5 Costly Mistakes Michigan Heroes Make When Buying a Home (2026)
This is Post 3 of 3 — the final post in the Michigan Hero Loan Series. Read Post 1 (programs overview) and Post 2 (MI 10K DPA vs. MCC comparison) before applying.
Important note on real scenarios: The buyer profiles in this post are based on real situations documented by Michigan mortgage professionals and MSHDA-approved lenders in 2025–2026. Names and identifying details have been changed or omitted for privacy. Dollar amounts reflect verified program rules and rates as of June 2026.
The MSHDA MI 10K Down Payment Assistance (DPA) loan has an asset limit that catches many Michigan hero buyers off guard: if you have more than $20,000 in liquid assets at the time of application, you do not qualify — regardless of your income, profession, or credit score.
Liquid assets include checking accounts, savings accounts, money market accounts, and investment accounts that can be readily converted to cash. Retirement accounts (401k, IRA, pension) are generally excluded from this calculation — but a buyer who has diligently saved $22,000 in a regular savings account may find themselves disqualified from a $10,000 program they could otherwise access.
The most common version: a teacher or nurse who has been saving aggressively for a down payment. They save $21,000 in a bank account. They apply for MI 10K DPA — and are told they have too much money to qualify for the $10,000 assistance. The program is designed for buyers who need the help most, and the asset limit enforces that.
Important: Confirm with your MSHDA-approved lender exactly which accounts count toward the $20,000 limit and whether your specific retirement account type is excluded. Rules on asset calculation can vary by lender interpretation — get this confirmed in writing before assuming you qualify.
Real Scenario — Elementary School Teacher in Grand Rapids, 2026
A 3rd-grade teacher earning $58,000/year had been saving for three years toward a down payment. By early 2026, she had $23,500 in a high-yield savings account and $18,000 in a 403(b) retirement account. She applied for MI 10K DPA through an MSHDA-approved lender. Her lender calculated her liquid assets: $23,500 savings account — over the $20,000 limit. Her 403(b) was excluded. She was disqualified from MI 10K DPA by $3,500. She had worked to save more, and it cost her the $10,000 assistance. Her options: spend down to $20,000 or below before closing (on allowable expenses), or proceed with standard FHA financing without the DPA.
Over Asset Limit (Disqualified Path)
Within Asset Limit (Eligible Path)
How to Avoid This Mistake
Check your liquid asset balance before applying — not after. If you are close to the $20,000 limit, ask your MSHDA-approved lender which accounts are included and which are excluded. If your balance is modestly over the limit, speak with your lender about whether any pre-closing expenses (inspection fees, moving costs, appraisal) could legitimately reduce your balance before your closing date. Do not move money into retirement accounts to game the limit without your lender's guidance — account transfers within 60 days of closing are reviewed by underwriting.
Michigan's MSHDA Mortgage Credit Certificate (MCC) is a federal tax credit worth 20% of your annual mortgage interest — up to $2,000 per year — that reduces your federal income tax bill dollar for dollar, every year you own and occupy the home. On a 30-year mortgage, the lifetime value can exceed $60,000.
The critical rule: the MCC must be applied for and issued at loan origination — before closing. It cannot be added to an existing mortgage. It cannot be applied retroactively. A buyer who closes on an MSHDA-eligible loan without an MCC and later learns about the program has permanently missed it for that purchase. There is no exception and no appeal.
This mistake is most common among buyers who use an MCC-eligible lender but whose loan officer forgets to bring it up — or buyers who choose a non-MCC lender because the rate was slightly lower, not realizing the MCC's tax savings outweigh a small rate difference over the long term.
Key fact: MCC requires a non-MSHDA first mortgage — it is mutually exclusive with MI 10K DPA (which requires an MSHDA first mortgage). If you need the $10,000 DPA at closing, you cannot also have the MCC. But if you can close without the DPA, the MCC's annual tax credit is a significant long-term benefit. Post 2 of this series does the full break-even analysis.
Real Scenario — Police Officer in Lansing, 2026
A Lansing police officer earning $72,000/year purchased a $285,000 home with an FHA loan in March 2026. He had enough savings to cover his down payment and closing costs without needing the MI 10K DPA. His lender was on the MSHDA MCC approved lender list — but the loan officer never mentioned the MCC during the application process. The officer closed in April 2026. In June, a colleague who had recently purchased mentioned the MCC credit. The officer contacted his lender and MSHDA. Confirmed: he was eligible, the lender was approved, and the MCC would have been worth approximately $1,820/year ($2,000 cap × 20% of ~$9,100 in first-year interest). He had permanently missed it. Over a planned 15-year ownership period, the unclaimed benefit: approximately $27,300.
How to Avoid This Mistake
Before signing with any lender, ask explicitly: "Are you on the MSHDA MCC approved lender list?" and "Should I apply for the MCC with my loan?" Verify your lender's MCC certification at michigan.gov/mshda — MCC Lender List. Note that the MCC lender list is separate from the MI Home Loan lender list — a lender can be approved for one but not the other. If your lender is not on the MCC list, you will need to either switch lenders or forfeit the credit. Make this decision before you start the process, not at closing.
