2.0 — Understanding Michigan Homeownership Costs
Owning a home in Michigan includes several recurring costs beyond your mortgage payment. Understanding these costs will help you choose the right location and set realistic expectations.
Typical Michigan homeownership costs include:
- Mortgage principal and interest
- Property taxes
- Homeowners insurance
- PMI (if applicable)
- Utilities, including gas, electric, water, and sewer
- HOA fees in applicable communities
- Seasonal services such as snow removal or lawn care
- Ongoing maintenance and repair reserves
Michigan often offers lower purchase prices compared to other states, but property tax rates can be higher depending on where you buy.
2.1 — Michigan Property Taxes Explained
Michigan property taxes are based on taxable value, not the sale price of the home.
Formula:
Taxable Value × Millage Rate = Annual Property Taxes
Important points:
- Taxes vary significantly between townships, cities, and villages
- Michigan uses a capped taxable value system (explained in section 2.4)
- School districts, public safety, libraries, parks, and special assessments all impact millage rates
- Townships generally have the lowest taxes
- Cities and villages typically have higher taxes due to additional services
Understanding how each community funds its services will help you compare accurately.
2.2 — SEV, Taxable Value, and Assessed Value
Michigan uses three key values to determine property taxes:
SEV (State Equalized Value)
- Represents 50 percent of a property’s market value
- Often close to half the listing or offer price
Assessed Value
- Assigned by the local assessor
- Typically equal to SEV
Taxable Value
- The number used to calculate property taxes
- Limited by annual caps under Proposal A
- Resets when the property is sold (uncapping)
In short: SEV reflects market value, while taxable value determines your actual tax bill.
2.3 — Millage Rates and Why They Vary
Millage rates represent the combined tax rates needed to fund local services.
One mill equals one dollar per one thousand dollars of taxable value.
Why millage rates differ:
- Cities provide more services, increasing tax rates
- Villages add additional municipal layers
- Townships often have the lowest rates
- School district boundaries dramatically affect taxes
- Special assessments impact individual neighborhoods or developments
Similar homes located in different municipalities can have vastly different tax bills based on millage rates.
2.4 — Uncapping: Why Taxes Increase After You Buy
Under Michigan’s Proposal A, taxable value increases are capped annually unless the property is sold. When ownership transfers, the taxable value “uncaps” and resets based on the SEV.
What this means for buyers:
- The seller’s tax bill is based on capped taxable value
- Your taxes will be based on uncapped taxable value
- Taxes typically rise during your first full year of ownership
- Online tax estimates often reflect the seller’s old capped value, not your new uncapped value
This is the primary reason buyers experience higher-than-expected taxes after their first year.
2.5 — Estimating Your True Taxes
To get an accurate estimate of your future taxes, you should:
- Use the SEV which you can find on the home's listing for a lower estimate of property taxes OR use 50% of the homes list price for a higher estimate
- Multiply that number by the local millage rate and divide by 1,000 to get the annual tax amount
- Factor in uncapping, which aligns taxable value with SEV
- Avoid relying on listing websites for tax estimates
Example:
This approach provides a more accurate estimate than anything you’ll find on real estate websites.
2.6 — Why Online Tax Estimates Are Incorrect
Most real estate websites display:
- The seller’s capped taxable value
- Outdated assessments
- Incorrect millage rates
- No uncapping calculation
Because of this, online tax estimates are often off by thousands of dollars for new buyers.
2.7 — Filing Exemptions
Michigan offers several exemptions that can lower your taxable burden:
Principal Residence Exemption (PRE):
- Reduces school operating taxes
- Applies to primary residences
- Should be filed immediately after closing
Veteran Exemptions:
Properly filing exemptions can significantly reduce your annual costs.
2.8 — Appealing Your Property Taxes
If you believe your assessment is incorrect, you have the right to appeal.
The appeal process includes:
- Making a case to the local Board of Review (held annually in March)
- Providing evidence such as comparable sales, appraisal data, or errors
- Escalating to the Michigan Tax Tribunal if needed
Appeals do not guarantee reductions, but they are effective when supported by strong evidence.
Key Takeaways
- Michigan’s tax system is unique and requires proper calculation.
- Taxes typically increase the year after you buy due to uncapping.
- Relying on online tax estimates leads to inaccurate budgeting.
- Millage rates vary significantly between communities.
- Filing exemptions and properly estimating your taxes ensures predictable costs.
Resources
Michigan Property Tax Estimator
Michigan Department of Treasury
Local municipality assessor’s office
Principal Residence Exemption form
Local millage rate directories
