When it comes to financing homes across Michigan, especially in rural and suburban areas, understanding the differences between FHA and Conventional guidelines can make or break a deal. We work with borrowers every day who are purchasing properties with private wells and septic systems. These properties are common throughout Michigan, from Northern Michigan to more rural pockets outside major cities like Grand Rapids and Traverse City. But not all loan programs treat these properties the same.
FHA Loans in Michigan: Strict Well & Septic Guidelines
FHA loans are known for their lenient credit and down payment requirements, but when it comes to property condition and safety, they are far stricter than Conventional loans. If the home you’re buying in Michigan has a well and septic system, FHA requires:
- Minimum 10 feet between the well and the property line
- Minimum 50 feet between the well and the septic tank
- Minimum 100 feet between the well and the septic drain field
In addition, water flow requirements must be met:
- New Construction: Minimum 5 gallons per minute
- Existing Homes: Minimum 3 gallons per minute
These rules are in place to ensure safe drinking water and proper sanitation, but they can also create unexpected challenges during the appraisal and inspection process. Many homes throughout Michigan rely on private wells and septic systems, especially in rural counties, on lakefront properties, and on acreage. If these distance or flow requirements are not met, an FHA loan may not be approved unless costly corrections are made.
Conventional Loans: More Flexibility
Here’s where Conventional financing has the advantage. Unlike FHA, Conventional loans:
- Do not require strict distance guidelines between wells and septic systems
- Typically rely on local health authority standards instead of federal overlays
- Offer more flexibility when properties don’t meet FHA’s exact criteria
When FHA Doesn’t Work — Consider Non-QM Options
Our specialty in more than just FHA and Conventional loans. If a property doesn’t meet FHA guidelines, and Conventional isn’t an option due to income, DTI, or other factors, Non-QM loan programs can often provide a solution. These programs may offer:
- Alternative income documentation (bank statements, P&L, etc.)
- Flexibility on property types
- Solutions for self-employed borrowers
Have questions about a property with a well or septic system? Reach out and let’s structure your loan the right way.