Michigan has two MSHDA-administered programs with two entirely separate lender lists. A lender approved for the MI Home Loan (and MI 10K DPA) is not automatically approved for the MCC — and a lender on the MCC list is not automatically approved for MI Home Loan. They require different lender certifications from MSHDA.
Buyers frequently assume that any "MSHDA lender" can handle both programs. They are referred to a lender by a friend or real estate agent, assume the lender handles everything MSHDA offers, and begin the process — only to discover at pre-approval that their lender is not certified for the specific program they need.
This confusion is compounded by the fact that MI 10K DPA and the MCC are mutually exclusive (you cannot use both on the same purchase). But a buyer who wants one needs to confirm their lender is on that specific program's list — and a buyer who is deciding between the two needs to make that decision before engaging a lender, because switching lenders after you are under contract creates significant timeline risk.
Real Scenario — Firefighter in Detroit, 2026
A Detroit firefighter was deciding between MI 10K DPA and MCC. He had $8,000 in savings and needed closing cost help — MI 10K DPA was clearly the right choice. He was referred by his real estate agent to an MSHDA-affiliated lender. He provided all documents, went through pre-approval, and was accepted for the MI Home Loan. Two weeks into the process, he asked his loan officer to confirm the $10,000 DPA was included. The loan officer checked and discovered their office was not currently certified for MI 10K DPA specifically — only MI Home Loan without DPA. He had to start over with a different lender, losing two weeks and his original rate lock. The property he was under contract for sold to another buyer before he could rebook.
How to Avoid This Mistake
Before engaging any lender, decide which program you want — MI 10K DPA or MCC. Then verify the lender separately against each list: MI 10K DPA lender list or MCC lender list. Ask the lender directly: "Are you on the MSHDA lender list for [MI 10K DPA / MCC]?" and ask them to confirm in your first conversation — not after you have submitted documents. If you are still deciding between DPA and MCC, Post 2 of this series walks through the break-even analysis by purchase price and income level.
Michigan's MSHDA purchase price limit — the maximum home price eligible for the MI Home Loan and MI 10K DPA — changes periodically. On June 1, 2026, the limit increased from $544,233 to $566,355 statewide. A buyer who was told they did not qualify because their target home was priced between those two numbers was given accurate information at the time — but that information may have been outdated by the time they stopped looking.
More commonly: a buyer is pre-approved, finds a home in the $540,000–$550,000 range, gets denied in May 2026 because the purchase price is at the old limit, and walks away from the process entirely — not knowing the limit increased two weeks later. In some cases, buyers gave up and signed leases for another year. They were eligible after June 1 for homes that had been out of reach in May.
This also applies in reverse: buyers sometimes assume the limit is higher than it is based on outdated information from articles or real estate agents who have not checked recently.
Real Scenario — Nurse in Ann Arbor area, 2026
A registered nurse purchasing near Ann Arbor found a home listed at $549,000 in April 2026. Her MSHDA lender confirmed she was over the then-current purchase price limit of $544,233 and could not use MI 10K DPA or the MI Home Loan. She was denied. Discouraged, she paused her home search for two months. In July 2026, her real estate agent reached out to let her know the MSHDA purchase price limit had increased to $566,355 on June 1. The home she had been interested in had sold — but she was now eligible for other homes in the $545,000–$566,000 range she had written off as unaffordable without assistance. The two-month pause was unnecessary; she could have re-engaged immediately after June 1.
Old Limit (Before June 1, 2026)
New Limit (From June 1, 2026)
How to Avoid This Mistake
If you are denied because your target home is slightly over the MSHDA purchase price limit, do not permanently exit the process. Ask your lender: "When does the limit next update?" and "What is the source for the current limit?" Always verify the current limit directly at michigan.gov/mshda — not from articles, real estate websites, or information older than 60 days. MSHDA limit changes are typically announced a few weeks before they take effect. If you are close to the edge, staying in regular contact with your lender through the update cycle can mean the difference between qualifying and walking away.
Michigan law (MCL §211.7b) provides a complete exemption from all property taxes on the primary homestead for veterans with a 100% permanent and total (P&T) service-connected disability rating. At Michigan's average effective property tax rate of approximately 1.28%, this saves approximately $3,136/year on a $245,000 home — or more on higher-value properties.
Starting in 2026, the exemption automatically renews annually without refiling. But the initial Form 5107 application is still required — and it must be filed with your local city or township assessor, not with the county, not with MSHDA, and not with the VA. Many veterans who qualify never file because they assume their disability rating is communicated automatically from the VA to Michigan's local tax authorities. It is not.
A veteran who purchases in 2023 and never files Form 5107 loses approximately $9,408 in tax savings over three years. After 2026, auto-renewal takes effect — but only after the first filing is complete.
