Everything You Need to Know About Buying a House in South Dakota

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To buy a house in South Dakota, you will need a credit score of at least 620 and a 20% down payment. There are many steps to the homebuying process, and it may take more time than you think—but the more you prepare, the smoother the process will be. 
If you love wide-open spaces and small-town living, South Dakota is a great place to buy a home. The state’s low cost of living, unspoiled natural landscape, and low taxes can make home buying there an easy decision. 
But now that you’ve picked a state for your new home or investment property, what’s next? Home insurance expert Jerry is here to help—here is everything you need to know about buying a house in The Mount Rushmore State.
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Figure out your finances

The first step in purchasing a home is knowing exactly what you can afford and what kind of loan will best suit your needs. 
Make sure that you are financially ready to jump into homeownership, plan ahead, and save up so that there aren’t any surprises. 

Check your credit score

To qualify for most conventional home loans in SD, you will need a credit score of at least 620. There are some options for buyers with low credit, but you will likely need a bigger down payment and/or have a higher interest rate on your loan to compensate. 
So aim to get your credit as high as possible before you plan to buy. Even if you already meet the minimum requirement, a higher credit rating could help you score a lower interest rate on your home loan.

Options for building low credit 

If your credit score has room for improvement, here are some things you can do:
  • Get copies of your credit reports from the major reporting bureaus. Once you have your credit information, review it for errors or accounts you don’t recognize and follow the instructions in your report to dispute anything that seems fishy. 
  • Pay on time. You can set up automatic payments through your bank, set reminders on your phone—whatever it takes to make sure your debts get paid on or before the due date.
  • Pay down credit cards and loans to improve your credit utilization ratio. Keeping very low balances on your credit cards and paying down personal and auto loans will improve this metric on your credit report.
  • Be careful about closing old accounts or opening new ones. A well-established credit history includes accounts that have been open and in good standing for a long time. On the other hand, too many recently opened accounts can be a red flag.

Calculate your debt-to-income (DTI) ratio

Your debt-to-income ratio (DTI) is figured by adding up all of your regular monthly debts like housing costs, credit, and loans, and dividing by your gross monthly income (the total amount of money you make before taxes). 
In South Dakota, most lenders will want your DTI to be less than 36%. That means that you are only spending a little over one-third of your monthly income (or less) on debts. 
One way to improve your DTI is by paying off any loans that you can before you apply for a mortgage. Paying off any items like auto or personal loans (or even reducing the principal) will give your DTI a boost.

Decide what mortgage payment you can afford

Similar to your DTI, most lenders will want to see that your total housing costs (including your new mortgage) only make up a maximum of 28% of your gross income
So, if you have a gross income of $5,000 per month (which is a little higher than the median income in SD) it would look like this:
5000 x 0.28 = 1400
In this case, you would want to keep your mortgage payments at or below $1,400 per month.

Determine your down payment 

Most conventional lenders will require a 20% down payment to approve your mortgage. So do a little research—look at house prices in the state to see what houses you like are going for. 
For instance, if you are seeing homes in the $250,000 range that would work great for you, plan on saving $50,000 for your down payment. 
The median price for South Dakota homes is $239,000, making the median down payment around $48,000. If you have lower credit or know that you can’t afford a down payment of that size, you may want to consider alternative loan options. 
Other loan options include:
  • FHA loan: A mortgage insured by the Federal Housing Administration for low- and moderate-income homebuyers that will generally consider credit scores in the mid to high 500s and require less money down.
  • VA home loan: A mortgage insured by the Veterans Administration for service members, veterans, and eligible surviving spouses. These loans also consider lower credit and may offer down payment assistance.  
  • South Dakota Housing Development Authority: Offers a grant of up to 3% of your opening mortgage balance for buyers who meet income and purchase price requirements. There are also programs through SDHDA for first-time buyers and downpayment assistance.

Prepare for closing costs and other fees

South Dakota residents typically pay 2-5% of the value of their home in closing costs. 
As the homebuyer, you can count on your closing costs including your: 
  • Home appraisal fee
  • Credit report fee
  • Home inspection fee
  • Mortgage origination fee
  • Earnest money 
  • Mortgage insurance
  • Property taxes
  • Homeowners insurance
Part of your closing costs will include the first year’s premium on your homeowners insurance and your property taxes. In South Dakota, property taxes are relatively low compared to the rest of the country. More good news—you will pay low sales tax and NO income tax!
To keep your home insurance cost low as well, let Jerry compare prices and coverage for you to make sure you are getting the best possible rates.

Homeownership Costs

In the United States, homeowners spend an average of $2,676 per year on home maintenance and repairs. Depending on its age, condition, and construction materials, a house can require much more or less in any given year. 
It is recommended for homeowners to keep a savings of 1% of the home’s value set aside for home repair. 
Key Takeaway There is a lot of financial preparation required before you buy a home. Make sure you start this process as early as possible.

