Conventional Loan vs. Conventional Loan: Which Fits Michigan Buyers?

Conventional Loan

Conventional Loan vs. Conventional Loan: Which Fits Michigan Buyers?

Reviewed by the HomeMath editorial team Updated 2026-08-04

Key takeaways

Conventional loans are governed by Fannie Mae and Freddie Mac guidelines, requiring a minimum credit score typically around 620.
Michigan buyers can often qualify with down payments as low as 3%, though putting down less than 20% triggers Private Mortgage Insurance (PMI).
Unlike some other states, Michigan closings are typically handled by title companies rather than attorneys, simplifying the escrow process.

When shopping for a home in Michigan, the term 'conventional loan' refers to a mortgage that is not insured or guaranteed by the federal government, such as FHA, VA, or USDA loans. Because these loans are not backed by a government agency, they are considered higher risk for lenders. To manage this risk, lenders follow strict underwriting standards set by secondary market entities known as Fannie Mae and Freddie Mac.

How Credit and Debt Impact Eligibility

Lenders evaluate your financial profile through two primary lenses: your credit score and your Debt-to-Income (DTI) ratio. A higher credit score generally unlocks more favorable interest rates because it signals to the lender that you are a reliable borrower. While the minimum score is often cited as 620, higher scores allow for better loan terms.

The DTI ratio measures how much of your gross monthly income goes toward debt payments, including your future mortgage. Lenders prefer a DTI ratio that stays below 43%, though some automated underwriting systems may approve higher ratios if you have significant cash reserves or a high credit score. This rule exists to ensure you have enough 'cushion' in your budget to handle unexpected home maintenance costs.

Down Payments and Private Mortgage Insurance

One of the most common misconceptions about conventional loans is that they always require a 20% down payment. In reality, first-time homebuyers or those meeting specific criteria can often put down as little as 3%. If you put down less than 20%, you will be required to pay Private Mortgage Insurance (PMI).

PMI protects the lender in the event of a default. Once your loan-to-value ratio reaches 80%—meaning you have paid off enough of the principal that your equity is 20%—you can request to have this insurance removed. This is a distinct advantage of conventional loans, as some government-backed loans require you to pay mortgage insurance for the entire life of the loan.

The Michigan Closing Process

Michigan is traditionally a 'title company' state. Unlike states that require a real estate attorney to oversee every transaction, the closing process in Michigan is typically managed by a title company. The title company performs a title search to ensure there are no liens against the property and facilitates the signing of the closing disclosure. This often results in a more streamlined closing experience for buyers, as the title company acts as a neutral third party to coordinate between the buyer, seller, and lender.

State-Specific Resources

Michigan buyers should look into the Michigan State Housing Development Authority (MSHDA). MSHDA offers programs designed to assist first-time homebuyers with down payment assistance. These programs are often paired with conventional loans to help buyers bridge the gap between their savings and the required down payment and closing costs. These programs are specifically tailored to Michigan's housing market and can be a vital resource for those with limited liquid assets.

This information is intended for educational purposes and does not constitute personalized financial or legal advice. Mortgage guidelines, interest rates, and program availability change frequently. You should consult with a licensed loan officer in Michigan to discuss your specific financial situation and confirm current requirements.

FAQ

Can I use a conventional loan for a fixer-upper in Michigan?

Yes, but standard conventional loans require the property to be in habitable condition. If the home needs significant renovations, you might need a specialized conventional renovation loan, such as the Fannie Mae HomeStyle loan, which allows you to finance both the purchase and the repairs.

Does Michigan's lack of a state-level transfer tax affect my closing costs?

Michigan does have a state real estate transfer tax, which is typically paid by the seller. However, your closing costs will still include title insurance, recording fees, and prepaid items like homeowners insurance and property taxes, which are standard in most conventional mortgage transactions.

What happens if my DTI is slightly over the 43% limit?

Lenders use automated underwriting systems that look at your entire financial picture. If you have a high credit score, significant cash reserves in the bank, or a stable employment history, you might still be approved despite a slightly higher DTI ratio.

Is it harder to get a conventional loan than an FHA loan?

Generally, yes. Conventional loans usually require higher credit scores and have stricter requirements for the condition of the property. FHA loans are often more forgiving regarding credit scores but require ongoing mortgage insurance premiums that cannot be removed.

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