Mortgage Guide for Michigan
Michigan's mortgage landscape is shaped by its Principal Residence Exemption, which reduces effective property tax rates for owner-occupied homes by exempting them from school operating millage. The state's dual transfer tax structure, with separate state and county components totaling approximately 0.86% of the sale price, creates a notable closing cost for buyers and sellers. Affordable home prices relative to conforming loan limits and a robust set of MSHDA assistance programs make conventional and FHA financing accessible to most Michigan borrowers.
Mortgage Numbers for Michigan
| Median Home Price | $245,000 |
|---|---|
| Baseline Conforming Limit | $806,500 |
| Conforming Limit Ceiling | $806,500 (standard) |
| FHA Loan Limit (Baseline) | $524,225 |
| Avg. Property Tax Rate | 1.54% |
| Avg. Homeowners Insurance | ~0.27% of home value (avg. annual premium) |
| Transfer Tax | 0.86% (Combined state + county transfer tax, customarily seller-paid. State: $7.50 per $1,000; County: $1.10 per $1,000.) |
| High-Cost Counties | No |
Data sources: FHFA (conforming limits), HUD (FHA limits), U.S. Census (home values), State Department of Revenue (property tax). Updated annually unless noted. Data as of 2026-02-22.
What This Means for Your Mortgage
The Principal Residence Exemption Changes Your Effective Tax Rate
Michigan’s Principal Residence Exemption (PRE) is the single most important factor distinguishing owner-occupied mortgage costs from investment property costs in the state. If your home is your primary residence, you are exempt from the local school district’s operating millage, which typically represents 18 mills (1.8% of taxable value). Because Michigan’s taxable value is generally lower than market value due to Proposal A assessment caps, the practical effect is a significant reduction in annual property taxes for homeowners versus investors. The state’s listed effective property tax rate of 1.54% reflects a blended average. Owner-occupied homes with the PRE benefit from a meaningfully lower effective rate, while non-homestead (investment) properties pay the full millage including school operating taxes. When evaluating your monthly mortgage payment and debt-to-income ratio, confirming PRE eligibility for your intended property is essential, as it can change the escrow component by several hundred dollars per year.
Dual Transfer Tax Adds to Closing Costs
Michigan imposes two separate transfer taxes on real estate sales. The State Real Estate Transfer Tax is $3.75 per $500 of value ($7.50 per $1,000), and the County Transfer Tax is $0.55 per $500 ($1.10 per $1,000). Combined, the effective rate is approximately $8.60 per $1,000, or 0.86% of the sale price. On a $245,000 home, the total transfer tax is approximately $2,107. This cost is customarily paid by the seller in Michigan, though it is negotiable. First-time buyers should be aware that in some negotiations, sellers may factor transfer tax costs into the sale price. For a detailed breakdown of how transfer-related fees affect your closing statement, see our guide on transfer taxes and recording fees.
Conforming Limits Provide Ample Headroom
All 83 Michigan counties use the baseline conforming loan limit set by FHFA of $806,500 for a single-unit property. There are no high-cost county designations in Michigan. With the statewide median home price around $245,000, most Michigan borrowers have substantial room below the conforming threshold. This means virtually all conventional purchases qualify for conforming loan pricing with its typically more favorable interest rates. FHA loan limits in all Michigan counties are set at the national floor of $524,225, which covers well over double the median home price. Jumbo financing is rarely necessary outside select lakefront or affluent suburban markets in metro Detroit, Grand Rapids, and the Traverse City area.
Detroit Metro Assessment Disparities and Mortgage Implications
The Detroit metropolitan area presents a distinctive challenge in Michigan’s mortgage landscape. Property assessments in parts of Wayne County have historically reflected significant disparities, with some lower-value properties assessed at rates that produce effective tax burdens well above the state average . For mortgage borrowers, this means the escrow portion of monthly payments on affordable homes in certain Detroit-area neighborhoods can be disproportionately high relative to the purchase price. Lenders calculate qualification based on the actual tax bill for the specific property, not the statewide average. Buyers considering homes in areas with known assessment disparities should request the current tax bill and calculate the effective rate on their target property before assuming the 1.54% state average applies. Property tax appeals (Board of Review) are an available remedy, and successful appeals can reduce monthly mortgage escrow obligations at the next adjustment.
Insurance and Great Lakes Water Exposure
Michigan’s homeowners insurance rate of approximately 0.27% of home value is below the national average . On a $245,000 home, that translates to roughly $662 per year, or $55 per month. While Michigan is not typically associated with traditional hurricane or earthquake risk, properties near the Great Lakes face unique water-related exposures. Shoreline erosion along Lake Michigan and Lake Huron has accelerated in recent years , and basement flooding from high water tables is common in many Michigan communities. Standard homeowners policies often exclude flood and water backup damage. Buyers near lakeshores or in areas with known water table issues should budget for separate flood insurance through FEMA’s NFIP or private carriers, plus sewer/water backup endorsements. These additional coverages can add $200 to $1,500 annually depending on location and coverage limits.
MSHDA Programs Reduce Upfront Costs
The Michigan State Housing Development Authority (MSHDA) administers several homebuyer assistance programs. The MI Home Loan program offers 30-year fixed-rate mortgages through participating lenders, and the MI DPA Loan provides up to $10,000 in down payment assistance as a no-interest, no-monthly-payment second mortgage . MSHDA also offers a Mortgage Credit Certificate that provides an annual federal income tax credit based on mortgage interest paid. These programs generally require a minimum credit score of 640, income below published limits that vary by county, and completion of homebuyer education. The programs are not restricted to first-time buyers in all cases, making them accessible to repeat purchasers as well.
What This Means for Your Monthly Payment
On a $245,000 Michigan home with 10% down ($220,500 loan) at a 6.5% interest rate, estimated monthly costs break down as follows: principal and interest of approximately $1,393, property tax escrow of approximately $314 (using the 1.54% blended rate; owner-occupied homes with PRE may pay less), homeowners insurance of approximately $55, and PMI of approximately $92 (assuming 0.5% PMI rate). The total estimated monthly payment is approximately $1,854. Homeowners who qualify for the Principal Residence Exemption will likely see a lower property tax escrow, potentially reducing the total by $50 to $150 per month depending on local millage rates. PMI rates vary by credit score, loan-to-value ratio, and insurer, so your actual cost may differ from this estimate. For a personalized breakdown, use the PMI cost guide alongside the monthly payment calculator with Michigan defaults.