How to Buy a House in Michigan: 6 Steps

Purchasing a house is a major financial decision that requires careful consideration. The average home value in Michigan is $250,534, which is significantly lower than the national average of $362,481. This difference may make Michigan an appealing option for prospective homebuyers looking for more affordable housing options.

Understanding down payment assistance programs, mortgage types and state-specific regulations and requirements can ensure a smooth journey toward homeownership in the Great Lakes State. MoneyGeek compiled the essential pointers to help you navigate the homebuying process in Michigan, from saving the down payment and choosing the ideal location to finding the best financing option for your particular needs and credit history.

According to the U.S. Census Bureau, the homeowner vacancy rate in Michigan for the second quarter of 2024 was 0.7%. The homeowner vacancy rate measures the proportion of homeowner properties that are vacant and available for sale.

A stable vacancy rate, which offers homebuyers some choice and flexibility, is about 2%. Michigan's low rate of 0.7% suggests there is not enough inventory on the market to satisfy homebuyer demand, meaning homebuyers may face stiff competition and potentially higher prices as they search for homes.

Before buying a house in Michigan, it's essential to review your financial and credit history. A strong financial profile increases your likelihood of getting approved when applying for a mortgage.

Your credit score plays a key role in determining the mortgage loans and interest rates you qualify for. A higher score increases your chances of securing a favorable rate. According to Experian, the average credit score in Michigan is 719

If your credit is considered poor (with a FICO score below 580), getting a mortgage may be challenging. Check the table below to see which mortgage type fits your situation based on minimum credit score requirements.

Source: Experian

Your debt-to-income ratio (DTI) is a vital metric that lenders use to determine how much of your monthly income is allocated to debt payments. This helps them evaluate the amount of mortgage debt you can manage. According to Experian, the average mortgage debt in Michigan was $155,835 in the third quarter of 2023. This figure highlights the additional financial responsibility you may take on when purchasing a home.

Your DTI calculation includes monthly debt payments like credit card payments, auto loans and student loans. Use our debt-to-income ratio calculator below to see your front-end DTI, back-end DTI and total monthly debt payments. The front-end DTI focuses on housing-related costs, while the back-end DTI accounts for all your debts.

Purchasing a home is a significant financial commitment, and it's easy to fall into the trap of buying more house than you can afford. One way to avoid this mistake is by adhering to the 28% rule, which recommends that your monthly mortgage payment should not exceed 28% of your gross monthly income. This guideline helps ensure that you maintain a balanced budget and avoid financial strain.

According to the U.S. Bureau of Labor Statistics, the median annual income in Michigan as of April 2024 was $46,940. This translates to a gross monthly income of $3,912 before taxes. Using the 28% rule, a homeowner should aim for a monthly mortgage payment of no more than $1,095. This approach helps you stay within your financial limits and manage your expenses effectively.

To get a clearer picture of your potential monthly mortgage payment in Michigan, use our mortgage calculator below.

A down payment is the initial amount you pay when buying a house, often set at 20% of the home's purchase price. This standard can be a significant hurdle for many homebuyers. In Michigan, the average home value is $250,534, meaning a 20% down payment would be $50,107. For homes priced above average at $255,000, the down payment would be $51,000.

Thankfully, saving for a 20% down payment isn't mandatory. Most mortgage types allow for smaller down payments. For instance, government-backed loans like VA loans require 0% down, while FHA loans require just 3.5%.

If you put down less than 20%, your lender might require you to take out private mortgage insurance. You can use our PMI calculator to estimate your monthly private mortgage insurance premium based on your credit score and down payment.

Michigan offers several down payment assistance programs to help make homeownership possible for many individuals. These programs provide financial support that can ease the burden of initial homebuying costs. Check out the table below for more details on the available down payment assistance programs in Michigan offered by the Michigan State Housing Development Authority (MSHDA).

Finding the right location in Michigan involves evaluating several factors. Consider the average house price, which can vary significantly across the state. Proximity to family, friends and your workplace or school is crucial for maintaining a balanced lifestyle. Access to public transportation, parks, restaurants and shopping centers can also greatly enhance your quality of life.

The cost of living is another important consideration when choosing your new home. According to the Missouri Economic Research and Information Center (MERIC), Michigan's cost of living index for the first quarter of 2024 was 91.8, which is below the national average of 100. This means living in Michigan may be more affordable than in other states. Here are some essential expenses to consider:

• Food
• Health care
• Clothing
• Utilities
• Education
• Transportation
• Entertainment

Check out the table below to see some cities in Michigan and their average home values based on recent data. You can also use our cost of living calculator to help you estimate how much you'll need to pay for all the essentials in different locations.

Source: Zillow

Working with a real estate agent can significantly speed up your house hunt in Michigan. They provide the advice you need, handle paperwork and offer an expanded list of property options you might not find on your own. They can also recommend other service providers, such as title companies and inspectors, to facilitate the homebuying process.

When finding a real estate agent, ensure you do your due diligence and interview agents with experience in your desired neighborhoods. Consider the following tips:

• Find someone compatible with your needs and personality
• Verify the agent's credentials, training and licensure
• Ensure they have in-depth knowledge of the area
• Shop around for agents and compare their rates

You can also use the license holder search tool from Michigan Licensing and Regulatory Affairs to find or verify real estate agents in Michigan.

