Buying a house in Michigan: A how-to
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If you’re thinking about buying a house in Michigan, you’re on the right track, no matter your age, lifestyle or budget. There’s something for everyone here, from youthful college-town energy in Ann Arbor or East Lansing to peaceful places to watch the sunset when you’re sunsetting your working years — the state is near the top of the list in Bankrate’s best states to retire. Let’s not forget big-city vibes in a resurgent Detroit and an away-from-it-all escape in the Upper Peninsula.
While there’s a lot to love about Michigan, there’s plenty not to love about buying a house there right now. With rising mortgage rates and an overheated housing market, you might be wondering whether you should buy a house now or wait. But if you have solid credit and plan to be a Michigander for a long time, there’s no need to delay your down payment. You can buy now to avoid even higher prices in the future. Read on for everything you need to know about how to buy a house in Michigan.
How to buy a house in Michigan
Decide where to live in Michigan
If you aren’t tied to a particular place in Michigan, you have a big map to consider: The state covers more than 96,000 square miles, with shorelines touching four of the Great Lakes. There’s an equally wide range of housing prices, too. The average sale price at the midway point of 2022 was just over $260,000, according to data from Michigan Realtors. If you’re looking in Emmet County, home to the calm summer vibes of Petoskey, average prices are more than $523,000. But head to Bay County, and average prices are an affordable $156,600.
However, it’s not just the cost of the home that should help you decide where to buy a house in Michigan. Pay close attention to the total cost of living — what you’ll pay for essentials like transportation, food and utilities — to get a sense of how far your income will take you in different parts of the state. For example, Bankrate’s cost of living calculator shows that living in Ann Arbor costs more than 10 percent more than living in Grand Rapids. And speaking of Ann Arbor, it earned a spot on Bankrate’s list of the best cities in the U.S. for families, so if your long-term plans include children, consider becoming a Wolverine.
Tips for buying a house in Michigan
As you start browsing for homes in Michigan, it’s important to have an idea of how much you’re going to need to borrow to move in. The amount will help determine whether you’re looking for a conventional loan or a non-conforming jumbo loan. In Michigan, it’s easy to figure out the answer: The conforming loan limit is $647,200 in every county. So, if you need to borrow more, expect a lender to ask for excellent credit and a bigger down payment. If you’re planning to look for an FHA loan, your borrowing limit will be much lower: $420,680 across the entire state.
Things to know about buying a house in Michigan
Regardless of what kind of loan you’re planning to use and what kind of home you’re looking to buy, you’ll need to keep some of these key considerations in mind.
- Property taxes: In addition to paying your lender, you’re going to need to budget to pay the government. Property taxes in Michigan are fairly high: around 1.38 percent of your property’s assessed value, according to the Tax Foundation. But they differ depending on the city and county. Be sure to ask the seller for their most recent annual property tax bill, or use the state’s property tax estimator tool to get a sense of how taxes vary across the state.
- Dual agency: Michigan law permits dual agency, which is when a buyer’s agent also represents the seller in the transaction. Your agent is required to get your written consent if this is the case, though. There are pros to dual agency — namely that you might be able to get a deal done faster — but there are potential conflicts of interest, too.
- Seller’s disclosure: All Michigan home sellers are required to complete a property disclosure form that outlines their knowledge about the state of the home and any defects that could impact its value. Read this carefully, and watch out for any warning signs about past damage, leaks or other problems that might make owning the home a hassle (or worse: unsafe).
- Closing costs: Closing costs in Michigan are relatively high at around 2.7 percent of the purchase price, according to data from ClosingCorp. In 2021, that worked out to an average of $5,714. The good news for you as a buyer: The seller typically pays for the real estate transfer taxes in Michigan, which can make up a big portion of that tab. Additionally, the seller usually covers the cost of the owner’s title insurance, although the buyer will need to pay for the lender’s title policy.
- Attorneys: Michigan does not require buyers or sellers to hire real estate attorneys to represent them in the transaction. However, buying a home may be the biggest expense you ever incur, so it’s wise to hire a legal expert to make sure you are protected in the deal.
- Climate and weather considerations: Michigan is a beautiful state, but beauty, particularly when it means waterfront beauty, can come with risks. A recent study identified more than 315,000 properties in the state at risk of flooding, and disastrous flooding in 2020 in Midland County served as a reminder of the troubles that water can pose. So, in addition to finding the right homeowners insurance, make sure you determine if you need additional flood insurance coverage on a property you are thinking about buying.
How much house can I afford in Michigan?
As you look at the price tags next to online listings, you might start to feel overwhelmed. Should you actually buy a house? How will you ever be able to afford it? Calm down. While you might not be accustomed to handing over hundreds of thousands of dollars, think less about the overall number and more about the number you’ll need to pay each month. With a 30-year mortgage, you can spread your payments out over three decades to help make owning a home a reality. Bankrate’s new-home calculator can help you set a budget designed to live within your means.
By limiting your monthly mortgage payment to less than 28 percent of your monthly income, you’ll be able to afford your other debts (like car payments or student loans) and have some money left over to do the things that make being a Michigander worthwhile, like skiing at Boyne Mountain in the winter and vacationing on Mackinac Island in the summer.
