8 Steps to Buying a House in Minnesota

Clever Real Estate

By 

Clever Real Estate

June 1st, 2022
Updated June 1st, 2022

SHARE

8 Steps to Buying a House in Minnesota

Buying a house in Minnesota is an exciting milestone, but the process can take some time. Several factors, like your financial situation, market conditions, and the local economy can affect both how long it takes you to find a home and how much it costs you.

For example, homes in Minneapolis are hitting the market at $421,999 and selling within 28 days — 28 days faster than the state average! — so you'll need to move quickly if you want to beat out the competition.

However, homes typically stay on the market longer in Alexandria, so you'll be able to take your time and potentially find a better deal.

The more you know about the steps to buying a house and Minnesota's current real estate trends, the more prepared you'll be to navigate this complicated process as quickly and smoothly as possible.

No matter where you are in your home buying journey, Clever's concierge team can connect you with local real estate pros who will help you purchase your Minnesota dream home!

The best part? When you buy with a Clever real estate agent, you could earn a cash-back refund worth up to 0.5% of the home price. On a qualifying $300,000 purchase, you'd get $1,500. That's real money back in your pocket!

» START: Buy with a top local agent, save thousands with Clever Cash Back

Step 1: Save for a down payment

🔑 Key Takeaway:

Your down payment can be less than 20% of the purchase price — $66,716 for the typical home in Minnesota — but you'll have to purchase mortgage insurance and pay more interest over the life of your loan.

Your down payment is the initial portion of your home's purchase price that you pay at closing. Your mortgage lender will pay the remaining balance.

Typically, mortgage lenders in Minnesota want you to contribute 20% of the purchase price as a down payment. That would be $66,716 for a $333,581 home — the typical home value in Minnesota.

However, you have options to lower your down payment amount.

Government backed loans, like VA and FHA loans, allow you to contribute 0% and 3.5% of your home's purchase price respectively. Even conventional loans allow for down payments as low as 3-5% (though the minimum varies by lender).

Mortgage Type
Minimum Down Payment (%)
Down Payment ($)
VA Loan
0%
$0
FHA Loan
3.5%
$11,675
Conventional
3%
$10,007
Based on typical home values from Zillow (May 2022)

» READ MORE: Everything you need to know about low-income home loans

But making a down payment of less than 20% comes with some risks.

First, because you're borrowing more money, you'll have a higher monthly payment and pay more in interest over the life of your loan.

Down Payment
Monthly Payment
Total Interest
Total Cost
5%
$16,679
$327,284
$660,865
20%
$66,716
$275,608
$609,189
Based on a $333,581 home, the typical home value in Minnesota (Zillow, May 2022) with a 5.45% interest rate for a 30-year loan.

Second, you may have to purchase mortgage insurance.

Conventional loans require private mortgage insurance (PMI) until your loan balance reaches 80% of the purchase price. FHA loans, on the other hand, require a mortgage insurance premium (MIP) for the life of your loans.

Mortgage insurance costs around 1% of your mortgage balance annually. However, rates vary based on your down payment and credit score. Typically, your mortgage insurance payment is added to your mortgage payment each month.

VA loans don't charge mortgage insurance. Instead, you'll pay a VA loan funding fee at closing, which can range from 1.4% to 3.6% of the purchase price.

Minnesota down payment assistance programs

Don’t have enough to afford a down payment on a house?

The state of Minnesota offers numerous down payment assistance (DPA) programs for homebuyers who need extra financial assistance. Eligible participants may receive a grant or second mortgage to help cover closing costs or a down payment.

Here are just a few DPA programs in Minnesota that you can apply for:

Minnesota Housing Monthly Payment Loan

Minnesota Housing offers three DPA programs for buyers with a Minnesota Housing first mortgage.

The Monthly Payment Loan offers a second mortgage of up to $17,000 for participants of the Start Up or Step Up program. The loan is to be paid each month over ten years at the same rate as your first mortgage.

Minnesota Housing Deferred Payment Loan

Minnesota Housing's Deferred Payment Loan offers a loan of up to $11,000 to first-time home buyers participating in the Start Up program.

The financial aid is given as a second interest-free mortgage. Payments aren't required until you refinance, resell, or pay off your home.

Minnesota Housing Deferred Payment Loan Plus

Minnesota Housing's Deferred Payment Loan Plus program offers a loan of up to $15,000 to first-time home buyers in the Start Up program.

Financial assistance is provided as a second interest-free mortgage. No payments are required until you resell, refinance, or pay off your first mortgage.

U.S. Department of Housing and Urban Development

A list of additional DPA programs in Minnesota can be found on the state HUD page here.

Step 2: Get pre-approved for a mortgage

🔑 Key Takeaway

Mortgage lenders consider your full financial situation, including total income, personal debt, and cash reserves, to determine how much you can borrow for a home. Most lenders will require your debt-to-income ratio to be less than 36% including your future mortgage.

A mortgage pre-approval letter is an offer to lend you up to a certain amount of money to purchase a home. It shows sellers that you are a serious buyer who is financially qualified to make an offer on a home.

Most sellers in Minnesota will require pre-approval before showing you their home.

You don't have to decide on one lender right now. In fact, you should compare interest rates and pre-approval amounts from several lenders to make sure you're getting the absolute best terms when you buy your Minnesota home.

Get Pre-approved Today!

Get matched with a lender who can tell you how much house you can afford. To get started, where do you plan on buying?

To get a pre-approved for a mortgage, you'll fill out a mortgage application and provide details about your financial situation. They'll look at the following information to determine your mortgage pre-approval amount:

Total income

Lenders need to know that you earn enough to make your mortgage payments each month. Most lenders want your monthly housing costs to be less than 28% of your monthly income.

