How to Buy a House in Michigan: A Homebuyer’s Guide

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Edited byScott Strandberg
Contributions by2 experts
Edited byScott Strandberg
Contributions by2 experts

Updated: May 21, 2024

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The average value of a home in Michigan is $237K, which has increased by roughly 10% in the last year. Although the value of a home in Michigan has steadily increased, it is still significantly cheaper than the national average at $358K.

Homebuyers will be happy to learn that Michigan is the 11th cheapest state to own a home in, with mortgage payments averaging $1,031 per month. However, the cost isn’t the sole factor that Michigan homebuyers should consider when shopping for a home. The location in which you live, for instance, is equally important.

Understanding how homebuying works can make the process easier on the buyer’s end. This guide shares how to tackle the application process while avoiding deep debt.

Key Takeaways

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The average cost of homes in Michigan is $237K, a rate that has risen roughly 10% in the last year.

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When taking out a mortgage, lenders usually assess a borrower’s credit score, debt-to-income ratio, proof of employment and income.

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Homebuying entails shortlisting locations, computing mortgage rates, getting a pre-approval letter and gathering important documents.

Choose an Ideal Location

Where you choose to live can have a significant impact on the value of your home, cost of living and mortgage costs. Aside from these aspects, location can also determine access to certain amenities, available recreational activities and neighborhood culture. One way to choose a preferred city or county is to evaluate your budget, lifestyle and priorities.

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The homebuying process can get overwhelming at times. Hence, consulting a real estate expert is a good way to find the best place to buy a home in Michigan. Working with a stellar agent can accelerate homebuying since they select possible properties based on your specific needs.

When looking for a real estate agent, consider the following:

  • Is the agent licensed?
  • Does the agent have an in-depth understanding of the local market?
  • Have you compared rates against other prospects?
  • How was the experience of recent clients with this agent?

The right real estate agent for you will balance your budget and ideal home.

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The city or county you live in can influence your living expenses just as much as the cost of your home itself. Therefore, before you consider applying for a mortgage, it’s wise to calculate how much you should expect to pay for:

  • Food
  • Health care
  • Utilities (like electricity and water)
  • Income, property and real estate taxes
  • Public transportation costs
  • Car and medical insurance rates

Feel free to use MoneyGeek’s cost of living calculator so you can determine an estimate of how much you might need. Also, factor in additional costs if you will be moving with family.

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Fortunately for Michigan homebuyers, the state is one of the most affordable locations in the U.S. It is the 11th cheapest state to live in when it comes to average mortgage payments.

Depending on your needs, you might choose to live in a metropolitan, suburban or rural area. While non-metropolitan areas are less pricey, they have downsides, including limited access to schools, malls, hospitals and other amenities.

Based on median household income, cost of living and housing costs, some of the most affordable cities in Michigan are Livonia, Troy, Allen Park, Holt and Rochester Hills. Please note that these areas are small cities in Michigan.

Calculate Mortgage Rates

Computing average mortgage rates in Michigan is key if you’re going through the homebuying process. The cost of your mortgage is affected by factors like your credit score, monthly income, interest rates, loan type and limit. To find a suitable mortgage rate for your needs, it’s advisable to compare lenders based on service quality, terms and rates.

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The type of mortgage you choose can affect your rates in Michigan. While lenders have different criteria, your credit score, debt-to-income ratio and income also play a role in determining costs. Those with good to excellent credit scores, for example, usually pay lower interest rates.

Here are the average interest rates per home loan program:

Keep in mind that not everyone qualifies for the above loan types. For instance, only military personnel and their eligible surviving spouses can take out a VA loan.

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Computing your possible mortgage rate will help reveal whether or not you’re ready to buy a home. It also shows how much you need to save to start the homebuying process. MoneyGeek’s mortgage calculator offers personalized factors that readers can adjust based on their situation and financial profile.

If you’re on the fence about the loan type you need, we also dive into FHA versus conventional loans. Our guide provides a calculator tool so you can discern the best option for you.

Once you’re financially ready, you can start shopping for lenders based on your specific needs. Michigan offers programs for first-time homebuyers and those who need housing assistance.

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Your financial profile often affects the terms of your mortgage, such as APR rates and loan limits. Mortgage lenders typically consider a borrower’s:

  • Credit score: If you have a good credit standing, it’s much easier to secure a low interest rate. In turn, your overall mortgage becomes more affordable.
  • Debt-to-income (DTI) ratio: This refers to the amount of your income that pays existing debts. Some lenders have a 43–45% DTI limit.
  • Down payment: Paying a larger upfront down payment typically entails cheaper monthly mortgage payments.
  • Income: This is one factor that indicates your creditworthiness. Lenders might have a minimum income requirement.

Lenders have different requirements, so if you’re unable to meet specific criteria, you may still be able to improve these factors or find lenders with different priorities.

