How to Buy a House in Minnesota: 6 Steps

Purchasing a house is one of the most significant financial decisions one can make. In Minnesota, the average home value stands at $340,047, which is lower than the national average of $362,481. This difference may offer potential homebuyers a more affordable entry into the housing market compared to other states.

Understanding down payment assistance programs, mortgage types and state-specific regulations is vital for a smooth homebuying journey in the North Star State. MoneyGeek has compiled key pointers to assist you in navigating the process, from saving for a down payment and selecting the ideal location to securing the best financing option tailored to your needs and credit history.

Key Takeaways

blueCheck icon

Minnesota's average home value is $340,047, which is lower than the national average of $362,481, making it a potentially more affordable option for homebuyers.

blueCheck icon

To buy a home in Minnesota, start by finding an ideal location, checking mortgage options, preparing to meet lenders' requirements, and closing on the loan.

blueCheck icon

The Minnesota Housing Finance Agency offers down payment assistance programs like the Monthly Payment Loan and Deferred Payment Loan to help Minnesotans achieve homeownership faster.

Step 1: Prepare to Buy a House in Minnesota

In the second quarter of 2024, the homeowner vacancy rate in Minnesota was 0.4%, according to the U.S. Census Bureau. The homeowner vacancy rate measures the percentage of homes available for sale that are currently unoccupied. It provides insight into the housing market's supply and demand dynamics.

Minnesota's homeowner vacancy rate of 0.4% indicates a market with not enough inventory to satisfy homebuyer demand. A stable vacancy rate, allowing homebuyers some choice and flexibility, is typically around 2%. For homebuyers, this means navigating a competitive market with limited options. They may face challenges such as higher prices and bidding wars, making it essential to be well-prepared financially.

Before buying a house in Minnesota, closely examine your financial and credit history. This is crucial because the stronger your financial profile, the better your chances are of getting approved when applying for a mortgage. A strong financial standing can provide you with better interest rates and terms, making your home purchase more affordable in the long run.

Check Your Credit Score

Your credit score significantly influences the mortgage loans and interest rates you can qualify for. A higher score increases your chances of securing a reasonable rate. According to Experian, the average credit score in Minnesota in the third quarter of 2023 is 742.

If your credit score falls within the 'poor' range of 300-579 on the FICO scale, buying a house is still possible, though getting approved for a mortgage can be challenging. Refer to the table below to determine which mortgage type suits you based on minimum credit score requirements.

Mortgage Type
Description
Minimum Credit Score

Conventional Loan

Conventional loans are standard loans not insured by the government, typically offering competitive rates.

620

Jumbo Loan

Jumbo loans exceed conforming loan limits, making them suitable for high-value properties.

700

FHA Loan

FHA loans are designed for low-to-moderate income borrowers, often with lower down payment requirements.

500–580, depending on the down payment

VA Loan

VA loans offer veterans and active military members favorable terms and no down payment options.

None given, but may require at least 620

USDA Loan

USDA loans are aimed at rural property buyers, often with no down payment required.

580

Source: Experian

Review Your Debt-to-Income (DTI) Ratio

Your debt-to-income ratio (DTI) is a crucial metric that lenders use to determine how much of your monthly income is dedicated to debt payments. This helps them assess the amount of mortgage debt you can responsibly manage. In Minnesota, the average mortgage debt was $207,718 in the third quarter of 2023, according to Experian. This figure highlights the additional financial responsibility that comes with homeownership and underscores the importance of understanding your DTI.

Monthly debt payments factored into your DTI include obligations such as mortgage payments, credit card balances, student loans and auto loans. Use our debt-to-income ratio calculator below to see your front-end DTI, which focuses on housing-related expenses and your back-end DTI, which includes all monthly debts. This tool will help you understand your total monthly debt payments and assess your financial readiness for a mortgage.

cash

Debt-to-Income Ratio Calculator

Calculate your DTI ratio in Minnesota based on your basic income and monthly debt payments.