Saving for a down payment in Michigan
As you’re trying to buy a home in Michigan, you may want to save those excursions to Boyne and Mackinac for a later date so you can focus on saving for a down payment. Fortunately, there are some options designed to help first-time homebuyers. The Michigan State Housing Development Authority offers a program that can help you get a second mortgage of up to $7,500 ($10,000 in certain zip codes) to cover your down payment and closing costs. While you’ll have to pay the money back when you sell or refinance the mortgage, it comes with a 0 percent interest rate, so your balance will not increase.
You don’t have to be a first-time homebuyer to find some help in Michigan, either. There are local programs that can help low-income homebuyers, like the Grand Rapids Homebuyer Assistance Fund, along with initiatives in East Lansing that offer up to $30,000 of financial assistance.
Get preapproved for a mortgage
After you’ve determined what you can comfortably afford, it’s time to get preapproved for a mortgage. A preapproval letter will help a seller in Michigan recognize that you’re a highly qualified buyer. Some lenders can issue an automated preapproval in just 15 minutes if you complete an online application, while others might need a couple of days to review your financial information. Either way, getting preapproved is free and easy — two key ingredients in a homebuying process that can often feel very costly and very hard.
Find the right lender
Once that preapproval helps you get an accepted offer, find a lender to remove the “pre” from your status. Start by comparing Bankrate’s top five lenders in Michigan to get a sense of the different rates, terms and fees currently available. Remember that the advertised interest rate can look especially tempting, but the real number to pay attention to is the APR: It will give you a better idea of the total costs of the loan. And while money is certainly the most important ingredient when you’re trying to buy a home, there are other factors to consider. What do customer reviews look like? Does the company have a good track record with the Better Business Bureau? Are there any unique programs, such as free rate locks or discounts on fees for future refinances?
Find the best local real estate agent in Michigan
You need more than financing to buy a place in Michigan. Find a local expert who can steer you toward your dream home. With a knowledgeable real estate agent on your side, you’ll have someone who knows the ins and outs of the local market — how quickly homes are selling, whether they’re going for more than the initial asking price, which properties might be coming on the market next week and more.
Realtors all have different levels of expertise; some have been in the industry for decades while others may have just jumped into the game. So, ask them lots of questions when you’re determining the best fit for your journey. And one pro tip: If you’re moving to Michigan from out of state, look for the initials CRP next to an agent’s name. It stands for Certified Relocation Professional and signifies they are trained for your long-distance homebuying needs.
Start house hunting and make an offer
Now, the real search begins. It’s time to take all that online searching into IRL visits to find a house you can turn into a home. Go into the house-hunting phase with an open mind, and a long-term vision of what a house can eventually be. Do those kitchen cabinets feel like they’re from 1990? You can tear them out and install a new set in a couple of years. If you’re willing to make some sacrifices on your list of must-haves, you’ll be able to buy a home at a more affordable price point. You can always make adjustments later.
When you find a place that feels like a great fit, your agent will be able to help craft a compelling offer. He or she will have a good idea of whether homes have been selling for more than their list price, and what you can do to sweeten the deal if necessary.
Get a home inspection and appraisal
After your offer is accepted, it’s not quite time to celebrate. Instead, get a home inspection to verify that the property is indeed worth buying. It’s kind of like looking under the hood of a car you want to buy: The exterior looks shiny, but you need to make sure the engine isn’t about to fail. This crucial piece of the homebuying process can help you avoid inheriting costly issues you’ll have to deal with later.
If your purchase is being financed, you’ll also need to get an appraisal. Appraisals are required by lenders to make sure that the home is actually worth the price you’ve agreed to pay. That way, if you default on the loan, the lender has a reasonable assurance that they can sell the home and recoup their losses.
Final walk-through and closing on your new Michigan home
What if something happens to the home between the day you go to contract and the day of closing? Schedule a final walk-through on your closing day, or just before, to verify that the property is in great shape and that nothing has been damaged during the seller’s move-out. It’s your last chance to raise any concerns, so follow these tips to be on the lookout for common issues. If everything looks good, you’re ready to close.
There shouldn’t be any surprises — you’ll know all your costs in advance thanks to the closing disclosure you’ll receive a few days prior. So, show up with a certified check or cashier’s check, and sign your name everywhere the closing reps tell you to. There’s just one more thing to do before you can give that hand a rest: Give yourself a high-five, because you now have a place to call home in America’s High Five. Congratulations, you are officially a Michigan homeowner.
That depends on where you want to live in Michigan, and what kind of loan you’ll be using to finance the purchase. The median down payment in Michigan was $19,000 earlier in 2022. With many conventional loans, you’ll be able to make a down payment of just 3 percent. In Battle Creek, for example, the average sale price is currently around $218,000, so a 3 percent down payment would be just $6,540. In Ann Arbor, where the average price is just over $436,000, you would need more than $13,000. Don’t forget that the down payment is just one piece of the puzzle; you need enough liquid cash to cover your closing costs, too.
Buyers have faced plenty of challenges in Michigan over the past two years — rising prices, limited supply and now, higher mortgage rates. However, the market is beginning to show some signals that times are changing. It is becoming a better time to buy a house here. The number of homes for sale has been on the upswing in 2022, according to Redfin data. Plus, the number of sellers who have dropped their prices increased throughout the summer. So, if you have good credit and you can afford a sizable down payment, the market in Michigan is starting to look a bit sunnier for buyers.