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

The real estate market can feel overwhelming, especially for first-time buyers. If you are looking for the best and cheapest places to buy a house in North Dakota, consider working with a real estate agent.

Ask your family and friends for real estate agent recommendations. After you have narrowed your list of potential options, ask for references from recent clients. MoneyGeek recommends looking for a real estate agent with the following qualities:

• Local real estate market knowledge
• Reputation for trustworthiness
• Possesses a network of connections
• Clearly communicates ideas

Of course, the ideal real estate agent for you will depend on your requirements.

The cost of living varies depending on where you live in North Dakota. For example, in Fargo, you will spend up to 5% less of your income on necessities such as rent, food and utilities compared to Bismarck.

When researching the cheapest places to buy a house in North Dakota, keep in mind that the cost of living varies from area to area. Take the following living expenses into consideration:

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

UseMoneyGeek's cost of living calculator to quickly compare the cost of living in several North Dakota cities.

The cost of living in North Dakota, which comes in at $1608, is about 1.2 times cheaper than the average cost of living in the rest of the country, making it a relatively affordable state. According to Livingcost.org, Bismarck, Minot and Fargo are among the least expensive cities in the state.

City, suburban and rural living all have their pros and cons. For example, people who live in suburban or other non-metropolitan locations may be able to purchase a house for a lower cost but might have less access to facilities such as hospitals and shopping malls.

North Dakotans can choose from a wide range of mortgage options, each with its own terms, conditions, rates and restrictions.

Each lender has eligibility requirements and looks at a borrower’s employment history, credit score, debt-to-income ratio, gross monthly income and other relevant factors. Look for lenders that best match your financial profile.

North Dakota's average interest rates vary for each type of loan:

• Conventional home loans: 7.1%
• VA loans: 6.5%
• USDA loans: 3.3%
• FHA loans: 5.4%

Take into account that the average APR can vary depending on the lender and your location.

Before considering a property, determine whether you can make the monthly mortgage payments. You may be eligible for both conventional home loans and government-backed mortgages, so evaluating rates will help you determine which option is most suitable.

A mortgage calculator can help you understand the many costs of your home loan, including the interest, principal, property taxes and other charges. You can use MoneyGeek's mortgage calculator to determine your monthly mortgage payment. To determine which mortgage is ideal for your situation, you can also compare the interest rates for conventional and FHA loans.

After obtaining an estimate, you can compare mortgage options based on up-front costs, APRs, limitations and other considerations. This will make it easier for you to choose the mortgage that best suits your needs and is appropriate for your financial position.

Mortgage lenders usually examine the following factors when reviewing your mortgage application:

• Credit score: While not all types of loans necessitate a credit score, lenders tend to favor applicants with at least a fair credit score.
• Down payment: Your ability to make a down payment reveals to the loan company whether or not you are a high-risk borrower.
• Debt-to-income limits: The debt-to-income ratio indicates what percentage of your income goes toward paying off your debt.

If you do not satisfy some of the lender requirements, you can work to improve your profile.

Your down payment could vary based on the type of mortgage you select. The average down payment for a conventional loan is 20%. USDA and VA loans don’t require down payments, and FHA loans require a minimum down payment of 3.5%.

Your down payment has a significant effect on your monthly expenses. Higher down payments generally result in reduced monthly payments and vice versa. If you know how much you have to pay in advance, you can get a rough estimate of how much you will need to put aside each month.

Most conventional mortgages with less than a 20% down payment require private mortgage insurance (PMI). PMI protects the lender in the event the borrower defaults on a loan.

• Conventional loans: PMI is mandatory when the down payment is less than 20%. The interest rate varies depending on the down payment and credit rating.
• FHA loans: Although PMI is optional, you will likely need to pay an advance mortgage insurance payment.
• VA loans: PMI is not required.
• USDA loans: PMI is not required for USDA loans, but you might have to pay a guarantee fee.

Remember that not all types of mortgages need PMI.

Prospective homeowners can find it challenging to save for a 20% down payment. Fortunately, North Dakota offers a variety of down payment assistance programs that minimize the amount of money homebuyers must pay upfront. These include:

• NDHFA Start Program: Low- to moderate-income homebuyers can get a second mortgage from the North Dakota Housing Finance Agency (NDHFA) for up to 3% of the initial mortgage loan. Buyers can apply these funds toward closing fees or a down payment.
• NDHFA DCA Program: The NDHFA DCA Program assists low-income homebuyers with closing costs and down payments. It provides financial assistance in the form of a second mortgage of up to 3% of the initial mortgage loan.