Monthly Income Before Taxes

$

Recurring Monthly Debts

Enter all applicable payments to ensure accurate results.

$
$
$
$
$

Determine How Much You Can Afford

Buying a house you can't afford can lead to financial stress and limit your ability to meet other financial goals. To avoid this pitfall, consider the 28% rule, which suggests that you should not spend more than 28% of your monthly income on your mortgage payment. This guideline helps ensure that your housing costs remain manageable and leaves room for other essential expenses.

According to the U.S. Bureau of Labor Statistics, the median annual income in Minnesota as of April 2024 is $50,880. This translates to a gross monthly income of $4,240 before taxes. Applying the 28% rule, a homebuyer should aim for a monthly mortgage payment of no more than $1,187. This example illustrates how the rule can guide your budgeting process when considering a home purchase.

Use our mortgage calculator below to get a ballpark figure of your monthly mortgage payment in Minnesota. This tool can help you plan your budget and ensure your housing costs align with your financial situation.

Mortgage Calculator

Simply estimate your monthly loan payments in Minnesota.

Updated: Nov 14, 2024

Fact Checked

Loading...
Please enter a valid US Zip Code
30-Year Fixed

Optional: add taxes, insurance, HOA Fees

Bar Chart Icon

Next Steps

Get personalized mortgage rates from Minnesota.

Shield Insurance

Why You Can Trust MoneyGeek

Although MoneyGeek partners with some of the companies we recommend, our content is written and reviewed by an independent team of writers, editors and licensed agents. Learn more about our editorial policies and expert editorial team.

homeMortgage icon
BUDGET FOR ADDITIONAL HOMEOWNERSHIP COSTS

When planning to buy a house, it's important to remember that your mortgage payment is just one part of the total cost of homeownership. Other expenses, such as property taxes and homeowners insurance, also play a significant role in your overall budget. These costs can vary widely depending on the location and value of your home, so it's essential to include them in your financial planning.

In Minnesota, residents pay a property tax rate of 1.11% on owner-occupied properties, according to Tax Foundation data. Additionally, the average cost of homeowners insurance in Minnesota is $2,106 annually. These figures highlight the importance of accounting for these expenses when determining your homebuying budget.

Step 2: Save for a Down Payment in Minnesota

A down payment is the initial payment made when buying a house, typically representing a percentage of the home's purchase price. Traditionally, a 20% down payment is considered standard, but it can be a significant hurdle for many homebuyers. In Minnesota, for example, the average home value is $340,047, which means a 20% down payment would be $68,009. For homes above the average value, such as $380,000, the 20% down payment rises to $76,000.

Fortunately, saving for a 20% down payment is not a requirement for all homebuyers. Most mortgage types allow for lower down payments. Government-backed loans like VA loans and FHA loans offer alternatives, requiring 0% and 3.5% down payments, respectively.

If you put down less than 20%, your lender may require you to take out private mortgage insurance. You can use our PMI calculator to estimate your monthly private mortgage insurance premium based on your credit score and down payment.

Private Mortgage Insurance Calculator

Calculate your monthly private mortgage insurance (PMI) premium in Minnesota based on your credit score and down payment.

$
$
%
%
years
Your Expenses
Upfront Insurance Costs

-

Mortgage Loan
Monthly Payment

-

Monthly Mortgage
Insurance Cost (PMI)

-

Explore Down Payment Assistance Programs

Minnesota provides several down payment assistance programs to help make homeownership more accessible. These programs are designed to alleviate the financial burden of initial home purchase costs, making it possible for more individuals to achieve their dream of owning a home. One notable program is offered by the Minnesota Housing Finance Agency (MHFA).
Check out the table below for the available down payment assistance programs in Minnesota offered by the name under Source.

Program
What It Offers

Monthly Payment Loan

Borrow up to $18,000 at the same rate as your first mortgage. Repay it over 10 years with monthly installments.

Deferred Payment Loan

First-time buyers can borrow up to $16,500 interest-free. Repayment is due when you pay off the mortgage, refinance, or sell your home.

