8 Steps to Buying a House in Michigan

Buying a house in Michigan is an exciting milestone, but the process can take some time. Several factors, like your financial situation, market conditions, and the local economy can affect both how long it takes you to find a home and how much it costs you.

For example, homes in Midland are hitting the market at $304,950 and selling within 18 days — 27 days faster than the state average! — so you'll need to move quickly if you want to beat out the competition.

However, homes typically stay on the market longer in Sault Ste. Marie, so you'll be able to take your time and potentially find a better deal.

The more you know about the steps to buying a house and Michigan's current real estate trends, the more prepared you'll be to navigate this complicated process as quickly and smoothly as possible.

No matter where you are in your home buying journey, Clever's concierge team can connect you with local real estate pros who will help you purchase your Michigan dream home!

The best part? When you buy with a Clever real estate agent, you could earn a cash-back refund worth up to 0.5% of the home price. On a qualifying $300,000 purchase, you'd get $1,500. That's real money back in your pocket!

» START: Buy with a top local agent, save thousands with Clever Cash Back

Step 1: Save for a down payment

Your down payment is the initial portion of your home's purchase price that you pay at closing. Your mortgage lender will pay the remaining balance.

Typically, mortgage lenders in Michigan want you to contribute 20% of the purchase price as a down payment. That would be $46,991 for a $234,954 home — the typical home value in Michigan.

However, you have options to lower your down payment amount.

Government backed loans, like VA and FHA loans, allow you to contribute 0% and 3.5% of your home's purchase price respectively. Even conventional loans allow for down payments as low as 3-5% (though the minimum varies by lender).

» READ MORE: Everything you need to know about low-income home loans

But making a down payment of less than 20% comes with some risks.

First, because you're borrowing more money, you'll have a higher monthly payment and pay more in interest over the life of your loan.

Second, you may have to purchase mortgage insurance.

Conventional loans require private mortgage insurance (PMI) until your loan balance reaches 80% of the purchase price. FHA loans, on the other hand, require a mortgage insurance premium (MIP) for the life of your loans.

Mortgage insurance costs around 1% of your mortgage balance annually. However, rates vary based on your down payment and credit score. Typically, your mortgage insurance payment is added to your mortgage payment each month.

VA loans don't charge mortgage insurance. Instead, you'll pay a VA loan funding fee at closing, which can range from 1.4% to 3.6% of the purchase price.

Michigan down payment assistance programs

Are you having trouble saving up for a down payment on a Michigan home?

If you need some financial assistance, there are plenty of down payment assistance (DPA) programs for first-time and low-income homebuyers in Michigan. Eligible buyers can receive a government grant or a second mortgage to help cover a down payment or closing costs.

Here are just a few DPA programs that you might qualify for:

MI DPA Loan

The Michigan State Housing Development Authority offers the MI DPA Loan, which provides up to $7,500, and the MI 10K DPA Loan, which offers up to $10,000 in certain areas.

To be eligible, you must have a credit score of at least 640 and take a homebuyer education course. The home you buy must not exceed the sales price of $224,500, and your annual earnings can't exceed the local income limits.

MI Home Flex Program

The MI Home Flex Program offers up to $7,500 to first-time and repeat homebuyers in the state. Eligible participants need to have a credit score of at least 660, meet household income requirements, and not earn more than the maximum income limit.

U.S. Department of Housing and Urban Development

You can find a list of additional DPA programs on Michigan's HUD page here.

Step 2: Get pre-approved for a mortgage

A mortgage pre-approval letter is an offer to lend you up to a certain amount of money to purchase a home. It shows sellers that you are a serious buyer who is financially qualified to make an offer on a home.

Most sellers in Michigan will require pre-approval before showing you their home.

You don't have to decide on one lender right now. In fact, you should compare interest rates and pre-approval amounts from several lenders to make sure you're getting the absolute best terms when you buy your Michigan home.

To get a pre-approved for a mortgage, you'll fill out a mortgage application and provide details about your financial situation. They'll look at the following information to determine your mortgage pre-approval amount:

Total income

Lenders need to know that you earn enough to make your mortgage payments each month. Most lenders want your monthly housing costs to be less than 28% of your monthly income.