Prepare Down Payment Requirements

The type of mortgage you choose will determine your down payment. Low-down-payment programs have a down payment rate of as low as 3.5%. Researching a suitable mortgage type might be able to save you more in the long run.

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The down payment is one of the most significant costs you will incur during the homebuying process. Conventional loans usually require a 20% down payment unless you agree to purchase private mortgage insurance (PMI). If this is beyond your budget, there are also low-down-payment programs.

Alternatively, you could look into VA and USDA loans, both of which are zero-down-payment programs. However, you need to meet certain criteria to qualify. VA loans are designed for military members and veterans, while USDA loans are for eligible applicants in rural areas.

It’s worth noting that a down payment can affect your monthly premiums. If you provide a larger down payment, it typically means cheaper rates and monthly payments.

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If you’re purchasing a home with a small down payment, you should anticipate the cost of mortgage insurance. If a borrower fails to fulfill their financial obligations, mortgage insurance protects the lender.

Those who pay less than a 20% down payment on a conventional loan are required to have private mortgage insurance (PMI). While FHA and USDA loans do not require PMI, they do require similar payments — FHA loans require an upfront mortgage insurance premium (MIP), while USDA loans require a monthly guarantee fee. On the other hand, VA loans don’t require applicants to purchase mortgage insurance.

If you have PMI on a conventional loan, you can request to have it canceled once you’ve paid at least 20% of the home’s value in premiums.

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Buying a home can be a costly endeavor. Luckily, Michigan has several down payment assistance and first-time homebuyer programs to help homebuyers take out a loan. Michigan has the following programs:

  • MI Home Loan: This program is designed for first-time homebuyers and repeat homebuyers in certain Michigan locations. Borrowers must have a minimum credit score of 640 and above (and 660 for multiple-section homes).
  • Down Payment Assistance: The Michigan state government offers down payment assistance of up to $10,000, depending on your profile and location.

If these programs aren’t a good fit for you, you’re free to explore other options in Michigan.

Get Pre-Approved for a Mortgage

It’s best to get pre-approved for a mortgage before buying property in Michigan. In some cases, sellers will ask for pre-approval from your lender before showing you a potential home.

While the terms sound similar, there are key differences between pre-approval and prequalification. Pre-approval is a commitment that states how much a lender is willing to loan, and it includes documentation of several aspects of the borrower’s finances, whereas prequalification merely indicates that a borrower qualifies for a mortgage.

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When you’re applying for a mortgage in Michigan, your lender may ask for the following items:

  • Investment statements
  • Bank account statements
  • Current pay stubs
  • Social Security number
  • Photo ID
  • W-2 forms
  • Proof of employment
  • Tax returns
  • Other mortgage statements

Expect that your lender may request other documents depending on your profile, especially if you are self-employed. One way to save time is to call the lender and ask so you can gather relevant documentation.

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Timing is important in this step. If you’re able to compile the documents you need, it could accelerate the homebuying process.

Receiving your pre-approval letter is an essential step when purchasing a Michigan home. A pre-approval letter contains the lender’s terms, particularly how much the lender is willing to lend you. While the timeframe varies from lender to lender, pre-approval letters are usually valid for a maximum of 90 days (sometimes only 60 days).

It is best to make a bid on a home before your pre-approval expires. While you can request a renewal of your pre-approval, keep in mind that renewals could trigger additional hard credit checks, which can hurt your credit standing.

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A pre-approval letter symbolizes a borrower’s financial readiness to take out a mortgage. While there isn’t a maximum amount of letters a borrower can request, make sure your credit score is in good shape. Getting a pre-approval letter means that the lender will conduct a hard credit inquiry that can damage your credit score.

You’ll find the following information in a pre-approval letter:

  • Interest rate
  • Loan term
  • Loan type
  • Maximum loan amount
  • Monthly mortgage payment

Lenders may or may not include the information you already provided. A lender may request related documents. Use this time to work on any factors that can affect your application.

Conduct a Home Inspection

While it isn’t legally required, it’s good to include a home inspection in the homebuying process. A professional home inspector can provide a clear picture of the home’s current condition so you can anticipate potential repairs. Keep in mind that the homebuyer will shoulder the home inspection fee, which can cost up to $500.

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Hiring a home inspector is a smart investment. If you’re looking for a reputable home inspector, try asking trusted friends and family or your real estate agent.

Based on the International Association of Certified Home Inspectors, a standard home inspection includes a thorough review of the home’s:

  • Attic, insulation and ventilation
  • Basement, foundation and crawlspace
  • Cooling
  • Doors and windows
  • Electrical
  • Fireplace (if any)
  • Plumbing
  • Roof
  • Exterior
  • Heating systems

Home inspectors will produce a written report about each of the home’s features. It’s also possible to request a special inspection for specific perils, such as wood-destroying organisms (WDO), radon or mold, although these will cost extra.

