years and sold it four years ago, and you will be considered a first-time buyer. So you CAN get all the programs that are available based on the qualifications. So if you're a repeat buyer there's targeted cities that they're encouraging home ownership, so you could sell your house that day and close with this program that same day. As long if you call - but you have to get rid of it first or qualify with it but the equity counts against you. So there is an asset restriction, there's a couple other things, but there are times where we have had people that own a home and can still purchase a home with the down payment programs.
Now I know credit is a big topic; what kind of guidelines are there around credit with this program?
So you do have to have a 640 credit score or higher. There's a secondary program that has to have a 660 credit score higher. So a manufactured home requires the 660. A regular stick built home or a condo or whatever that you're purchasing, that has to have a 640 credit score higher. Now that credit score can be improved when you go through the transaction, but even if you have a 640 credit score or an 800 credit score, MSHDA views you the same way. So they're not going to alter your rate, they're not going to alter you know transactions, you still all are meeting the same guidelines. Which is beneficial to people that are kind of nervous or worried about what they have credit wise. And then that said, they do have to meet again the guideline regulations for credit. So if they have a 640 credit score they may not be able to go conventional. You know if they have the 680 or the 700 or 800 they're still going to be able to get a conventional loan and still get the MSHDA money.
So just to clarify, if i were a buyer coming in I would get pre-approved for my traditional mortgage like FHA conventional, something like that.
And then I would have almost like a secondary application for MSHDA? Or qualification factors?
Yeah, so it's one in the same. So we would have to write the first loan and the second. So if someone came to them and said oh I have this pre-approval, and it's at a bank or a company that doesn't do MSHDA at all, and they're looking for help and you suggest it, they would have to go to a MSHDA approved lender. So if they called us, we then know, and the questions we ask are, you know, where's your money coming from? You know what areas are you looking to purchase in? What's your purchase price? There is a restriction so as of right now it's $224,500 on a purchase agreement. So I've had a realtor call me and she's like “they tell me they can't get this MSHDA deal through,” well as soon as they sent me everything I said well it's because you have a 225 purchase agreement. Change it to 224,5 and you're fine. So it's knowing, like understanding those guidelines. We may have a client that could qualify for $250,000, but we say, if you do MSHDA you have to do the 224, but then you go you know the 225 would be without the program. So, but the program is there to offer the assistance and I've had first-time buyers, which we all have our single moms or single dads, or a fresh married couple, or just an individual...
Or even a couple not married, so two individual names.
Yep, and they're looking to purchase, and they just, you know they can't get anything qualified, and I’ve had people crying on the phone because they were able to accomplish homeownership. Homeownership is a big deal.
It's somewhere to put your kids, it’s somewhere to put your family, somewhere to put your dog. I mean many clients have called me too and they said “I need to have a fenced-in yard for my dog.” Like they don't want to separate the dog, the apartment's won’t take it.
And one of the things that I've run into is, “well i have a good credit score but my partner doesn't have a good credit score.”
So there is a program where you can not include one or the other. So MSHDA has about four different programs that you can bounce off. So the first one is, yes, we're going to put both of them together, both husband and wife or partners or whoever, anyone over the age of 18 is on the loan, and then they have to qualify for income, credit, debt ratio, all these components, and then they do it together. But yes if one person doesn't have the score or doesn't work for qualifications, then we will piggyback and go to the second one, which is called the flex program. So now they're saying okay well we will take that first one only, and I have a transaction going on now, where they wouldn't be able to get a home otherwise and they are still going to get the down payment. Now the ten thousand dollar one is only for the first program, where they'd be together. But they could still get the $7,500 one on that flex program. So there are ways to benefit them on being able to do that as well. And then you're not restricted - if you're a first-time buyer, everyone says “oh I have to buy in this specific zip code…” it's anywhere in the state of Michigan.
Just certain zip codes have higher allowances.
Correct, so specific zip codes are targeted with ten thousand dollars. So, and I tell people, don't pick your house based on the zip code. Pick the house based on what you want, and then let's see what we need to do to fix it.
Now real quick I have a question for you. Does the state ever run out of funds? Is it something that they have a certain amount allocated yearly, or is it something that's never-ending?