Navigating the homebuying process in Michigan involves selecting the most suitable mortgage for your financial situation. Options include conventional, jumbo, FHA, VA and USDA loans. You can choose from 10-year, 15-year, 20-year or 30-year terms and decide between a fixed-rate mortgage or an adjustable-rate mortgage (ARM). Picking the right financing option can boost your approval chances and help you save money in the long run.

Mortgage interest rates can fluctuate daily, influenced by factors such as the type of mortgage, the lender and the broader economy. The interest rate is the cost of borrowing expressed as a percentage of the loan amount. The annual percentage rate (APR) includes additional costs like fees, providing a more comprehensive view of the true cost of borrowing.

As of December 2024, the APR for a 30-year fixed conforming loan in Michigan is 6.38%, while the APR for a 30-year fixed rate FHA loan is 8.03%. Check the table below to see the current mortgage rates in Michigan by mortgage type.

Obtaining a mortgage pre-approval in Michigan serves as a prudent step for prospective homebuyers. It involves a lender evaluating your financial health to determine the amount they are willing to lend. This process culminates in the issuance of a mortgage pre-approval letter, which strengthens your position as a buyer and helps you understand your budget limits. Typically, this letter remains valid for 60 to 90 days, during which you can confidently make offers on homes.

To secure a mortgage pre-approval, you will need to provide several documents, including:

• Proof of income, such as pay stubs or tax returns
• Asset statements, including bank accounts and investment portfolios
• Credit history report
• Personal identification, like a driver's license or passport

Understanding the distinction between mortgage pre-approval and prequalification is essential. Pre-approval involves a thorough review of your financial situation and offers a more concrete estimate of your borrowing capacity. In contrast, prequalification is a preliminary step based on self-reported financial information, providing a less detailed overview of your potential loan amount.

Home inspections are highly recommended in the homebuying process in Michigan as they provide a comprehensive evaluation of a property's condition. Inspectors typically examine critical areas such as the roof, foundation, plumbing, electrical systems and HVAC. The inspection report includes a detailed analysis of these components and highlights any necessary repairs or potential issues. This information helps buyers understand the property's true condition and can inform their purchasing decision.

For example, an inspection might reveal significant issues like a damaged roof or faulty wiring, which could lower the home's appraisal value. These findings can influence the buyer's decision, potentially leading them to negotiate repairs with the seller or even rescind their offer altogether.

Michigan does not regulate home inspections or require home inspectors to be licensed. Despite the lack of state regulation, many home inspectors are encouraged to obtain certification and adhere to standards set by national organizations like the American Society of Home Inspectors (ASHI) or the International Association of Certified Home Inspectors (InterNACHI). This certification can assure homebuyers of the inspector's commitment to industry standards.

If you're looking for a home inspector in Michigan, ensure they are licensed, even though it's not a state requirement. Check online reviews and ask for references to gauge their reliability and professionalism.

Home appraisals determine a property's market value. This step ensures that buyers and lenders have an accurate understanding of a home's worth, which is essential for securing financing. According to the 2023 Appraisal Survey from the National Association of Realtors, the median appraisal cost in 2023 was $500.

Inspections and appraisals differ in their purpose and scope. While a home inspection evaluates a property's physical condition, a home appraisal assesses its market value. Lenders require appraisals to confirm that the property's value supports the loan amount, mitigating financial risk.

Closing is the final step in buying a house in Michigan, marking the official transfer of ownership and when you receive the keys to your new home. Your lender will provide you with a closing disclosure document at least three days before the official closing. This document outlines your loan terms, monthly payments, fees and other costs. Plan a final walk-through of the property with your real estate agent near closing day to ensure it remains in the expected condition.

On closing day, you'll review and complete various paperwork essential to finalizing your home purchase. Here are some of the key documents you will need to sign:

• Final loan application: This document confirms the details of your mortgage loan, including the loan amount, interest rate and terms. It ensures that all information is accurate before the loan is finalized.
• Deed transfer: This legal document transfers ownership of the property from the seller to the buyer. It is recorded with the local government to show the change in ownership.
• Promissory mortgage note: This note is a legal promise to repay the mortgage loan under specified terms. It includes the loan amount, interest rate and repayment schedule.
• Homeowners insurance: Homeowners insurance in Michigan protects your new home against potential damages and losses. In Michigan, it provides coverage tailored to the state's unique risks, ensuring your investment is safeguarded.

Closing costs are fees paid at the end of a real estate transaction. In Michigan, the average closing costs are $4,378, according to NAR. These costs typically include several fees:

• Appraisal fee: This covers the cost of having a professional appraiser evaluate the property's value.
• Title search and insurance fee: This ensures the property title is clear of liens or disputes and protects against future claims.
• Escrow deposit: This is an upfront deposit for property taxes and insurance payments held in an escrow account.
• Prepaid costs: These are upfront payments for items such as property taxes and homeowners insurance.
• Other closing costs: These may include fees for credit reports, loan origination and attorney services.

If you are a first-time homebuyer, learning about the different first-time homebuyer programs in Michigan can help you achieve homeownership faster.

Buying a house in Michigan is a financial commitment that will last for years. To help you kickstart your homebuyer journey, we answered some frequently asked questions about buying a house in the Great Lakes State.