How to Buy a House in Minnesota: A Homebuyer’s Guide

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Edited byScott Strandberg
Contribution by1 expert

Updated: March 25, 2024

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The best place to buy a house in Minnesota will be the location that suits your needs and offers access to public services and other amenities.

MoneyGeek analyzed Zillow’s home value index and found that a home in Minnesota costs an average of $333,985. The value of a home in the state has increased by 7.4% over the last year.

It’s slightly cheaper to buy a home in Minnesota than in the rest of the country, as the average home value in the U.S. is $357,589, which has increased by 13.5% year-over-year.

Besides choosing the perfect location, you should also know mortgage rates, get pre-approved, conduct a home inspection and meet other lender requirements.

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Choose an Ideal Location

You must consider the property's location when purchasing a home, as it significantly affects your mortgage rates and the purchase price. The homes in a neighborhood close to public services, schools, amenities and other facilities will often have a higher cost.

To choose the best place to buy a house in Minnesota, start by analyzing your needs and assessing which attributes are the most important for you.

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WORK WITH A REAL ESTATE AGENT

If you can’t figure out which home will suit you best, you can work with a real estate agent. These agents have a great understanding of the local area and may suggest suitable locations based on your needs. Besides choosing the location, they can also help negotiate and close the deal.

To choose the best real estate agent, ask around for recommendations from your friends and family. Once you have some suggestions, you can interview the agents and analyze them based on the following characteristics:

  • Communication skills
  • Local area knowledge
  • Honesty and integrity
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CALCULATE THE COST OF LIVING

There is a difference in the cost of living from city to city in Minnesota because of the cost of utilities, products and services. To calculate how much it would cost to live in your chosen location, you can begin by analyzing how much you spend to cover certain expenses. MoneyGeek recommends considering the following expenses when calculating the cost of living:

  • Transportation costs
  • Health care expenses
  • Taxes
  • Insurance premiums
  • Clothing
  • Food and groceries
  • Tuition fees and other educational expenses

We developed a cost of living calculator to help you determine how much you will spend based on your income, current location and the area you’re planning to settle in.

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CONSIDER AFFORDABLE NEIGHBORHOODS

According to The Council for Community and Economic Research, Minnesota ranks as the 22nd most affordable state regarding cost-of-living metrics. If you want to save money, MoneyGeek recommends living in small towns and less affluent neighborhoods within the state.

However, know that these areas might not have a high standard of living, and you may not get access to critical public facilities. Based on data from the Minnesota Department of Employment and Economic Development, the cheapest counties in the state are Stevens County, Cook County and Pennington County.

Calculate Mortgage Rates

It’s important to know that lenders offer several types of mortgages to homebuyers in Minnesota and charge different interest rates for each. Besides loan type, factors like your home’s location, credit history, property purchase price, down payment and other loan details significantly affect your rates. Shop around and compare rates from different lenders to get the best deal.

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SEE YOUR MORTGAGE OPTIONS

It would help to explore the different types of mortgages the lenders offer in your area and get an idea of their rates based on your profile. Although you might not qualify for each type of loan, shopping around will help determine how much you will pay based on your desired loan amount.

Homebuyers with a strong credit history are more likely to qualify for cheaper rates. Based on MoneyGeek’s analysis, the following are the average interest rates for different types of mortgage loans:

You should also go through the eligibility requirements of each type of loan to know if you will qualify. For example, VA loans are limited to military members or veterans.

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USE A MORTGAGE CALCULATOR

A mortgage calculator is an excellent resource, as it can help you estimate the monthly cost of getting a loan and your interest rates based on your profile. Knowing this information can help you understand if you can afford to get a mortgage loan.

Homebuyers in Minnesota can calculate the total cost of their loan using MoneyGeek’s mortgage calculator. It will let you know your average monthly payments and how your loan amount and repayment terms can affect your premiums.

To understand which loan best fits your needs, you can use the MoneyGeek FHA vs. conventional loan calculator. Once you know your ideal loan type, you can start shopping for different lenders.

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KNOW YOUR QUALIFICATIONS

The lenders assess your profile and financial factors to determine if you qualify for a mortgage loan and what your interest rate should be. MoneyGeek found that lenders analyze the following information when you apply for a loan:

  • Debt-to-income ratio: It shows what percentage of your income goes toward paying off your debts. To qualify, your DTI ratio should not be above 43%.
  • Credit score: Although you might qualify for a loan with bad credit scores, you won’t get an affordable interest rate.
  • Employment status: If you have a stable employment history, the chances of loan approval are higher.
  • Income level: Each lender has different income requirements; however, you must have sufficient income to qualify for a loan.
  • Down payment: It refers to the percentage of the home’s purchase price that the borrower has to cover. It’s usually 20% for most types of loans.

Prepare Down Payment Requirements

The lender’s down payment requirements vary based on the type of mortgage loan. You must understand that your down payment significantly affects your monthly payments and the loan’s total cost. A 20% down payment is typically recommended if you get a conventional loan, as this amount will allow you to avoid private mortgage insurance (PMI). On the other hand, VA and USDA loans do not require any down payment.

