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Kim
Kim Stuart Manager of home mortgage programs, Minnesota Housing Finance Agency View bio
Amy Larson
Amy Larson Communications specialist, Minnesota Housing Finance Agency View bio

This guide was written by

MoneyGeek Staff

When it’s time to buy that first house in Minnesota, prospective homebuyers might feel overwhelmed by the mortgage process. It’s hard to know where to begin. The answers are right here. Find current information on checking mortgage rates, reviewing credit scores and getting ready, as well as where to secure financial assistance and free educational resources to get up to speed on the lending landscape in the North Star State.

1

Understanding Minnesota Mortgage Rates

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The amount of interest charged on a home loan in Minnesota fluctuates on many factors. The buyer’s credit scores are a key part of the lender’s evaluation in approving a mortgage and setting an interest rate. But other factors in the North Star State include demand for homes and considerations like job growth and local economic strength. Beyond the credit worthiness of the applicant, mortgage rates in Minnesota vary on other factors, including housing demand and the strength of the state economy. Rate quotes are free in Minnesota and buyers are under no obligation to pursue a mortgage with any specific company. Be aware, though, that the offered rate may vary from rates promoted by mortgage lenders because the borrower’s credit history, net worth and ability to repay the loan are taken into consideration.

It’s a good idea to check your credit scores at least once a year. This is free through the three major credit reporting companies: Experian, TransUnion and Equifax. Knowing credit scores in advance lets new homebuyers better estimate the interest rate they can expect in Minnesota. It also gives you time to correct any mistakes on the report before applying for a mortgage and potentially getting turned down due to a simple oversight that could have been corrected early on.

Learn more about factors that drive mortgage rates.

2

First-Timer? Get Homebuying Help in Minnesota

The Minnesota Housing Finance Agency provides free educational resources for the first-time homebuyer. In most cases working with a lender to get pre-approved for a mortgage loan is the best first step, the agency recommends. With a price range in mind and initial qualification for the loan, the first-time buyer can then get ready to shop around for a house in Minnesota. If credit worthiness is a concern, free financial counseling for home ownership is also available from the Minnesota Home Ownership Center.

The state also provides assistance to Minnesota homeowners long after they buy a house. There’s help for people struggling with mortgage payments who want to refinance an existing home loan or need assistance with home repairs. Eligibility for these programs is income-based through the state’s housing finance agency.

A good way to dive into this new and potentially overwhelming world of real estate knowledge is to set up an appointment with a free counselor at the Minnesota Homeownership Center. Its goal is to convert Informed buyers turn into successful homeowners. Homeownership advisors help Minnesota residents get ready to buy a house with a one-on-one conversation about how to:

  • Calculate how much home the buyer can afford
  • Review credit reports line-by-line with the buyer
  • Point out problems on credit reports and create a plan to resolve them
  • Go over information on current mortgage loan programs
  • Connect with down payment and closing cost help
  • Create a personalized plan to make it all happen

Financial Assistance for First-Time Buyers in Minnesota

Many first-time homebuyers in Minnesota fall financially just short of the cash requirements needed to by that house. It may be a sufficient down payment standing in the way or not enough cash on hand to cover closing costs on the eventual home purchase. For these individuals Minnesota offers numerous options for financial assistance, as well as real estate education to help the novice understand the mortgage and home-purchase process. Here’s a list of resources for the first-time homebuyer.

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3

Understanding Home Affordability in Minnesota

Minnesota’s economy, job growth and demand for housing drive the real estate market, pulling home prices up or down along with interest rates. Unemployment can affect mortgage financing statewide or at the local level. The Minnesota Housing Partnership reports that 27 percent of state residents are renters, with income being a key obstacle to homeownership. Since 2000, inflation-adjusted rent has increased by seven percent statewide, while median renter income fell 17 percent.

The average price for a home in Minnesota is $205,250, as of June 2016, according to the Minnesota Association of Realtors. That’s up 6.3% from June 2015.

There is good news. With a credit score of at least 640, many Minnesota residents can apply for loans and grants through the state’s Housing Finance Agency that can provide funding assistance to cover the downpayment, closing costs and secure a fixed-rate mortgage that may be less than a monthly rent payment.


How Minnesota Mortgage Rates and Home Prices Affect Monthly Payments

Metro Area Estimated Monthly Mortgage Payment* Q1 2016 (Change from Previous Year) 2015 Median Home Price 2014 2013
Fargo $906 $192,700 (+7.10%) $190,600 $173,000 $164,600
Minneapolis-St. Paul-Bloomington $1,047 $222,800 (+6.40%) $225,100 $210,100 $196,200

Source: National Association of Realtors Q1 2016 Metropolitan Median Area Prices and Affordability report.
*Estimated Monthly Mortgage Payment is based on median home prices for the metro area in Q1 2016 and a 30-year fixed mortgage with today’s rates.