Deferred Payment Loan Plus

Receive a 0% APR loan for up to $18,000. Repayment is required when you relocate, sell your home, refinance, or pay off your primary mortgage.

Step 3: Find the Right Location in Minnesota

Finding the right location in Minnesota requires careful consideration of various factors. Start by evaluating the average house prices in different areas, as this will significantly impact your budget. Proximity to family, friends, your workplace, or school can enhance your quality of life and reduce commuting time. Additionally, consider the accessibility of public transportation, parks, restaurants and shopping centers, which can contribute to a more convenient and enjoyable lifestyle.

Cost of living is another critical aspect to consider when choosing your new home. According to the Missouri Economic Research and Information Center (MERIC), Minnesota's cost of living index in the first quarter of 2024 is 94.8, which is below the national average of 100. This means that living in Minnesota may be more affordable compared to other states. Essential expenses to consider include:

  • Food
  • Healthcare
  • Clothing
  • Utilities
  • Education
  • Transportation
  • Entertainment

Check out the table below to see some cities in Minnesota and their average home values based on recent data. You can also use our cost of living calculator to help you estimate how much you'll need to pay for all the essentials in different locations.

City
Average Home Value

Bloomington, MN

$356,841

Duluth, MN

$273,020

Minneapolis, MN

$327,484

Rochester, MN

$326,348

Saint Paul, MN

$293,085

Source: Zillow

Work With a Real Estate Agent

Working with a real estate agent can significantly speed up your house hunt in Minnesota. These professionals provide the advice you need, offer extra hands to handle paperwork and give you access to an expanded list of property options you might not find on your own. They can also recommend other service providers such as title companies and inspectors, which can help streamline the process of buying your home in Minnesota.

When finding a real estate agent, it's essential to do your due diligence and interview agents who have experience in the neighborhoods you're interested in. Consider the following tips:

  • Find someone compatible with your needs and personality
  • Verify the agent's credentials, training and licensure
  • Ensure they have in-depth knowledge of the area
  • Shop around for agents and compare their rates

You can also use the license holder search tool from the Minnesota Department of Commerce to find or verify real estate agents in Minnesota.

Step 4: Shop for the Best Financing Options in Minnesota

Navigating the homebuying process in Minnesota involves understanding various mortgage options. Buyers can choose from conventional loans, jumbo loans, FHA loans, VA loans and USDA loans. You also have options for 10-year, 15-year, 20-year, or 30-year terms based on your financial goals. Consider whether a fixed-rate mortgage or an adjustable-rate mortgage (ARM) suits your needs. Selecting the best financing option not only increases your chances of approval but also helps in saving money over time.

Know the Current Mortgage Rates

Interest rates on a mortgage can change daily due to factors like the type of mortgage, the lender and the economy. While interest rates indicate the cost of borrowing, the annual percentage rate (APR) offers a more comprehensive view by including additional costs such as fees and insurance. This allows you to understand the true cost of borrowing.

As of October 2024, the APR for a 30-year fixed conforming loan in Minnesota is 5.88%, while the APR for a 30-year fixed rate FHA loan is 6.24%. Check the table below to see the current mortgage rates in Minnesota by mortgage type.

Data filtered by:Results filtered by:
Loan Type:
Loan Type:30-Year Fixed
5.81%5.88%
smallCalculator icon
FHA LOAN VS. CONVENTIONAL LOAN

When shopping for a mortgage in Minnesota, you often choose between government and conventional mortgage programs. FHA loans, backed by the government, offer lower credit score requirements and smaller down payments. In contrast, conventional loans, not backed by the government, typically require higher credit scores and larger down payments.

Use our FHA loan vs. conventional loan calculator to compare options and determine the best one for you. Enter your home price, down payment, term length, credit score and interest rate to see which loan suits your financial needs.

Get Pre-Approved

Getting pre-approved for a mortgage in Minnesota can streamline your home-buying process. It provides a clear picture of how much you can borrow, making your offer more appealing to sellers. Lenders issue a mortgage pre-approval letter, which typically remains valid for 60 to 90 days, giving you a window to find your ideal home.