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DETERMINE DOWN PAYMENT REQUIREMENTS

The best way to know your down payment requirement is by determining your loan type and contacting the lender to ask how much down payment they require. The lenders typically require a 20% down payment if you opt for a conventional loan and don’t want to buy PMI. In the case of FHA loans, a minimum 3.5% down payment is mandatory. If you want to lower your monthly payments, it’s best to put in a higher down payment.

Some lenders also offer no-down-payment options like VA and USDA loans; however, these loans usually have strict eligibility requirements. For instance, you need to be a veteran or active-duty military member to qualify for a VA loan.

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CALCULATE MORTGAGE INSURANCE

Another expense that you must consider when estimating the loan cost is mortgage insurance premiums. Lenders sometimes require private mortgage insurance (PMI) to protect themselves if the borrower fails to repay the loan and defaults on its monthly payments.

Whether you require mortgage insurance or not depends on your loan type and the amount of down payment. For instance, you must purchase a mortgage insurance policy with FHA and USDA loans. Homebuyers getting a conventional loan should also get PMI if they can’t afford a 20% down payment. However, a mortgage insurance policy isn’t required with VA loans.

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DOWN PAYMENT ASSISTANCE PROGRAMS

Many statewide and regional homeownership programs are available in Minnesota to assist first-time homeowners. These programs can benefit homebuyers who cannot afford a large down payment on a new home. MoneyGeek gathered information about the following homeownership assistance programs:

  • Minnesota Housing Finance Agency Programs: The Minnesota Housing Finance Agency offers many programs for first-time homebuyers. It helps them purchase a home by providing down payment and closing cost assistance of up to $17,000.
  • USDA Loans: The U.S. Department of Agriculture loans are available for first-time homebuyers who want to purchase a home in USDA-designated rural areas.

You might also benefit from other homebuyer assistance programs available in Minnesota. For more information, you can look at MoneyGeek’s guide to first-time homebuyer programs in Minnesota.

Get Pre-Approved for a Mortgage

You should get pre-approval for a mortgage to demonstrate to the seller that you are financially capable of repaying it. To get pre-approval, you will have to provide various documents to the lender that help them understand your financial situation. The lender will then verify that information and let you know how much money you can borrow.

However, know that pre-approval is different from prequalification, which generally involves providing the lender with information about your financial details. The lender then gives you an estimate of your loan amount. Pre-approval lends more credibility to a buyer than prequalification, as pre-approval takes a deeper look at your financial status.

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GATHER NECESSARY DOCUMENTS

You should gather important documents about your financial and personal information, so the lender can analyze those documents and give you a specific estimate of your loan amount. It’s best to ask the lender about the information they need to give you mortgage pre-approval. MoneyGeek recommends providing the lender with the following documents:

  • Bank statements
  • W-2 forms
  • Proof of real estate income (if any)
  • Social Security number
  • Photo ID
  • Payroll stubs
  • Investment account statements

If you can’t arrange any of these documents, you should contact the lender and ask them about what alternative information you can provide instead.

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TIME YOUR PRE-APPROVAL

It’s best to apply for a mortgage pre-approval as soon as you start shopping around for a new home and comparing the rates of different lenders. It generally takes the lender up to 10 days to verify your financial information and let you know your loan amount based on that information.

Although the pre-approval from the lender expires in 60 to 90 days, you can apply as often as you like. That said, keep in mind that pre-approval can hurt your credit due to the hard credit check.

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RECEIVE PRE-APPROVAL LETTER

A mortgage pre-approval letter may help speed up the home purchasing process as it demonstrates your seriousness and financial capability to repay a loan. The lender doesn’t limit how many pre-approval letters you can get; however, it performs hard credit checks every time you apply for one. A pre-approval letter is generally only valid for 60 to 90 days.

MoneyGeek found that a pre-approval letter consists of the following information:

  • Loan type
  • Loan amount
  • Interest rate
  • Maximum home purchase cost

Depending on the lender, you might find other information in this document.

Conduct a Home Inspection

It’s always a good idea to conduct a home inspection before finalizing a purchase, even if it looks perfectly fine from the outside. A thorough home inspection can reveal critical issues with the home’s structure, safety hazards and other life-threatening issues. Some lenders make home inspections mandatory to qualify for a mortgage.

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CONTACT A LICENSED INSPECTOR

Although you may consider it an unnecessary expense, you should still always hire a licensed home inspector to conduct a home inspection. They can analyze and reveal significant home structure issues and inform you if you need to perform any repairs. Based on MoneyGeek’s research, a home inspector assesses the following parts of a property:

  • Overall structure
  • Foundation
  • Roof
  • Walls and doors
  • Windows
  • Ceilings
  • Cooling and heating systems

These parts are usually analyzed in a general inspection. Many specialized inspections are also available. Some examples include septic system inspection, radon testing, plumbing inspection, etc.