In addition, first-time homebuyers in North Dakota have access to various helpful programs.

Lenders will typically require your personal and financial information to confirm your income, credit history and debt-to-income ratio. Depending on the type of mortgage, you may need to submit additional supporting documents to verify your eligibility.

To apply for a mortgage in North Dakota, you’ll need the following documents:

• Social Security number
• W-2 forms
• Photo ID
• Tax returns
• Bank account statements
• Pay stubs
• Investment statements
• Other mortgage statements

Determine what your lender requires so you can gather the relevant documentation in advance. If a document is unavailable, inquire about possible substitutes.

Pre-approval for a mortgage is an essential step in the homebuying process. Mortgage pre-approval may take up to 10 days, but time will vary from lender to lender. Once you are pre-approved, the lender will send you a letter detailing how much you are eligible to borrow.

Since pre-approval letters often have a validity term of 60 to 90 days, you should request pre-approval when you are ready to buy a home. If your pre-approval letter expires, you must apply for a new one.

The pre-approval letter tells you how much the lender will let you borrow. In addition, it demonstrates to the seller that you are a serious buyer with the financial means to secure a mortgage. There is no limit to the number of pre-approval letters you can request, but lenders conduct rigorous credit checks each time, which may impact your credit score.

Pre-approval letters typically contain the following information:

• Loan amount cap
• Interest rate
• Loan amount
• Loan period
• Monthly payment

The contents of a pre-approval letter can vary depending on the loan company. While some lenders might rely on the information you provide, others could need additional documents.

Remember, a lender's pre-approval letter is valid for 60 to 90 days. You can use this time to improve your profile and communicate with your lender about the most advantageous terms.

Although employing a certified home inspector is an expense, it can result in significant savings in the long term. Ask your real estate agent, friends and family to recommend a home inspector.

Typical home inspections, according to the International Association of Certified Home Inspectors, usually comprise a written report covering the following:

• Exterior
• Roof
• Foundation, basement and crawlspace
• Cooling
• Heating
• Fireplace
• Plumbing
• Electrical
• Ventilation, insulation and the attic
• Windows, doors and interiors

In addition, specific types of home inspections examine the home's foundation, pests or WDOs, mold and sewage.

While home inspections are not required by law, some North Dakota counties or cities may ask for them. It is prudent to ask in advance what your home inspector intends to inspect and how much it will cost. This allows you to calculate how much money you should set aside. In addition to the cost of hiring a professional, customized inspections might range from $100 to $700.

Before approving the loan, the mortgage lender frequently orders a home appraisal to verify the property's value. A certified appraiser will thoroughly assess the home's actual market value, which may differ from the asking price. The assessment helps avoid overborrowing, which could subject the lender to the risk of financial loss in the event of loan default.

Current market trends influence appraisal value, so the appraiser will consider the cost of comparable properties.

After reviewing and agreeing to the loan terms, you will sign the associated documentation. Before signing any documents, always examine them carefully.

• Final loan application: Certifies the accuracy of the information on your first loan application. You should inform the lender of any changes to your financial condition.
• Property deed: Transfers property ownership to the buyer and includes all pertinent details.
• Mortgage note: Includes information on the principal loan amount, interest rate and other clauses and binds you legally to make mortgage payments.
• Final disclosure: Describes the loan terms.

Before signing, read the fine print carefully. If you encounter any unfamiliar terms, consult an expert or ask your lender for an explanation.

Depending on where you live, the lender you use and other variables, closing costs generally range from 2% to 5% of the purchase price. These expenses consist of the following:

• Origination fee: Varies by lender but is often a small percentage of the loan amount.
• Title search charges: Charges connected with confirming the property is legitimately yours through a title search.
• Escrow: An account used to hold money for annual funding fees, homeowners insurance, mortgage insurance and real estate taxes.
• Recording fee: Some government agencies charge a recording fee for paperwork listing a borrower's ownership interest in the property and any prospective liens against it.

This list is not exhaustive, but it should give you a solid idea of what to anticipate.

Ensure that you have located your preferred location, evaluated mortgage rates and gathered the necessary documentation before completing the purchasing process. You also will need a pre-approval letter and a house inspection before loan closing.

You’ve followed MoneyGeek’s steps to buy a house in North Dakota and are now a homeowner. Congratulations! The next step is managing your funds and making monthly mortgage payments.

As a homeowner, you should put aside funds and budget for costs associated with cleaning, repairing and maintaining your home. Remember that a higher down payment is an effective method for securing a cheap monthly rate.