4

Figure Out How Much You Can Borrow in Minnesota

Lending limits on FHA mortgage products are different county-to-county in Minnesota, with $271,000 on the lower end of the range. Conventional loan limits are set at $417,000. Here’s a listing by locality of FHA and conventional loan limits in Minnesota:

Clear selections
5

Buying a Home in Minnesota: Learn from the Experts

Jon-Wallace

Kim Stuart is manager of Minnesota Housing’s home mortgage programs and has worked in the agency’s Single Family Division since 1997.

Doug-Ardy

Amy Larson joined Minnesota Housing as the communications specialist in 2013. She has worked in marketing and communications for Minnesota organizations since 2010.

What’s the biggest thing first-timers overlook when they’re ready to buy a house?

Stuart

Saving for a down payment, improving credit, and navigating a competitive housing market can make buying a home seem out of reach. We’re working to remove those barriers and set Minnesotans on the path to successful homeownership through education, counseling, and affordable loan programs.

Larson

Many first-time homebuyers have the misperception that they need 20 percent down and perfect credit to qualify for a mortgage. In reality, buyers in Minnesota have a variety of options that can help them become successful homeowners. FHA loans require just a 3.5 percent down payment. Buyers can go as low as 3 percent down with Fannie Mae and Freddie Mac’s exclusive products, available only through (government) housing finances agencies like Minnesota Housing.

What are some good ways to repair damaged credit so a new homebuyer can qualify for a mortgage?

Stuart

We encourage potential buyers to connect with a Homeownership Advisor to discuss their specific credit questions.

Larson

Definitely credit counseling. It’s a good idea to talk to a credit advisor who understands how credit scoring works and can help you go over your credit report and spot problem areas. Also prioritize which problems to work on first.

What’s are the greatest obstacles to homeownership in Minnesota?

Stuart

Much of the state is experiencing increasing home prices. The advantage right now is Minnesota Housing’s historic low interest rates can help borrowers address the challenges of a seller’s market.

Larson

Often it’s the downpayment that presents an obstacle. Or the buyer is short of cash by the time closing costs come due. Eligible borrowers working with us can get a Minnesota Housing downpayment and closing cost loan up to $10,000 to help cover those costs. A credit score in the 600s isn’t a deal breaker, so that shouldn’t stop you. We have loan options for borrowers with credit scores starting at 640.

6

Don’t Forget Minnesota Closing Costs

It might seem like everyone in Minnesota gets paid when a buyer closes on a home. The bank charges origination fees on the mortgage. The appraiser gets paid to determine the house value. Lawyers leave a bill. There might also be research for the property title, which carries a separate cost. Collectively, these closing costs can quickly add up to several thousand dollars. Still, Minnesota is on par with the national average on real estate closing costs. A breakdown on average fees is below.

Average Closing Costs in the North Star State

Average Origination
Fees
$1,067
Average Third-Party
Fees
$689
Average Total Closing
Costs
$1,756

Source: Bankrate’s 2015 survey of closing costs.

More information on how lenders set closing costs and what you can expect can be found here.

Refinancing a Mortgage in Minnesota

Minnesota banks and mortgage companies sell refinancing loans that can lower mortgage payments for homeowners. Federal loans through the FHA may also be refinanced, and it’s a good idea to consider this after the house appreciates in value after the purchase. To qualify for FHA refinancing in Minnesota, the homeowner must use the house as a primary residence. Staying current on mortgage payments is essential to qualifying for refinancing. Credit scores may also come into play in Minnesota. As house values continue to rise throughout the state while interest rates remain low, refinancing becomes more attractive. Check out this MoneyGeek guide for more on mortgage refinancing.

Other Minnesota Mortgage Resources

Minnesota Housing Finance Agency

This state agency offers fixed-rate mortgage loans, downpayment assistance and closing costs for Minnesota residents who are either first-time homebuyers or low-income individuals.

Minnesota Home Ownership Center

Provides free education and no-cost counseling services to help novice house buyers understand the process of securing a mortgage, cleaning up credit records and moving toward a closing date on a new home.

Minnesota Homebuyer Incentive Programs

Clearinghouse for financial incentives to spur new home ownership, with programs organized by locality in Minnesota.

Down Payment Assistance in Minnesota

Financing options and information from the Greater Metropolitan Housing Corporation.

Minnesota HUD

State-specific help from the Department of Housing and Urban Development.

Home Ownership Opportunity Minneapolis

City government programs and incentives to encourage people to buy a house in Minneapolis.

Mortgage Credit Certificate Program for First-Time Homebuyers

How to save up to $2,000 annually on Minnesota taxes for the life of the mortgage.

FHA Loan Guidelines for Minnesota Homebuyers

Covers the basic qualifications a homebuyer must meet to be eligible for an FHA mortgage.

Foreclosure Prevention Help

Resources from the Minnesota Home Ownership Center to help homeowners hold onto their houses.

Minnesota Law on Foreclosure

Information from the State Attorney General’s Office on how foreclosure works.