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FOLLOW MINNESOTA-SPECIFIC INSPECTIONS

In Minnesota, it isn’t compulsory to conduct a home inspection to purchase a home with a mortgage loan. You can skip the home inspection on your new home if you want to; however, MoneyGeek will advise against it. A home inspection can help you save money in the long run, and your local county laws may also require it.

If you decide to conduct a home inspection through a licensed inspector, expect to pay between $200 and $500 for a general inspection. On the other hand, opting for specialized inspections will be more expensive.

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GO THROUGH APPRAISAL

Most lenders require a home appraisal done by professional home appraisers to approve your mortgage loan. During the process, the appraiser analyzes the property's structural condition, location, neighborhood and other important factors to prepare a report that tells you their unbiased opinion of its worth.

Since a home appraisal gives you information about a home's value, it will help you analyze whether the seller’s terms are reasonable. The whole process takes up to 10 days.

Close Your Mortgage Loan

You can proceed with the closing of your mortgage loan after you review the essential details and conduct a home inspection. This process will involve signing a lot of paperwork and paying closing costs, which are usually 3% to 5% of the loan amount. The closing costs refer to fees and expenses like taxes, attorney fees, mortgage insurance premiums and other expenses.

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SIGN ALL DOCUMENTS

To conclude the mortgage closing process, the homebuyer must sign several documents and review the paperwork. It’s essential to read these documents carefully before signing them to save yourself from future hassle. Based on MoneyGeek’s research, the lender might ask you to sign the following paperwork:

  • Closing disclosure
  • Mortgage application
  • Promissory note
  • Deed of trust
  • Property transfer documents

Depending on the lender, there might also be additional documents. If you don’t understand loan terms or other information, it’s best to ask the lender.

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PAY CLOSING COSTS

Mortgage closing refers to finalizing the purchase of a property and involves the payment of fees and various other expenses. Based on MoneyGeek’s research, the closing costs may include the following expenses:

  • Lender’s title insurance: The lender requires you to purchase title insurance to protect themselves in case of any ownership dispute after the property is sold.
  • Mortgage insurance: If your down payment is less than 20%, this protects the lender if you cannot repay the loan.
  • Escrow fee: The attorney who collects the closing costs and disburses them to involved parties usually charges this fee.
  • Attorney's fees: The mortgage closing involves a lot of paperwork, which is why the attorney charges this fee to prepare the necessary documents and contracts.
  • Homeowners insurance premium: You should always purchase a homeowners insurance policy before finalizing a mortgage loan, although this is not technically required.
  • Loan origination fees: The lender charges this fee to collect and verify your details and prepare mortgage documents.
  • Appraisal fee: The appraiser charges this fee for providing an unbiased opinion of the home’s value.
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COMPLETE YOUR HOME PURCHASE

To find the best place to buy a house in Minnesota, consider your needs and current situation. After understanding your requirements, you can look at the current mortgage rates and analyze if you can meet the lender’s down payment and loan requirements.

You can then start comparing rates from different lenders after pre-approval and placing your offer on a home. Once you choose a property, conduct a home inspection and proceed with closing your mortgage loan.

The best way to manage your mortgage is to make monthly payments on time and avoid penalties.

Minnesota Homebuying Details

Although this state is not one of the most affordable options for purchasing a home, you can still find affordable places to buy a house in Minnesota. However, you might have to compromise on the quality of amenities and access to public services.

Many organizations offer homeownership programs for first-time homebuyers in the state if they need financial assistance to afford a down payment on a mortgage.

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Start Up

You can benefit from the Minnesota Housing Finance Agency’s Start Up program if you’re a first-time homebuyer and meet their eligibility requirements. This program offers down payment and closing cost assistance loans of up to $17,000.

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Step Up

Additionally, if you’re a repeat homebuyer, the MHFA’s Step Up program can help you purchase your next home. Like the Start Up program, Step Up also provides assistance of up to $17,000.

Frequently Asked Questions About Buying a Home in Minnesota

You can look at MoneyGeek’s analysis of the most frequently asked questions about homebuying in Minnesota to understand how the process works.

When buying a property in Minnesota, you must consider if it’s located in an area that suits your lifestyle needs. You should also analyze your financial situation and previous debts to understand if you can afford a new loan.

To determine if buying a house in Minnesota is a good idea, assess if you can afford the cost of living. It’s also essential to determine if a long-term financial commitment will suit you based on your situation.

Minnesota’s home prices are generally close to or slightly less than the national average. However, it’s essential to know that you can always find a relatively affordable town neighborhood to live in within the state.

Although most lenders do not have a high income requirement for mortgage loans, you must have a sufficient and steady income that indicates your ability to repay the loan.

MoneyGeek’s research shows that the annual property tax rate in Minnesota is an average of 1.05%.

The cheapest places to buy a house in Minnesota are Stevens County, Cook County and Pennington County.

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