Everything You Need to Know About Buying a House in Michigan

With inexpensive housing and a low cost of living, Michigan is an affordable place to buy a house.
Written by Heather Bernhard
Reviewed by Melanie Reiff
With a strong job market and low cost of living,
is a great place to buy a house. Not to mention the abundant natural beauty: the Great Lake State has 103 state parks and recreation areas, plus over 11,000 inland lakes. 
And did we forget to say that it also borders four of the five great lakes?
Of course, buying a house anywhere is stressful (no matter how pretty the scenery). There are a lot of moving parts, from securing a mortgage to finding the perfect neighborhood. 
This simple guide from
car and home insurance
will tell you everything you need to know about buying a house in Michigan, so you can stress a little less. 
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Figure out your finances

Pro tip Figure out your finances before looking for a house. 
There are a variety of financial issues that will determine what kind of house you can afford, as well as the terms of your mortgage. Understanding your financial position—including your credit score, DTI, and down payment options—well in advance will help things move smoothly and quickly.  

Check your credit score

If you’re an adult living in America, it’s likely you already know your
credit score
—you need it for everything from buying a car to getting a cell phone. But, if you don’t, now is the time to figure it out. 
Those three little numbers can affect a lot in your life, not least of all your ability to buy a home. 
To secure a conventional mortgage, you’ll need a score of at least 620. It may be possible to get a government loan with a score in the 500s, though other qualifiers are often more stringent. 
If your credit score is below 620, it doesn’t mean you’re out of luck. Here are some options:
  • If you’re not in a rush you can build your credit to qualify for a better mortgage. Waiting may be the best option so you can put together a good down payment and have a more favorable mortgage rate. That said, you can still qualify for a mortgage with a lower credit score. 
  • The Federal Housing Administration (FHA) and Veterans Administration (VA) offer mortgages for homebuyers with credit scores as low as 523 and 500, respectively. However, you will only qualify for a VA loan if you are a veteran, active service member, or family member of someone in the military.

Calculate your debt-to-income (DTI) ratio

Your debt-to-income ratio plays an important role in your ability to obtain a mortgage. Basically, your DTI compares your amount of monthly debt to your amount of monthly income. 
Lenders care about it because they want to be sure you can reliably make your mortgage payments. Generally, they look for a DTI of 36% or less
To figure your debt-to-income ratio out, take your total monthly debt and divide it by your monthly income. For example, in Michigan, where the average monthly income is $4,924, it might look something like this: 
$1,575 (monthly payments) / $4,924 (monthly income) = 32% (DTI)
And don’t forget to include your future mortgage payment when determining your DTI! 

Determine your down payment 

Putting a down payment on a new house is a significant out-of-pocket expense. With a conventional mortgage, you can expect to pay at least 20% of the home's total cost. 
In Michigan, the average cost of a new home is about $222,660, so you'd need a
down payment
of roughly $44,530
If you can't come up with that much cash up front, there are other options. For example, some government loans or programs for first-time homebuyers require lesser down payments—
FHA loans
require 3.5% or 10% down, depending on your credit score. 
In addition, the
MI Home Loan Program
offers up to $7,500 in down payment assistance to first-time homebuyers interest-free that you don't repay until you refinance, resell, or pay off your mortgage. You must meet the minimum credit score (640-660) and income requirements to be eligible. 

Prepare for closing costs and other fees

Closing costs are fees you pay when you close on a home. Most of those fees go to the mortgage lender when purchasing a house, and the buyer usually pays them.
Typically, closing costs add up to 2-5% of the home's total price, out-of-pocket (on top of the down payment). Considering the average cost of a new home in Michigan, that amounts to roughly $4,453-11,132
Charges typically include: 
  • Lender costs
  • Credit card processing fees
  • Government filing fees
  • Attorney fees
  • Home insurance
  • Mortgage insurance
  • Property taxes
Key Takeaway Buying a home can include a lot of hidden costs. Make sure you are aware of ALL the expenses before committing to a purchase.

Look for homeowners insurance

Most mortgage lenders won’t head to the closing table until you can provide proof of insurance. If your future home is in a flood zone, the lender may also require you to get a separate
flood insurance
While your lender and realtor will likely recommend insurance companies to you, you must do your own research. 
The average
home insurance
policy in Michigan costs $1,120 a year. By researching options, you may save money while still maintaining the appropriate amount of coverage. 
Car and homeowners insurance broker
can help you compare rates from 50+ top insurers, helping you get the best possible coverage for your money.
Key Takeaway There are many costs associated with buying a house that are not often top of mind for most homeowners. Taking the time to get your finances in order will put you ahead of the curve. 