Personal debt

Lenders also consider your other debts, including credit cards, student loans, auto loans, and personal loans. They use this information to calculate your debt to income ratio (DTI) — or your total debt (including future mortgage) divided by your total income.

While some lenders will approve mortgages for buyers with DTI as high as 43%, it's best to keep your DTI under 36%.

Because of this, you might consider paying off some of your other debts before applying for a mortgage in Michigan.

Cash reserves

Mortgage lenders in Michigan want to see that you have enough cash in the bank to cover your down payment and closing costs without completely draining your cash reserves.

While this requirement varies by lender, most want you to keep at least enough to cover two mortgage payments including insurance and taxes.

Step 3: Choose the right location

A house's neighborhood can be just as important as its layout and features. In general, you should consider the following factors when deciding which neighborhood is best for you:

What's your home buying budget?

Once you know your budget (a pre-approval letter will tell you the most you can expect to borrow), you can narrow your search to neighborhoods where homes are selling within your price range.

Also, look at past home value trends. This will give you an idea of how much your home's value could go up over the next few years. You want to choose a neighborhood that's in your budget, but could also lead to a big return when you decide to sell.

To give you an idea of how appreciation could impact what your house is worth in the future, consider these examples from three neighborhoods in Grand Rapids:

Home value appreciation in Grand Rapids

Local lifestyle

Once you have a list of neighborhoods with homes in your budget, you should evaluate how well each one meets your personal needs and preferences. To finalize your list of target areas, consider factors like:

• School districts
• Your daily commute
• Crime rates
• Restaurants and amenities
• Transportation options

Step 4: Find a great real estate agent in Michigan

Your real estate agent will be your main ally during the home buying process. Besides finding and showing you properties, your agent should be an expert on buying a home in Michigan.

They'll help you make offers, negotiate contracts, and navigate the closing process. Plus, they can recommend other service providers like title companies and inspectors to help you buy your home in Michigan.

Don't rush into choosing an agent. Instead, take the time to research and interview multiple real estate agents who have experience in the neighborhoods you're interested in. you should pay attention to a realtor's:

• Years of experience
• Number of transactions in the last year (the more the better!)
• Experience in your price range
• Overall review score
• Individual reviews and complaints

Ask each of them questions about your target neighborhoods, how they prefer to communicate, and their strategy for helping you find and close on your new home. You should feel comfortable with the agent's knowledge, experience, and process before committing to an agent.

Step 5: Start house hunting in Michigan

Searching for homes in Michigan is the fun part of the home buying process! You'll get to look at a variety of homes and discover what you really want in a home.

Prioritize your needs vs. wants when buying a home in Michigan

Make a list of everything you want in a home and prioritize them. At the top of the list should be the items that are most important to you. This will help you separate your "must-haves" from your "nice-to-haves."

Your agent can help you understand if your wants are realistic for your budget and favorite neighborhoods or if you need to rethink what you're looking for.

Look at current housing inventory

The timing of your house hunt in Michigan can have a big impact on your number of options. For example, in Michigan, June has historically seen the most homes for sale. Searching in this season could give you more options and a greater likelihood of finding your dream home.

On the other hand, January gives you the fewest choices in Michigan. Historically, there are 49.2%) fewer homes for sale than during Michigan's peak season.

Housing inventory in Michigan by season

Step 6: Make an offer

Once you find a Michigan house you love, it's time to make an offer. Your real estate agent will help you write a compelling offer that gives you the best shot of convincing the homeowner to sell to you.

Currently, in Michigan, homes stay on the market for 64 days before going under contract. However, every market goes through seasonal changes. During busier months, homes get snatched up more quickly than others.

Historically, Michigan homes sell fastest in June, where the average property is only on the market for 46. If your home search falls around this time, you should be prepared to move quickly and potentially make offers on several homes before yours is accepted.

On the other hand, if you buy in February, you have a bit more time to search. Homes typically stay on the market 27 days longer than Michigan's annual average.

Average time homes spend on market in Michigan

What should your offer include?