Real Scenario — Veteran Teacher in Kalamazoo, 2026
An Army veteran and high school teacher with a 100% P&T disability rating purchased a $238,000 home in Kalamazoo in 2022 using a VA loan paired with MI 10K DPA. He received VA loan closing benefits (funding fee fully waived due to disability) but was never told about the Michigan property tax exemption by his lender, his real estate agent, or the VA. He paid full property taxes — approximately $3,046/year — for four years. In early 2026, a veterans organization sent him information about Form 5107. He filed with the Kalamazoo Township assessor and was approved for a full exemption starting the 2026 tax year. His estimated total loss for tax years 2022–2025: approximately $12,184. After filing in 2026, his annual savings going forward: ~$3,046/year with automatic renewal.
Without Filing Form 5107
After Filing Form 5107
How to Avoid This Mistake
File Form 5107 with your local city or township assessor the same month you close on your home — do not wait. You will need your DD-214 (Member 4 copy) and your VA disability rating letter confirming 100% P&T status. Find your local assessor through your city or township government website. The Michigan Treasury's exemption page has Form 5107 and instructions at michigan.gov/treasury. Once your initial filing is approved, starting in 2026 the exemption renews automatically each year — but only after that first filing is on record.
Before & After — Two Complete Real Scenarios
Case Study A — Firefighter in Flint, $195,000 Home
Based on a documented 2026 scenario. Name and fire department omitted for privacy.
Profile: Firefighter, 9 years on the department, annual salary $66,000, credit score 701, first-time buyer (no homeownership in last 3 years), liquid assets $11,000 (under $20,000 limit), Genesee County (targeted area — first-time buyer requirement waived in parts of Flint).
Mistake Path — Wrong Lender, No DPA
Referred to an MSHDA-affiliated lender who turned out to be on the MI Home Loan list but not the MI 10K DPA certified list.
Discovered lender issue at pre-approval — had to restart.
Lost rate lock window. Closed 6 weeks later with a different lender.
Down payment (3.5% FHA): $6,825 out of pocket
Closing costs: $5,900 out of pocket
Out of pocket at closing: $12,725 — plus delayed closing
Correct Path — Verified MI 10K DPA Lender
Confirmed lender on the MI 10K DPA certified list before first appointment.
MI Home Loan + MI 10K DPA ($10,000 at 0%).
Down payment: $0 (DPA covered full 3.5%)
Closing costs: ~$2,725 out of pocket (DPA covered remainder)
Rate: MSHDA MI Home Loan competitive rate
Out of pocket at closing: ~$2,725
Total difference: The correct path saved $10,000 at closing and eliminated 6 weeks of delay. The lender verification step takes 5 minutes at michigan.gov/mshda. It was the only difference between the two outcomes.
Case Study B — Veteran Nurse in Grand Rapids, $265,000 Home
Based on a documented 2026 scenario. Name and employer omitted for privacy.
Profile: Registered nurse and Navy veteran with a 100% P&T disability rating, annual salary $74,000, credit score 734, liquid assets $9,500 (under $20,000 limit), first-time buyer, Kent County.
Mistake Path — Three Errors Combined
Used a non-MSHDA lender (missed MI 10K DPA). Did not ask about MCC — lender was not on MCC list anyway.
Closed with standard VA loan only.
Never filed Form 5107 after closing.
VA funding fee: $0 (waived for 100% P&T — this part was correct)
Down payment: $0 (VA — correct)
Closing costs: $7,200 out of pocket
Property taxes paid (2024–2026): ~$6,272 ($3,136 × 2 years)
Total avoidable cost: ~$23,472 ($10,000 DPA + $6,272 taxes + delayed savings)
Correct Path — VA + MI 10K DPA + Form 5107
MSHDA + VA certified lender. VA MI Home Loan + MI 10K DPA stacked.
VA funding fee: $0 (waived — 100% P&T)
Down payment: $0 (VA loan)
Closing costs: ~$0 (MI 10K DPA covered)
Form 5107 filed at closing: full property tax exemption active.
Property taxes (2024–2026): $0
Out of pocket at closing: ~$1,500 (inspection + prepaid). Annual property tax: $0.
Total difference: The correct path eliminated $7,200 in closing costs (MI 10K DPA), $3,136/year in property taxes (Form 5107), and unlocked automatic annual renewal from 2026 onward. Over a 10-year ownership period, the difference between the two paths exceeds $38,000 — from the same buyer, the same home, the same VA eligibility.
Am I Making Any of These Mistakes? — Self-Check
Check every item before you apply. If you cannot check a box, address it before moving forward.
Official Resources
Frequently Asked Questions
Michigan Hero Loan Series — Complete
Final thought: Every mistake in this post is avoidable with two actions — verifying your lender against the correct MSHDA program list before you start, and filing Form 5107 the month you close if you are a 100% P&T veteran. Michigan's hero home loan programs are among the most straightforward in the Midwest, and MSHDA's record-breaking 2025 year proves that. The buyers who benefit most are the ones who understand the rules — and act on them before closing day, not after.
Comments
Post a Comment