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A Guide to Buying a House in Minnesota

The idea of starting a new life in a different place can be daunting – not to mention going through the process of buying a house. Whether it’s your first or fifth home, you know how difficult the process can be long and involved. If you’re moving into a place as lovely as Minnesota, however, you can rest easy knowing that all your hard work will be worth it.

The North Star State is perhaps one of the best places to buy a home, especially for those with growing families. Those who want to escape the bustling city life can find peace and quiet in one of Minnesota’s charming towns. As well as enjoying the relative calm, living in Minnesota also means lively fairs and festivals promising loads of fun and excitement.

If you’re thinking about buying a house in Minnesota, it pays to know everything about the lifestyle of the and how things are different when it comes to purchasing real estate. This helpful guide contains all the relevant information.

Why move to Minnesota?

First things first – why should you consider buying a house in Minnesota to begin with? 

Minnesotans have a lot to say about life in the state, but they all agree that there’s a lot to love about the place. Whether it’s the scenic views or the outstanding culinary scene, Minnesota has everything you’ll want and need. 

1. The picturesque lake views

Apart from the North Star State, Minnesota is known as “The Land of 10,000 Lakes.” Technically speaking, Minnesota has 11,842 lakes, each more than 10 acres in size. These lakes mean that Minnesota has more miles of shoreline than sunny California. Therefore, you won’t have a hard time looking for a perfect lakeview getaway for the weekend, whether it’s the scenic North Shore or the majestic Lake Minnetonka.

2. Small towns, big charm

If you’re looking to escape the noise of city life and embrace the simplicity of small-town living, Minnesota is perfect for you. Minnesota has numerous small towns, each one unique. Buying a house in Minnesota  means finding hidden gems in locations you will absolutely fall in love with. 

One of these areas is Grand Marais, a mountain-meets-beach town with a lot of character and scenic views. No wonder it was once named America’s Coolest Small Town. Grand Marais should give you an idea of the kind of lifestyle that awaits you in the little towns of Minnesota.

3. Clean and green living

Though Minnesota is known for suburban living, big city bustle thrives in St. Paul, Minneapolis, Duluth, and Rochester.  These metropolitan areas also offer more employment opportunities. Unlike other states, however, cities in Minnesota are clean and green. 

You won’t find discernable air pollutants or dirty streets. These cities are all about clean and green living with residents being encouraged to walk, bike, or commute. This kind of lifestyle makes for happy and healthy Minnesotans.

4. Mouthwatering eats

If you ever find yourself close to the North Shore and the Twin Cities, make sure to sample the artisan ice cream from Milkjam Creamery and the Juicy Lucy burger at Matt’s Bar. Don’t forget to add Minnesota’s popular cheese curds and Honeycrisp apples on your must-eat list. End the day by relaxing with a cold glass of Minnesota craft beer.

5. The must-see fairs and festivals

Buying a house in Minnesotameans being in the midst of the most exciting fairs and festivals in the country. No one should miss The Mighty Midway, the world-renowned Minnesota State Fair where shopping and dining come with the option of checking out the livestock up close.

The State Fair is just one festival, albeit the biggest. Minnesota has fairs that celebrate nationwide holidays, like Cinco de Mayo. Minnesota also has a soft spot for festivals that are borderline eccentric, like the milk carton boat race at the Minneapolis Aquatennial. It’s as if Minnesotans always find a reason to celebrate something every single day.

This is just a glimpse of the lifestyle in Minnesota. If you want to truly experience everything that the state has to offer, the best way is to put down roots and become a proud Minnesotan.

Guide for homebuyers in Minnesota

Now that you’ve discovered the highlights and delights of the Minnesotan lifestyle, it’s time to get to the nitty-gritty of things. Buying a house in Minnesotacan take work, and some aspects of the process seem a little different compared to that of other states. The fundamentals, however, remain the same.

To help you get started on your journey, here’s a checklist of everything you’ll need before going through listings in Minnesota.