Your real estate agent can help you decide which of these common options you should include in your offer:

• Seller concessions: You'll have to pay for most of your closing costs out of pocket when you buy a home, but you may be able to ask the seller to cover some of those costs for you. This option may allow you to offer a higher purchase price and essentially include your closing costs in your mortgage.
• Repair credits: If the home is in need of repair, you could ask for credits instead of having the seller make and pay for the repairs. The seller avoids the hassle of waiting for contractors to complete the job, and you get to oversee the repairs in the future to make sure they meet your expectations.
• Inspection contingencies: Most purchase agreements have inspection contingencies that allow you to change your offer (or back out all together) if the inspection turns up major problems. If you have a high degree of certainty about the house's condition (like if the seller can show you a recent inspection report), you can forgo this contingency to give the seller a higher sense of confidence.
• Letter to the seller: Many sellers have a personal attachment to the home. They've lived there for years and want to know the next owner will take care of the property. Writing a letter to the seller can show them how you picture your life in the house and appeal to their sentimental side.

Step 7: Inspections and appraisals

Inspections and appraisals are an opportunity for you to better evaluate the home's condition and value before officially purchasing it. You may have an opportunity after this step to renegotiate the terms of your contract with the seller if something unexpected pops up.

Home inspections in Michigan

Having your Michigan home inspected by a licensed inspector gives you peace of mind about the condition of the property before you commit thousands of dollars to purchase it.

Your inspector should check out the following parts of the property:

• Roof
• Foundation
• Electrical system
• HVAC system
• Plumbing

If the home has a septic system, you should also pay for a septic inspection to make sure it doesn't have any problems that wouldn't be covered in a typical home inspection.

Michigan-specific inspections

Michigan sellers are required to complete a comprehensive disclosure form about their property, but they might not be aware of all problems with their home. Before closing, homebuyers are encouraged to have specific tests done to rule out any potential safety risks or hazards.

In addition to a general home inspection, consider conducting the following tests to ensure that a home is safe:

• Radon testing: Certain areas of Michigan are likely to have elevated radon levels, so it's highly recommended to conduct a radon test annually. If the seller hasn't done a test recently, you can order a testing kit from your local health department here.

• Termite inspection: Pest inspections are only required in 25 Michigan counties, but completing one is a good idea for all potential homebuyers. Termites and other pests may go unnoticed until they cause significant damage to a property, so it's important to catch possible infestations early.

Appraisals

Appraisals determine the value of the property. If you're using a mortgage to buy your new home, your lender will order an appraisal to make sure the home is worth the money that it's loaning you.

» LEARN: 3 options for buyers after a low appraisal

Step 8: Close on your new home!

Once you finish your inspections and your lender approves your financing, you'll be ready for closing! Closing is the process of finalizing your mortgage and transferring ownership of the property.

On closing day, you'll meet at the title company to finalize the property transfer of your Michigan home and settle your closing costs.

First, prepare to read and sign a lot of paperwork. If you notice an error or something doesn't make sense, be sure to ask your escrow agent for advice.

There will be several important legal documents to review, including:

• Your final loan application
• The deed
• The mortgage promissory note
• The disclosure statements

After you finish the paperwork, you’ll have to pay your closing costs. The title company will collect the total amount you owe and disburse the payments to each service provider on your behalf.

Since your closing costs will include the fees you owe to your mortgage lender, expect your costs to be higher than the seller's. If you want to know exactly where your money is going, you can usually divide your closing costs into four categories:

• Title and escrow charges: Fees paid to the title company for the title insurance, title search, and facilitating the closing process.
• Lender fees: Fees paid to your mortgage lender for originating and underwriting your loan. Other costs connected to your loan may also include appraisal fees and survey fees.
• Prepaid costs: Ongoing costs of homeownership. Lenders often require new homeowners to pay for certain expenses up front, such as property taxes and homeowners insurance.
• Other closing costs: Miscellaneous fees that differ according to each buyer's situation. Other closing costs can include natural disaster certification fees and real estate attorney fees.

Buyers in Michigan typically pay 3-5% of the purchase price in closing costs. For a $235,000 home — the typical home value in Michigan — that's between $7,050 and $11,750!

» MORE: Closing costs for buyers in Michigan

Frequently asked questions

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