For a mortgage pre-approval, you will need to submit the following documents:

  • Proof of income, such as pay stubs or tax returns
  • Credit report
  • Employment verification
  • Asset statements, including bank accounts and investments

Understanding the difference between mortgage pre-approval and prequalification is essential. Pre-approval involves a thorough review of your financial history, offering a more accurate borrowing limit. In contrast, prequalification is a preliminary assessment based on self-reported information, providing a rough estimate of what you might afford.

loans icon
HOW TO CHOOSE THE RIGHT LENDER

The mortgage market is filled with a variety of lenders, each offering different eligibility requirements, interest rates and fees. Doing your homework is essential to find the right fit. For example, banks and credit unions serve as common mortgage lenders. Banks typically provide a wide range of services and an extensive network, but they may have higher rates and fees. In contrast, credit unions often offer lower rates and fees, though they might require membership.

When choosing the right lender, consider the following tips:

  • Determine that the lender offers the type of loan you want. For instance, if you're looking for an FHA loan and the lender isn't FHA-approved, you'll need to consider a different lender.
  • Compare the lender's sample rates with today's mortgage rates in Minnesota.
  • Find out the lender's underwriting process and see if you can complete a mortgage application online, by mail, or in person.
  • Check reviews about the lender to determine the quality of customer service it offers.

Step 5: Conduct a Home Inspection in Minnesota

Home inspections play a pivotal role in the homebuying process in Minnesota. They offer prospective buyers a detailed understanding of a property's condition. Inspectors typically examine various parts of the house, including structural elements, electrical systems, plumbing and HVAC systems. An inspection report usually outlines the findings, highlighting any issues that may need attention or repair. This process helps buyers make informed decisions and potentially negotiate repairs or price adjustments with the seller.

For example, consider a scenario where an inspection reveals significant foundation issues. Such findings can impact the home's appraisal, potentially lowering its estimated market value. This can affect the buyer's financing options if the appraisal falls below the purchase price. Additionally, the buyer might decide to rescind their offer if the cost of repairs outweighs the benefits of the purchase. Understanding these potential outcomes helps buyers navigate the homebuying process more effectively.

State-Specific Inspections

Minnesota does not regulate home inspections or require home inspectors to obtain a license. Despite the lack of state regulation, many home inspectors in Minnesota voluntarily adhere to the standards of practice set by recognized national organizations, such as the American Society of Home Inspectors (ASHI) or the International Association of Certified Home Inspectors (InterNACHI). This adherence helps ensure a level of professionalism and quality in the services provided.

If you're looking for a home inspector in Minnesota, make sure they are licensed, even though it's not a state requirement. This can be a mark of professionalism and adherence to industry standards. It's also wise to find out what other clients have said about their experiences by checking online reviews and asking for references. These steps can provide valuable insights into the inspector's reliability and quality of service. Although there is no specific search tool provided here, taking these actions will aid in making an informed decision.

Go Through Appraisal

Home appraisals play a pivotal role in the homebuying process in Minnesota. They provide an unbiased estimate of a property's market value, which is crucial for both buyers and lenders. According to the 2023 Appraisal Survey from the National Association of Realtors (NAR), the median cost for a home appraisal in 2023 was $500.


While both inspections and appraisals are integral to buying a home, they serve different purposes. A home appraisal focuses on determining the property's value, which helps lenders ensure the loan amount aligns with the home's worth. In contrast, a home inspection evaluates the condition of the property, identifying potential issues that may need addressing. Lenders require appraisals to mitigate risk, ensuring they do not lend more than the property's market value.

Step 6: Close on Your House in Minnesota

Closing is the final step in buying a house in Minnesota, marking the moment when ownership is officially transferred and you receive the keys to your new home. Your lender will provide a closing disclosure document three days before the official closing. This document outlines the loan terms, projected monthly payments and closing costs. As closing day approaches, plan a final walk-through of the property with your real estate agent to ensure everything is in the expected condition.