1. Know how much you can afford

Expenses can easily pile up. You don’t want to end up house poor after everything’s been said and done. That’s why you should always start the home buying process by determining how much you can actually afford.

This is the time when you should begin tracking your taxes, your assets, and even your credit history. As a general rule of thumb, here are the files you’ll need:

• Contact details of your employers for the past two years
• Most recent LES or 30 days’ worth of paystubs
• W2s of the last two years
• Business tax returns for the past two years (if you own a business)
• Personal tax returns for the past two years (if you’re self-employed)
• Copies of social security, pension, and/or retirement award letters and their corresponding 1099s
• Bank statements for savings and checking accounts for the past 60 days
• Bank statements for retirement and investment accounts for the past 60 days
• General knowledge of your current credit report
• General knowledge of any outstanding student loan, auto loan, or any other credit account

These documents should give you an idea on your true financial state, and if you’re stable enough to invest in a house. If you want to know exactly how much you should save up for the down payment and for the mortgage, you can rely on tools such as a mortgage affordability calculator. 

More importantly, this is the ideal time for you to work on your credit. It goes without saying that a high credit score will determine if you get pre-approved for a loan and its interest rate. 

That’s why you’ll need to keep tabs on your current credit so you can be fairly certain about receiving a favorable credit report from a lender. This means paying your bills on time, paying off outstanding loans, and contesting any errors in your credit report, before you apply for a housing loan.

2. Save up for the down payment

When you’re buying a house in Minnesota, mortgage lenders often require a down payment equivalent to 20% of the asking price of the property to reduce their lending risk. However, there are ways for you to pay less than the traditional 20%. In fact, first-time homebuyers pay just 6% – but be prepared for the payoff.

Government-backed loans, such as a VA loan and an FHA loan, let you make a down payment from 0 to 3% of the purchase price. Some conventional loans, meanwhile, allow buyers to put around 3 to 5% of the purchase price as down payment. 

While it seems like good news for those who can’t afford the 20% down payment, it does come with its own set of caveats. For paying a lower down payment, you’re also borrowing more money from the lender. That means higher monthly payments and higher interest rates throughout the life of your loan.

If you go for conventional or government-backed loans, you’ll need to buy separate mortgage insurance. The mortgage insurance is usually 1% of your annual mortgage balance, though the rate may vary based on your credit score and your down payment. A VA loan doesn’t require mortgage insurance, but will require you to pay a funding fee ranging from 1.4% to 3.6% of the purchase price.

3. Get pre-approved for mortgage

Sellers in Minnesota often require buyers to be pre-approved for a mortgage. Pre-approval is an important part of the home buying process, since it shows that you’re a serious buyer who’s financially stable and who can actually afford to buy a home.

Keep in mind, however, that you shouldn’t settle for the first lender you find. It’s a good idea to shop around and compare mortgage rates from different lenders. This way, you can choose the terms that work best for you.

After getting pre-approved, make sure that you maintain your current credit score to avoid any issues when closing the deal. That means continuing to pay off your credit cards and not opening any new credit accounts.

4. Look for a real estate agent

Buying a house in Minnesotacan be challenging if you’re not familiar with how the market works in the area. That’s why you’ll need the help of a real estate agent who knows the ins and outs of the local market. They’’ know how to navigate the market in order for you to achieve your real estate goals. 

Ideally, you’ll want a real estate agent with years of experience in the Minnesota real estate market. The best agent will also have positive reviews from their previous clients, and will have connections with relevant service providers, such as inspectors and title companies.

FAQs of buying a house in Minnesota

The checklist above is a general guide on how to begin your home buying journey. There are finer details you’ll need to address when buying a house in Minnesota, and here are the answers to some frequently asked questions:  

What should my credit score be?

Generally speaking, you should have a credit score of 620 and above to qualify for a mortgage in Minnesota. Here’s how to get your free credit report. If you qualify, shop for the right lender, but make sure to maintain your credit score even after getting pre-approved.

