Everything You Need to Know About Buying a House in Minnesota

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Minnesota is also known as the Land of 10,000 Lakes—the perfect place for outdoor lovers to buy a home. Plus, those looking for the city lifestyle can make their home in one of the twin cities (or the surrounding suburbs).
Buying a house in any state is a major financial commitment. Plus, it can be a daunting process—you’ll need to seemingly learn a whole new language to understand the ins and outs of the housing market and buying a home. 
Thankfully, we’re here to help—insurance broker Jerry created this guide to buying a house in Minnesota. We’ll teach you how to figure out your finances, get a mortgage, and pick a home. Read on to become a Minnesota homeowner!
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Figure out your finances

Don’t start bookmarking Zillow listings or heading on property tours quite yet. First, you need to get an understanding of your finances. Buying a home is a massive investment, and you need a grasp on your credit score, debt-to-income (DTI) ratio, and the many surprising fees you’ll incur while buying a house before you start shopping.
Here’s everything you need to know to figure out what type of house you can afford in Minnesota.

Check your credit score

First things first—you need to know your credit score. A credit score is a reflection of your credit history and an indicator for lenders on whether or not you can be trusted to pay back a borrowed sum (in this case, your mortgage). 
To buy a house in Minnesota, lenders will want to see a credit score of 620 or higher. Without this score, you may have difficulty getting a mortgage.
Here are a few options if your credit score is too low:
  • If you can wait to purchase, you can take some time to build your credit to help you qualify for a mortgage. You can increase your credit by paying off debts and credit card balances, increasing your credit limits, and paying your future bills on time.
  • If you can’t wait, there are ways to get a loan with low credit. The Federal Housing Administration (FHA) and Veterans Administration (VA) have specialty loans for homebuyers with low credit scores. 

Calculate your debt-to-income (DTI) ratio

After your credit score, the next most important figure is your debt-to-income ratio (DTI). This is how much you make versus how much you owe every month. 
To figure out your DTI, you need to divide your total monthly payments by your pre-tax income. Payments that must be factored into your DTI include:
  • Rent or house payments 
  • Car payments
  • Credit card payments
  • Student loan payments
  • Alimony or child support  
If your DTI is over 50% (as in, 50% of your monthly income goes directly toward payment), you may have trouble getting a mortgage. A financial goal to keep in mind is having a DTI below 36%.

Determine your down payment 

Another factor in purchasing a home is paying a down payment. This is a sum of the total purchase price paid up-front. On average, mortgages require a down payment of 20%. That means being able to afford your monthly mortgage payments isn't enough—you’ll also need a good amount of money saved up.
The higher your down payment, the less you’ll need to borrow. This can save you money in the long run, as you’ll owe less interest over the years.
If you can’t afford a down payment, there are ways to find help. Here are a few options for Minnesotans: 
  • An FHA loan may only require a 3.5% down payment. This is specifically for low-income homebuyers. 
  • A VA loan could require no down payment. VA loans are only available to active or former military service members, however. 
  • The Minnesota Housing Finance Agency offers Monthly Payment Loans and Deferred Payment loans to help those who can’t afford a down payment.

Prepare for closing costs and other fees

There’s still one more thing to consider—closing costs. These are one-time fees and payments associated with buying a home. Even if you can afford a down payment and your monthly mortgage costs, you also need enough money for all your closing costs.
In Minnesota, closing costs are usually between 2-5% of the home’s total cost. Since Zillow puts the average value of a Minnesota home at $317,000, that means the closing cost for the average Minnesotan can be as high as $15,850!
Closing costs are the sum total of the following payments:
  • Home appraisal (required by most lenders) fee
  • Credit report fee
  • Home inspection fee
  • Mortgage origination fee
  • Earnest money (i.e., a good-faith deposit that will go towards your down payment)
  • Mortgage insurance
  • Property taxes
  • Homeowners insurance
Property tax in Minnesota is very close to the national average. The state’s average property tax rate is 1.08%, while the national average is 1.07%.
Key Takeaway Be prepared to spend 2-5% of the home’s value on closing costs.

Look for homeowners insurance

There’s one more new, monthly expense you’ll need to be prepared for: the cost of homeowners insurance! Most mortgages will require you to have insurance. Plus, insurance can save you from hundreds of thousands of dollars in losses if your home is damaged or destroyed. 
The average cost of homeowners insurance in Minnesota is around $1,800 a year, which comes out to around $150 a month. This is higher than the national average. 
If you want to get the best possible deal on your insurance, you’ll need to go comparison shopping. This is the act of looking at quotes from multiple insurance companies to determine where you’ll get the lowest rate. Without comparison shopping, you won’t know if you’re paying too much.
Want help comparison shopping? Let insurance broker Jerry simplify the process. Download the app and sign up to receive insurance quotes from a long list of top providers.
Key Takeaway Understanding your finances and new expected expenses is a crucial first step in buying a home.