Sign All Documents

On closing day, you will review and complete various paperwork to finalize your home purchase. These documents are essential to legally transfer ownership and secure your mortgage. Below are some of the key documents you will need to sign:

  • Final loan application: This document reiterates the terms and conditions of your mortgage loan, ensuring that all information is accurate and up-to-date. It is your last chance to confirm that the details match your agreement with the lender.
  • Deed transfer: This legal document is crucial for transferring ownership of the property from the seller to you. It must be signed by both parties and recorded with the local government to make the transaction official.
  • Promissory mortgage note: By signing this note, you are formally agreeing to repay the mortgage loan according to the specified terms. It outlines the repayment schedule, interest rate and any penalties for late payments.
  • Homeowners insurance in Minnesota: This insurance policy protects your new home against potential damages such as fire, theft, or natural disasters. In Minnesota, it is particularly important to have coverage for weather-related incidents to safeguard your investment.

shakingHands icon
CONSIDER HIRING A REAL ESTATE LAWYER

Hiring a real estate lawyer is a common practice when buying a house, regardless of whether it's mandatory in Minnesota. A real estate lawyer handles legal documentation, reviews contracts and ensures compliance with state laws. They help avoid legal pitfalls and ensure a smooth transaction.

The cost of hiring a real estate lawyer typically ranges between $700 and $1,250, depending on the complexity of the sale, location, property type and homebuyer's needs.

Pay Closing Costs

Closing costs are the fees paid at the end of a real estate transaction. In Minnesota, the average closing costs amount to $3,852, according to NAR. These costs typically include several fees:

  • Appraisal fee: This fee covers the cost of having a professional appraiser evaluate the property's market value.
  • Title search and insurance fee: This fee ensures that the property's title is clear of any liens or disputes, providing protection against future claims.
  • Escrow deposit: This is a deposit made to cover future property taxes and insurance payments.
  • Prepaid costs: These are upfront payments for items like homeowner's insurance and property taxes.
  • Other closing costs: This category includes various other fees such as attorney fees, recording fees, and courier fees.

Minnesota Homebuying Details: What You Should Know

While we have outlined the general steps to navigate the homebuying process in Minnesota, it's crucial to recognize that the state has its own unique regulations and business practices. Understanding these state-specific elements can help you avoid potential legal and financial pitfalls during your home purchase.

1
Radon disclosure is required

Minnesota law specifically requires sellers to disclose any knowledge of radon in the home. They must provide potential buyers with a radon warning statement and a disclosure form that outlines any testing or mitigation that has been done.

2
A real estate attorney is not required

Minnesota does not require the presence or participation of a real estate attorney at closing. However, consulting with an attorney can be beneficial for buyers, especially in complex transactions or where legal questions arise.

3
Dual agency is legal

Dual agency occurs when one real estate agent represents both the buyer and the seller in a property transaction. In Minnesota, dual agency is legal, but it requires the explicit, written consent of both parties.

If you are a first-time homebuyer, learning the different first-time homebuyer programs in Minnesota can also help you achieve homeownership faster.

FAQ About Buying a House in Minnesota

Buying a house in Minnesota represented a significant financial commitment that would last for years. We answered some frequently asked questions about buying a house in Minnesota to kickstart your homebuyer journey.

How much does it cost to buy a house in Minnesota?
What are the requirements to buy a house in Minnesota?
What credit score do I need to buy a house in Minnesota?
How much income do I need to buy a house in Minnesota?
Is buying a house in Minnesota a good idea?
Loading...

About Zachary Romeo, CBCA


Zachary Romeo, CBCA headshot

Zachary Romeo is a certified Commercial Banking and Credit Analyst (CBCA), and the Head of Loans and Banking at MoneyGeek. Previously, he led production teams for some of the largest online informational resources in higher education, with over 13 years of experience in editorial production.

Romeo has a bachelor's degree in biological engineering from Cornell University. He geeks out on minimizing personal debt and helping others do the same through people-first content.


sources