Buying a home in Michigan: uncapped taxes, the PRE and MSHDA help

#A state of homeowners

73.5% of occupied Michigan homes are lived in by their owners, above the national 65.3% and the 3rd-highest share among the states and DC. Prices help: the median value of $254,200 is below the US median and the 12th-lowest in the country, and homes cost 3.5 times the median household income of $72,389 — lower than the US ratio of 4.4. The catch is the property tax rate, which ranks 13th of 51, and how it resets when a home changes hands.

#Why the seller’s tax bill isn’t yours: uncapping

Michigan taxes a home on its taxable value, not its market value. While an owner keeps the home, taxable value can rise each year by no more than 5% or the rate of inflation, whichever is less — even when market values climb faster. A long-time owner’s taxable value can therefore sit well below the home’s state equalized value (SEV), which is 50% of its true cash value.

A sale removes that cap. For the calendar year after the transfer, the assessor sets taxable value equal to SEV, and capped growth starts again from there.

Because the statewide effective rate of 1.18% averages long-time owners with recent buyers, a new buyer’s bill can run above it. The Treasury’s online property tax estimator lets you test a specific local millage.

#Claim the Principal Residence Exemption

The Principal Residence Exemption (PRE) exempts the home you live in from local school operating taxes, up to 18 mills. A mill is $1 of tax per $1,000 of taxable value, so on the median home’s SEV the full exemption is worth about $2,288 a year. File the PRE affidavit with your city or township assessor as soon as you move in; Treasury audits claims and denies exemptions on homes that aren’t the owner’s principal residence. It is separate from the Homestead Property Tax Credit, which is claimed on the state income tax return.

#Michigan’s median home, month by month

On the median income, Freddie Mac’s 30% guideline gives a budget of $1,810 a month, which supports a price of about $227,000 with 10% down — $27,200 less than the median home value. Rerun it with your own income in the affordability calculator or adjust the inputs in the payment calculator.

#MSHDA’s MI 10K down payment loan

The Michigan State Housing Development Authority offers the MI 10K DPA loan statewide: up to $10,000 for the down payment, closing costs and prepaid items, with no interest and no monthly payments. It is repaid when you sell or refinance, pay off the first mortgage, or stop living in the home. You must pair it with an MSHDA MI Home Loan from a participating lender and complete a housing education class. Income and price limits apply, so ask the lender for the figures in your county.

#Transfer tax: the seller’s line

Michigan charges a state real estate transfer tax, and counties add their own at recording, for a combined 0.86% of value — the 7th-highest statewide rate in the country. On the median home that comes to $2,186. The law makes the seller responsible for it, although a buyer can agree to pay it, and some sellers of a principal residence qualify for an exemption or refund of the state portion. Buyers still pay recording fees, title costs and lender charges; the closing cost calculator shows them together.