Get preapproved for a mortgage

Now that you know what you can afford, there’s still one more step before you can start house hunting: you need to prequalify for a mortgage. Prequalifying for a mortgage will help you appear more serious to sellers, and may even be a requirement to get a tour of some houses.
To get preapproved, you’ll need to send the prospective lender your social security number, along with your banking information, your employment history, plus a list of your debts and assets. You’ll also need to fill out a mortgage application.
Make sure your finances are in order before you apply for preapproval—lenders will do a hard credit check, which will likely lower your credit score.

How to pick the right mortgage in Minnesota

There are two main factors when deciding on your mortgage: the mortgage term and interest rate.
A mortgage term is how many years you’ll be paying off your mortgage. The two most common lengths are 15 years and 30 years
The term usually directly correlates with the interest rate. This is how much extra you’ll be paying the lender in exchange for the loan. Shorter mortgage terms have lower interest rates (usually 2.5%) but higher monthly payments. Longer mortgage terms have higher interest rates (3.5% is average) but less expensive monthly costs.
Which type of mortgage you choose comes down to what you can afford and how long you’re willing to pay off your loan. 

Look for a house

We’ve got our finances settled and our mortgage pre-approved. That means it’s time to find a house!

Pick your city or neighborhood 

Find the city, town, or neighborhood that’s right for you. You should make sure it has the things that are important to you—is it close to parks? Does it have great nightlife? Are the public schools good? How’s the weather? Plus, not all parts of Minnesota cost the same, so make sure you are prepared for the cost of living
You could move to a big city—like Minneapolis or Saint Paul—enjoy one of the prominent suburbs—like Eden Prairie or Edina—or settle into one of the hundreds of small towns in the state.

Buyer’s market vs. seller’s market

When house shopping, it’s helpful to know if you’re dealing with a buyer’s market or a seller’s market.
A seller’s market is when demand for housing outweighs supply, meaning there are more potential homeowners than there are houses. In a seller’s market, you're likely to pay the asking price (or higher) and must act decisively when you find a house you like.
A buyer’s market is just the opposite—there are more homes available than interested buyers. In a buyer’s market, there’s a better chance of you being able to negotiate a lower price. 
If recently listed houses are flying off the market, or going for above the asking price, you’re likely dealing with a seller’s market.
Minnesota is currently a seller’s market, especially around the twin cities region. Housing prices have steadily risen in the state over the past few years.

Find a real estate agent

If all the ins and outs of buying a home seem intimidating, you can get professional help by hiring a real estate agent. A real estate agent can help organize your search and use their experience to find you the house of your dreams.

Make an offer

Once you’ve found the perfect house for your needs and budget, you need to make an offer. If you hire a real estate agent, they can help you with all your paperwork and assist you in deciding on an offer price. 
The amount you pay will be largely based on whether or not the neighborhood is currently a buyer’s or seller’s market, and if there are other parties interested. 
If everything goes well, this is the last step between you and being a new homeowner!

How to save on homeowners insurance

Now that you’ve got your down payment, your closing costs, and your mortgage—you probably want to find a way to lower your monthly costs. If you want the best possible insurance coverage at the lowest possible price, you need to download Jerry.
Jerry is a licensed insurance broker created to simplify insurance shopping. One quick, free sign-up will give you access to a long list of insurance quotes from a slew of top providers. Just pick the quote that’s right for you and Jerry does the rest. Plus, Jerry is great for finding  bundling deals for your home and auto policies.
Jerry was wonderful! I used it for my auto and renters policies. I trusted it so much that I signed up my homeowners insurance under Jerry as well. All of the agents are amazingly nice and knowledgeable.” —Mary Y.

FAQs

You’ll want to have at least a credit score of 620 to get a mortgage in Minnesota. 
If your credit score is below 620, you can turn to the Federal Housing Administration or Veterans Administration for a specialty loan.
That depends on what you’re looking for! 
The twin cities (Minneapolis and St. Paul) and the surrounding area are very popular, but will likely be more expensive. Minnesota is also a great state for those looking for a smaller town feel and beautiful scenery.

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