Get preapproved for a mortgage

Experts suggest getting preapproved for a mortgage well before you start looking for a house—ideally, at least six months in advance. You’ll be given a mortgage preapproval letter, which shows sellers that you’re financially qualified to purchase a house and how much you can afford. There are several reasons for this, including: 
  • It lets you know how much you can afford to spend on a house
  • It makes you more attractive to sellers
  • It gives you more bargaining power during negotiations
  • You’ll close faster
Perhaps most importantly, most sellers won’t even show you a house until you have a mortgage preapproval letter. This is to protect their time: they can’t afford to spend several hours showing a place to someone who can’t buy it. 

How to pick the right mortgage in Michigan

Choosing the right loan option depends on your financial situation: your credit score, how much debt you have, and how much down payment you can afford. You’ll likely be repaying your mortgage for a long time, so picking one that fits your budget is essential. 
Once you have a list of viable options, selecting the right one comes down to two things: the mortgage term and interest rate
Interest rates vary depending on the mortgage lender, your financials, and the mortgage term. Mortgage terms, or the amount of time you’ll be paying it back, are usually 15 or 30 years
Most lenders go with a 30-year fixed mortgage. The longer your mortgage term, the less your monthly payments will be. However, longer terms also come with higher interest rates
In general, you’ll end up paying less in the long run if you pick a 15-year term.

Look for a house

Now for the fun part! It’s time to start looking for a house. Before you hop on Zillow, there are a few things you should know. 

Pick your city or neighborhood 

The neighborhood you live in determines everything from where your kids go to school to where you go grocery shopping. It’s a decision that is just as important, if not more so than your house itself.
So how do you choose the perfect location? Consider the following factors: 
  • Figure out commute time to and from work
  • Look at neighborhood amenities (parks, shopping centers, etc.)
  • If you have children, learn about the school system
  • Look up the local crime rate
  • Research the recent housing market
Most importantly: look within your budget. There is a wide range of neighborhoods in Michigan, from the expensive
Ann Arbor
, where the median home price is $415,000, to Springfield, where you’ll pay just around $199,000.

Buyer’s market vs. seller’s market

Whether you’re in a buyer’s market or a seller’s market will impact home sale prices. The two main factors that determine what type of market you’re in are inventory and buyer demand
In a seller’s market, there are fewer houses available than people who want to buy them. The buyer has to work hard to make their offer the most attractive—that could mean buying “as-is” or waiving concessions. 
In a buyer’s market, there are more houses available than people who want to buy them. In this instance, the seller has to work harder to make a deal happen. That could mean accepting an offer below asking or offering credit for repairs. 
As a buyer, you’d want to look for a house during a buyer’s market, so you can get the best deal possible.

Find a real estate agent

Finding the right r
eal estate agent
is key to having a pleasant home buying experience. Your agent will take care of all the leg work for you and, in the end, make sure you get the best price possible. 
Experts recommend interviewing at least three agents before choosing one. Focus on finding someone with neighborhood expertise, and make sure to research their website, Yelp, and Google Reviews. If you know someone in the area you want to buy your home, ask who they used.
And remember: go with your gut. In the end, this is someone you’ll be spending a lot of time with, and chemistry is vital. 

Make an offer

Once you find your dream home, it’s time to make an offer. The process can be stressful, but it should move quickly if you have your preapproval letter. Plus, your real estate agent and their support team will help make it easier!
What you offer will depend on the type of market you’re in—remember, if you’re in a seller’s market, you’ll have to work harder to make your offer stand out.
It is worth noting that in Michigan, housing inventory and market trends vary from month to month. For example, more houses are listed during April, May, and June than during any other month, but you’ll typically find the lowest listing prices in January.

How to save on homeowners insurance

Homeowners insurance is a necessary evil: you need it to protect the things you care about, but no one wants to pay that bill every month. And at $1,120 a year (or about $90 a month), the average Michigan homeowners policy can put a serious dent in your budget.
So, how do you get the best coverage possible without breaking the bank? 
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How much money you need to buy a house in Michigan depends on which neighborhood you choose and the house you purchase. That being said, the average home is about $222,000, so you’d need roughly $55,500 to cover the down payment and closing fees.
To secure a conventional mortgage in Michigan, you will need a credit score of at least 620. Though, it may be possible to qualify for some government loans with a score in the 500s.
The best place to buy a house depends on what you’re looking for. For instance, Rochester and Big Rapids rank among the best places to raise a family in Michigan. Ann Arbor is expensive but considered a great place to live all-around. Cities like Fraser (and other suburbs east of Detroit) are popular among retirees. But there are beautiful and affordable cities throughout Michigan.
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