We have not - so they purchase bonds in a big bulk amount, and then they set the rate for it. And then when that starts depleting they have their next paperwork filed to purchase the next set which, we will then be notified whether the rate goes up or down depending what the current rates are... So we have not, or I have not, experienced anywhere where we've ran out. So we've always been able to still move forward with the program. There are some other county programs I do know of that those ones have run out and have been in holding patterns. But the state program, MSHDA has not, so it's actually really beneficial in that strength of it as well.
That's awesome to know.
So another thing to keep in mind as far as that goes is, a lot of times agents will take a transaction, or they come in and they go, “I don't want to deal with it, it's more paperwork for us.” There's nothing more a realtor has to do. It's more that we have to do, and that's why some companies don't offer it, because they aren't familiar with it, the components of it and the breakdown of it. There is a class that's required, the education class, but we have a free one that I offer or that goes through online, there's ones that they can go into the classes on, so there's different components that we educate them [on]. So if they're not told ahead of time about these classes or the things that they can do, then they have to get it halfway through, so then they struggle [and] they fast forward. So the important initial information is important to discuss as well. Like what they have to do to qualify. And to qualify, yes, is the credit score, yes there's an asset limit of twenty thousand dollars. So if they have twenty five thousand in the bank, but they have a six thousand dollar credit card, they are absolutely allowed to pay that credit card off. It's benefiting them, it's making their debt ratio better, they're paying themselves something that they had, and now their assets do meet the requirements.
So one of the things that you had mentioned a few minutes ago is that anybody over the age of 18 needs to be on the loan and it's combined income.
So would it also affect as...
Yes. Thank you.
So, if they're living in the house [yes], but if they're full-time students they do not. So we just document, like we get transcripts, we get paperwork, but yes. If a student - and that income is incorporated.
Now what about like social security income? So maybe the family or the household that has somebody who's disabled living in the home and another party who's working? I know in a lot of instances, disability income is not counted.
Is it counted as this? Okay.
Absolutely, yep. And sometimes disability income can be elevated to help assistance, so it just depends again on all the components of what - so we try and take in as a puzzle, you take in all the pieces and you put it together to benefit the client. So, and you don’t want to force them -
And everyone's different.
Exactly. Very fluid.
Yes. And there's a third program, it's a Michigan credit certificate. So you are going to go to credit which helps with debt ratio. So now if someone has money but they have debt to income problem[s], there's another program available to help with that. So again, there's all these different components that can come into play. But what the misunderstanding is, is that people think that MSHDA is its own program and money as a loan. It is only as a second. So it's the assistant. So you again you're qualifying for FHA, conventional, RD, VA, whichever component you want, and then MSHDA says,
“how can we help make that stronger?” And in my opinion, because they've met the qualifications for MSHDA AND the qualifications for the loan, if presented properly, it's a strong offer. So now they have extra money instead of less money. Because they're having money that, this is where the down payment's coming from. Tracking of funds - like sometimes people are like “oh well I'm going to get it from this person and put it in this bank account, then this person…” - like that - every money has to be verified.
So would a would a buyer possibly think, “well I make too much money”?
They could. And the income limit’s actually - they're, and I've included them, so some of the income limits, depending on how many people are in the household, can go up to $149,240.
So if there's three or more. And they're buying in Washtenaw County - so it's county-driven, it's city-driven, it's number in the household, so they could have husband, wife and a child, husband, wife and grandma, husband... like, you know, or two partners, or you know, two friends, you know, can be purchasing, so... it's - one-to-two has one category of income, three or more is another category of income, the county, the target areas... and target areas are ones that, again, they're encouraging home ownership, so you can do repeat buying, you can do, um, more down payment in some of those. So it's a good program to, you know, assist with those components.
So this is more on the real estate agent perspective of things; is there anything - if I were a listing agent, and I had a buyer come in with with FHA using MSHDA, is there anything that would add an additional layer or additional work on the transaction?
Going from FHA approval... because then once it's approved by FHA, or whatever, you know, whatever type of loan it is. Once you get the actual mortgage company’s approval, then it goes to MSHDA. Correct?
And is there anything additional that MSHDA looks for that the loan officer may not look for, or any potential red flags or hang-ups that could cause an issue?