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Although home inspections aren’t required by law, some cities or counties in Michigan might require you to get one. Consider requesting extra inspections outside the standard process to ensure that the home is in excellent condition.

Once you meet your home inspector, you might want to ask for a radon or termite inspection. It’s also a good idea to ask for the rates of each so you know how much to set aside. MoneyGeek’s research determined that a special inspection can cost as much as $700, depending on the service.

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The mortgage lender usually conducts a home appraisal, but it is possible to get a third-party expert. A home appraisal usually involves an inspection of the home’s interior, exterior and key features so that the home is given an accurate value. Anticipate that the appraiser will also measure the property’s perimeter. Afterward, the appraiser will assign a dollar value to the home based on current market rates and similar properties in the area.

The appraisal process helps both the borrower and lender. Knowing the value of the home can prevent the borrower from overborrowing, making it less costly for the lender if the borrower defaults.

Close Your Mortgage Loan

After you’ve completed a home inspection and appraisal, one of the final steps in the homebuying process is to settle any closing costs. This typically includes appraisal charges, a document preparation fee and more. Please note that you also have to anticipate expenses related to legal work and additional home inspection fees.

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When you’ve accepted the lender’s loan terms, you will be asked to sign the following documents:

  • Final loan application: This indicates that the details you gave the lender are accurate and true. If any details have changed over the past few weeks or months, inform the lender.
  • Homeowners insurance: It’s the policy that protects against damages to your belongings and your home’s physical structure.
  • Mortgage note: When you sign this, you are legally bound to pay the mortgage and all related expenses on the agreed date and terms.
  • Property deed: This document transfers ownership to the buyer and provides a comprehensive list of the property’s features.

Understanding each detail of the above documents is crucial. If you need assistance, you can consult a mortgage expert or your lender to avoid any surprises.

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Homebuyers should expect that closing costs can add up to 5% of the home’s total purchase price. At the end of the homebuying journey, expect to pay the following expenses:

  • Credit report: Lenders inquire with a credit reporting agency to learn about a borrower’s financial background and risk.
  • Escrow: This is a borrower's bank account that is tied to homeownership costs, including homeowners insurance and property taxes.
  • Appraisal fee: This is the amount you pay an appraiser to assess the value of your potential property.
  • Title insurance policy: This premium covers the lender in case of a legal defect with the property’s title.
  • Home and pest inspection charges: This includes how much you pay a home inspector to examine a home’s condition rigorously.

There may be other fees that aren’t included in this list. However, it offers a general idea of what to expect.

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If you want to find the best and most affordable place to buy a home in Michigan, you need to undergo a long and comprehensive process. You can start by shortlisting preferred neighborhoods, computing mortgage rates, gathering documents and requesting a pre-approval letter. You should also consider performing a home inspection and appraisal.

When you’ve covered all related costs and closed the purchase, you’re ready to be a homeowner in Michigan! The next step is to manage your monthly mortgage payments while also balancing the cost of living in your new location.

A responsible homebuyer anticipates emergencies, which is why it’s important to set aside a fund for a rainy day. It’s also a good idea to have money saved for cleaning, maintenance and the repair of broken appliances or systems.

Michigan Homebuying Details

During your homebuying research, you might stumble upon a few Michigan-specific requirements. It’ll help to reach out to a real estate agent or your desired lender so you know if there are any details you should know to purchase a home in Michigan.

Seller’s disclosure

Michigan law mandates all sellers to complete a written Seller’s Disclosure Statement (SDS) for the potential homebuyer before any purchase is made. Before you purchase a home in Michigan, it’s necessary to secure this document first.

Housing Education Program

The state of Michigan offers classes, workshops and counseling for prospective homebuyers.

Frequently Asked Questions About Buying a Home in Michigan

If you’re curious about how to buy a home in Michigan, MoneyGeek answered commonly asked questions. The answers can help you prepare for the homebuying journey.

What are the most important questions to ask when buying a house in Michigan?
Is buying a house in Michigan a good idea?
Is it wise to buy a house in Michigan in 2023?
How much income do I need to buy a house in Michigan?
How much is property tax in Michigan?
Which Michigan city is the cheapest to buy a home?

Experts' Advice About Buying a Home in Michigan

  1. What is the minimum credit score required to purchase a house in Michigan?
  2. What are the key factors to consider when buying a house in Michigan?
  3. What are some common mistakes that home buyers make when trying to purchase a property in Michigan, and how can they avoid these pitfalls?
  4. Are there any programs available to help first-time home buyers in Michigan?
Brian Mutter
Brian MutterMortgage Broker/Owner at Forward Mortgage
Carma Peters
Carma PetersPresident & CEO of Michigan Legacy Credit Union