Look for homeowners insurance

In South Dakota, the weather can be both unpredictable and severe. You will want to make sure you have adequate coverage for things that could cause damage to your home. Make sure to work with someone who knows the area so that you pick the best coverage.
Remember that the cost of your policy will depend on where you live. 
If you’d rather leave the hard work of gathering quotes to someone else, use Jerry. The Jerry app can collect quotes from top insurance companies, like Travelers, Nationwide, and Progressive, in seconds! 
Key Takeaway Homeowners insurance is a condition of your mortgage, so you have to have it. You can save on your premiums by shopping around for quotes.  
Get preapproved for a mortgage
The next step in the process is to get preapproval for your home loan. Make sure you know the difference between preapproval and prequalification. A prequalification is generally not going to be enough for a seller to consider your offer.
No paperworkRequires income and employment verification
No credit checkCredit check required
Gives you an estimate of what you can borrow based on current incomeTells you the exact amount you can borrow
More of a conversation with a potential lenderIs often required before sellers will accept an offer from you

How to find the right mortgage in South Dakota

In South Dakota, you can choose between a fixed-rate mortgage (the most popular) and an adjustable-rate mortgage (ARM). The main difference between the two is that a fixed-rate mortgage will have the same interest rate for the entire life of the loan. If market conditions change and rates are dropping, you would have to refinance your home to lower your rates. 
With an ARM loan, you have an introductory period with a lower than average interest rate, but after the first few years, your rate will adjust with the market. 
This means that you might see a lower rate without needing to refinance, but you are just as likely to see an increase in your monthly payments. 
An adjustable-rate mortgage might be beneficial if you are only planning to hold on to your property for a few years, but in the long run, most people prefer a fixed-term mortgage. 
With a fixed-term mortgage, your interest rate will not change, and you will be able to choose the length of your loan. Most lenders offer 15- or 30-year mortgage loans
You will pay more per month with a shorter-term loan, but you will likely save thousands of dollars over the life of your loan. 

Look for a house

Now for the fun part. It's time to start narrowing down your search. 

Pick your city or neighborhood 

Even though South Dakota has a low cost of living, there are still expensive places to live. Do a little research to make sure that the city and neighborhood that you choose give you access to the amenities you want at a price that you can comfortably afford. 
Spearfish, Rapid City, and Vermillion are among the most expensive cities in the state, while Britton, Winner, and Ipswich are among the most affordable. 

Buyer’s market vs. seller’s market

In 2021, South Dakota was one of the few states experiencing a buyer’s market, but home values increased about 17% during that year. 
A buyer’s market is the ideal time to purchase a home. This is when there are more properties for sale than there are people who want to buy. 
In a buyer’s market, you have a little bit more time to make an offer, and you may have some leverage to negotiate contingencies and closing costs. 
A seller’s market favors the seller because there is more demand than supply. In a seller’s market, you may feel pressure to make a decision quickly. You will likely be making one of several competing offers, so you may need a higher down payment, be willing to take on more closing costs, and be prepared to put offers in on several properties. 
If you are not in a time crunch, it will benefit you to wait for a buyer’s market to make your purchase. 

Find a real estate agent

The right real estate agent can be a huge ally in the home buying process. Having a local agent that knows the area will save you time finding a house that you love. They will also represent you with the seller’s agent and will help draw up and submit paperwork on your behalf. 
As with your loan and insurance, it’s important to shop around a bit when finding a realtor. You will want to find someone who understands what you are looking for, makes you feel comfortable, and has great customer reviews.

Make an offer

With the help of your agent, find two or three properties that you are excited about, and make an offer on your favorite! Here is what you need to do:
  • Work with your agent to draw up a written offer for the price you are offering, any contingencies you are including, and other terms if applicable. 
  • Submit your offer along with your preapproval letter and your earnest money. Earnest money is typically between $500 and $5,000 in South Dakota. This money shows the seller that you are serious—it will ultimately be applied to your down payment. 
  • If you want, include a personal note thanking the seller for their consideration and stating how excited you are about the property. Your agent can let you know if it is appropriate.
Usually, you can plan to hear back on your offer within 24-72 hours. It can sometimes take longer—your agent can keep you updated. 

How to save on homeowners insurance

There are many non-negotiables when you buy a home, but one cost that you have some control over is your home insurance. 
Jerry can compare rates from top insurance companies for you. We can even help bundle with your car insurance policy for more savings. 
And the savings keep coming! Every time your policies are up for renewal, Jerry will automatically compare rates again to make sure you are still getting the best deal. 
 “This was and is great service! Jerry saved me $400 on my renewal. I was super shocked!” —Jackson M.
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The median home price in South Dakota is $239,500. If you are looking for a home in that range, you will need savings of about $55,000 for a minimum down payment and closing costs.
To qualify for a conventional loan in South Dakota, you need a minimum score of 620. There are some government-backed loans (often with higher interest) that will consider credit in the 500s.

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