If your credit score falls below 620, improve it immediately. Settle your outstanding debts and pay your bills on time. Or, you can inquire about specialty loans specifically for homebuyers with low credit scores.

What are my loan options?

Other than conventional lenders, Minnesota offers different mortgage programs with low down payments. Apart from FHA and VA loans, you can also consider Conventional 97, USDA, and Minnesota Housing loans, which have their own sets of interest rates and requirements. Keep in mind that the government housing loans are for primary residences only; you can’t use this option to buy a vacation home or an investment property.

If you’re a first-time homebuyer, you can be eligible for the state’s housing loans. Minnesota’s Start Up program provides first-time homebuyers with 3% down, affordable interest rates, and assistance for closing costs. Repeat homebuyers, on the other hand, may enjoy the same perks with Minnesota’s Step Up program.

First-time homebuyers who need assistance in navigating these options may turn to the Minnesota Housing Finance Agency or the Minnesota Homeownership Center. There are also city-wide and county-wide resources to help you narrow down your choices.

What are the other costs I should know about?

Other than the down payment and your monthly mortgage fees, you should also save up for the closing costs. When you buy a house in Minnesota, the closing costs are between 2% and 5% of the home’s total price. Included in the closing costs are the:

• Home appraisal fee
• Home inspection fee
• Credit report fee
• Mortgage origination fee
• Mortgage insurance
• Earnest money (a good-faith deposit that comes with your down payment)
• Property taxes (currently at 1.08% in Minnesota)
• Homeowners insurance

Remember that a home inspection is usually required for properties in urban areas like Minneapolis and St. Paul. Aside from being a requirement, having a certified home inspector go through the house you’re about to buy reassures you that key features of the house like the foundation and the roof are in good order. Conversely, a bad home inspection report can result in negotiations with the seller to shoulder repair costs, lower the asking price, or void the sales contract altogether. Consult with your real estate agent on the best course of action. 

What questions should I ask about the property?

Once you’ve got your finances in order, it’s time to go through the available homes for sale in Minnesota. It’s a good idea to look at different homes, and ideally schedule a visit to see the property in person.

When you do get the chance to speak with the seller, don’t forget to ask them the following  questions – or have your agent speak on your behalf.

• How old is the house?
• How old are the appliances and essential systems?
• How old is the roof?
• What’s included in the final deal (i.e. appliances, other items that can be included when finalizing the deal)?

Under Minnesota law, a seller is required to disclose “all material facts of which the [seller] is aware, which could adversely and significantly affect an ordinary purchaser’s use or enjoyment of the property, or any intended use of the property.”

Knowing the answers to these questions will help you determine whether you’re making the right investment or walking into an expensive trap. 

Is now a good time to invest in Minnesota?

Minnesota’s real estate market is doing well so far. The state’s median home price is consistent with the fall 2022 trend of rising home prices, which began in January 2022 but dipped slightly in June 2022.

The supply of homes, meanwhile, remains strong but markedly lower compared to previous years. In July 2022,  there were 20,000 homes for sale in the state of Minnesota, which is more than the 10,000 available homes back in January 2022. Despite this, demand for homes in Minnesota remains strong.

Given looming disruptions in the US economy, one question must be asked: is now a good time to consider buying a house in Minnesota? The answer is yes. With the supply of available homes unlikely to improve until the end of 2022, now is the best chance to find the perfect home in Minnesota for the right price.

Partner with a Minnesota real estate professional

The real estate market can take unexpected turns anytime, and you’ll need expert advice if you want to secure a worthy deal and find the home of your dreams. 

For this, you can rely on professionals like Scott Haubrich, a certified REALTOR® and a Minnesota native. With over 25 years of experience in the real estate business, Scott’s in-depth knowledge and effective communication skills will give you that much-needed edge to get you closer to your dream home.

Trust Scott Haubrich and his team to help you achieve your real estate goals in Minnesota. Call 612.298.5400 or contact him here to get started.