The Three-Year Test, and Where It Does Not Apply
Program and regulatory figures verified September 26, 2026. Details change; confirm your scenario with us.
Two thirds of the first-time buyer confusion in Michigan comes from not knowing the rule is conditional on where the house is.
What MSHDA means by first-time homebuyer
Not what the phrase sounds like. MSHDA's definition is having not owned a home in the previous three years, which is a rolling window rather than a statement about your history.
So the following households are all first-time homebuyers for MSHDA purposes: someone who has never owned; someone who sold in 2020 and has rented since; someone who owned a condo years ago; someone who came out of a divorce without the house and has rented for three years.
The rule only applies in some places
This is the part the standard write-up leaves out. MSHDA's limits sheet states the requirement conditionally: non-targeted areas must be a first-time homebuyer, targeted areas may be a first-time homebuyer or repeat homebuyer.
| Where you are buying | Does the three-year test apply? |
|---|---|
| One of the 66 whole-county targeted areas | No |
| A targeted city or township inside a split county | No |
| A non-targeted part of a split county | Yes |
Targeted-area status is determined by MSHDA at city and township level and must be confirmed for the specific address. The county picture · if you have owned before.
How the test gets applied
An underwriter is going to look for evidence of ownership in the look-back period rather than take your word for it, and the usual place that shows up is your tax returns. Mortgage interest and real estate tax deductions in the last three years are the signal.
Which means one piece of practical advice covers almost everyone: pull your last three years of returns before you apply, and if anything in them looks like homeownership, tell us about it up front. A disclosed complication early is a condition. An undisclosed one found late is a problem.
The cases people ask about
Inherited property
Ownership is ownership regardless of how it arrived, so an inherited interest in a home during the look-back period is something to disclose and have reviewed against the current guideline. We would rather read your specific situation than publish a rule of thumb that turns out not to cover it.
Divorce
Whether the look-back is satisfied depends on when your name came off the title and the loan, not on when the marriage ended. Those dates are often years apart, so bring the documents.
A rental you still own
If you currently own residential property, the three-year test is not satisfied in a non-targeted area. In a targeted area the test does not apply, so the question changes to whether the new home will be your owner-occupied residence, which is a separate MSHDA requirement. Owner-occupancy.
A home you owned in another state
The test is about owning a home, not about owning one in Michigan. A house in Ohio counts the same as a house in Wayne County.
Two doors into the same program
The useful way to hold all of this: there are two independent paths to a MI Home Loan and the MI 10K DPA. Pass the three-year test, or buy in a targeted area. You need one, not both.
Most Michigan buyers who assume they are locked out have not checked the second door. Send us the address and we will check it against MSHDA's own limits sheet.
Frequently asked questions
What counts as a first-time homebuyer for MSHDA?
MSHDA defines a first-time homebuyer as someone who has not owned a home in the previous three years. It is a rolling look-back window rather than a statement about whether you have ever owned, so a household that sold in 2021 and has rented since meets the definition. Ownership anywhere counts, not just in Michigan.
Do I have to be a first-time buyer to use MSHDA?
Only in a non-targeted area. MSHDA's limits sheet states that non-targeted areas must be a first-time homebuyer while targeted areas may be a first-time homebuyer or repeat homebuyer, and 66 of Michigan's 83 counties are targeted in their entirety. So across most of the state the three-year test never gets applied. Targeted-area status is determined by MSHDA at city and township level and must be confirmed for the specific address.
How does MSHDA verify the three-year rule?
Expect an underwriter to look for evidence of homeownership during the look-back period rather than rely on your statement, and the usual place it appears is your tax returns, through mortgage interest and real estate tax deductions. Pulling your last three years of returns before you apply and disclosing anything that looks like ownership turns a potential problem into a routine condition.
I inherited a share of a house. Does that break the three-year test?
An ownership interest is an ownership interest regardless of how it arrived, so an inherited interest during the look-back period is something to disclose and have reviewed against the current guideline rather than assume either way. In a targeted area the question is moot, because the first-time requirement does not apply there at all.
Does a home I owned in another state count against me?
Yes. MSHDA's test is about not having owned a home in the previous three years, and it does not limit that to Michigan property. A house you owned in Ohio or Indiana counts the same as one in Wayne County. The same look-back window applies, so if the sale was more than three years ago it no longer matters.
Mike Certo · NMLS #260555 · Cornerstone First Mortgage NMLS #173855 · Equal Housing Lender. Educational content about financing, not a loan commitment and not legal or tax advice. MSHDA program terms, income limits and sales price limits are set by the Michigan State Housing Development Authority and change; figures here carry the date we verified them against MSHDA's published documents. Targeted-area status is determined by MSHDA at city and township level and must be confirmed for the specific address. Loans are subject to borrower and property qualification.