Well hopefully that - usually no, but example being, if the loan officer, like - I will always ask my customers before: “okay, we're getting cleared with MSHDA, send us another pay stub.” So everything with MSHDA has to be within 30 days. So if my pay stub is five weeks out, I'm like they're gonna ask me for another one, so get it to me now, and when I send it in... so there's a stacking order that MSHDA wants, there's paperwork... so we will have - you call it like a ‘one touch.’ So it goes to MSHDA, they look at it, it's all in order, “yep, here's your certificate.” So if you're familiar enough with the guidelines, there won't be any hiccups. If you're NOT familiar with the guidelines, yes, there could be something that, “wait, you have to describe this deposit.” MSHDA is an income-driven program. So in a bank statement, if there's three or four or five deposits from somebody that's unknown, or like a zel deposit, or cash app deposit, like “where's this coming from?”, you know. And sometimes clients have to write a letter. And I tell them ahead of time, I'm like “I'm sorry, this is a little bit more detailed, but it's only because we have to verify there's not extra income coming in.” So example being is, if I went on vacation and my friends ended up Venmo-ing me money, and it says “Venmo $200, Venmo $200, Venmo $200…” Well, did you sell something? Is it a job? Like how did you get this money?
Somebody borrowing you money to close on your house.
Exactly, so it's like, how are you doing cash deposits, like - cash is not king. You know, so documentation is everything. And that's why that communication of that... So yes it could be where I went to MSHDA, and yes they could come back and say, “hey, just explain this.” So they're not going to say “Denied,” right? They could, but I have not experienced that so I don't know how they deny one, but um, if you have it in the right information. And that's where, again, it's key of knowing what you have to do.
Well we have a saying in our industry: “Who you hire matters.” And I really think from a mortgage perspective, it's... probably one of the most important things to look into, is the qualifications of the loan officer. How long they've been doing it, how diligent, how quickly they answer their phone, how communicated they are. Communication is key. To everything.
And the minute anything comes up - so, one thing that does come into play is, which realtors are not aware of - MSHDA - yes they regulate, the only thing they regulate on the realtor side is cost. So nowadays, winning bids, MSHDA might - someone might say in their purchase agreement, “Oh i'm going to pay the seller's transfer tax,” or “I'm going to pay the seller’s commission,” or something. Because the buyer has money to do that. Well MSHDA doesn't allow that. They don't allow - they're giving money to help you buy, not to pay someone else's expenses. So the compliance fee, or the realtor transaction fee, or the doc prep fee, or whatever - every realtor labels it differently - is capped at $300. So I 100% have had purchase agreements, and it says “realtor fee of, you know $350.” And we catch it. Because we know all these rules.
Sure. It’s on the purchase agreement.
Exactly. So again, communication. So we would call and say, you know, “hey just so you know I need an addendum that says ‘change this to $300, not $350’.” You know, and, shame on a realtor if they don't do it... I did have, one time, somebody say “That's unnecessary, you need to cover that cost,” and I'm like “No I don't.” And that's just the rules. So I send them the rules so we have it, it's in writing. So if someone questions it...
It's not YOUR rule, it’s MSHDA’s rule.
Right. It's like “Look, I will get your loan done, but here's what -” and I'm just communicating to you. The same way - so the other thing is that some, which we will do without a MSHDA transaction, we can escrow for repairs. Well, MSHDA does not, because they know the homeowner doesn't have the money to do different things. But, if it's weather-related... in the winter time, absolutely there's been times. So if they need to pour cement and you're in the middle of winter, they're not going to hold up a transaction. But so, the communication of it. So again knowing the knowledge of it and just turning someone down is not what you do. It's, “okay, what are the steps we have to take,” or “who can contribute what?” But knowing the guidelines and the rules to it, you know, is what makes it important in a great program.
Awesome. Well great. I think it's time for us to wrap up, I’m looking at the the clock here… thank you very much, Michelle, for joining us, and Kristi.
Oh, I’m glad that you came, thank you.
Yeah, this was an…
Yeah, very informative. Looking forward to our next podcast in What You Need to Know About MSHDA.
In more detail.
Thank you very much, appreciate your time.