Personal debt

Lenders also consider your other debts, including credit cards, student loans, auto loans, and personal loans. They use this information to calculate your debt to income ratio (DTI) — or your total debt (including future mortgage) divided by your total income.

While some lenders will approve mortgages for buyers with DTI as high as 43%, it's best to keep your DTI under 36%.

Because of this, you might consider paying off some of your other debts before applying for a mortgage in Minnesota.

Cash reserves

Mortgage lenders in Minnesota want to see that you have enough cash in the bank to cover your down payment and closing costs without completely draining your cash reserves.

While this requirement varies by lender, most want you to keep at least enough to cover two mortgage payments including insurance and taxes.

⚠️ Don't Jeopardize Your Mortgage Approval!

Once you're pre-approved for a mortgage, it's imperative that your financial situation doesn't change. If your credit drops, it can derail the process and keep you from closing on your house.

Here are some easy ways to ensure your credit doesn't change after you receive your pre-approval letter:

  • Avoid opening new credit accounts
  • Don't close any accounts that have been open for a long time
  • Make all of your credit card payments on time

Step 3: Choose the right location

🔑 Key Takeaway

Search for neighborhoods where:

  • Home prices are within your price range
  • Home values are on the rise
  • The local amenities support your lifestyle

A house's neighborhood can be just as important as its layout and features. In general, you should consider the following factors when deciding which neighborhood is best for you:

What's your home buying budget?

Once you know your budget (a pre-approval letter will tell you the most you can expect to borrow), you can narrow your search to neighborhoods where homes are selling within your price range.

Currently, the typical home value in Minnesota is $333,581, but don't worry if that doesn't perfectly match your budget. Home prices vary dramatically from city to city and even from neighborhood to neighborhood!

Also, look at past home value trends. This will give you an idea of how much your home's value could go up over the next few years. You want to choose a neighborhood that's in your budget, but could also lead to a big return when you decide to sell.

To give you an idea of how appreciation could impact what your house is worth in the future, consider these examples from three neighborhoods in Saint Paul:

Home value appreciation in Saint Paul

Neighborhood
2015
Current
Appreciation %
Payne Phalen
$139,850
$253,369
44.8%
Greater Eastside
$145,731
$268,925
45.8%
Highland
$301,375
$440,040
31.5%

Local lifestyle

Once you have a list of neighborhoods with homes in your budget, you should evaluate how well each one meets your personal needs and preferences. To finalize your list of target areas, consider factors like:

  • School districts
  • Your daily commute
  • Crime rates
  • Restaurants and amenities
  • Transportation options

Step 4: Find a great real estate agent in Minnesota

🔑 Key Takeaway

Interview multiple agents to find one who knows your target neighborhoods, has experience in your price range, and communicates well.

Your real estate agent will be your main ally during the home buying process. Besides finding and showing you properties, your agent should be an expert on buying a home in Minnesota.

They'll help you make offers, negotiate contracts, and navigate the closing process. Plus, they can recommend other service providers like title companies and inspectors to help you buy your home in Minnesota.

Don't rush into choosing an agent. Instead, take the time to research and interview multiple real estate agents who have experience in the neighborhoods you're interested in. you should pay attention to a realtor's:

  • Years of experience
  • Number of transactions in the last year (the more the better!)
  • Experience in your price range
  • Overall review score
  • Individual reviews and complaints

Ask each of them questions about your target neighborhoods, how they prefer to communicate, and their strategy for helping you find and close on your new home. You should feel comfortable with the agent's knowledge, experience, and process before committing to an agent.

Top Local Agents Hand-Picked for You!

Clever matches you with multiple agents in your area so you can interview, compare, and choose the best one to help you buy your next home.

Hiring a real estate attorney

Minnesota does not require you to hire a real estate attorney to buy a home. However, depending on your circumstances, you might consider hiring one anyways. If you do, treat the process similarly to hiring an agent. Interview multiple attorneys and proceed with the one that best meets your needs.

finding a buyers agent

Step 5: Start house hunting in Minnesota

🔑 Key Takeaway

To help you narrow your choices and find your new home faster, keep in mind these important factors:

  • "Must-haves" vs. "Nice-to-haves": No home is perfect. As you view homes in Minnesota, you'll have to decide which of your priorities are non-negotiable and which are just nice bonuses.
  • Housing inventory: Depending on the time of year and trends in the Minnesota cities you're searching in, you may have fewer options to choose from.

Searching for homes in Minnesota is the fun part of the home buying process! You'll get to look at a variety of homes and discover what you really want in a home.

Prioritize your needs vs. wants when buying a home in Minnesota

Make a list of everything you want in a home and prioritize them. At the top of the list should be the items that are most important to you. This will help you separate your "must-haves" from your "nice-to-haves."

Your agent can help you understand if your wants are realistic for your budget and favorite neighborhoods or if you need to rethink what you're looking for.

Look at current housing inventory

The timing of your house hunt in Minnesota can have a big impact on your number of options. For example, in Minnesota, June has historically seen the most homes for sale. Searching in this season could give you more options and a greater likelihood of finding your dream home.

On the other hand, January gives you the fewest choices in Minnesota. Historically, there are 57.3%) fewer homes for sale than during Minnesota's peak season.

Housing inventory in Minnesota by season

Season
New Listings per Month
Spring
9,592
Summer
10,791
Fall
7,693
Winter
6,374
Based on May 2022 data from Realtor.com

Step 6: Make an offer

🔑 Key Takeaway

Rely on their expertise, keeping in mind these tips for getting your offers accepted:

  • Move fast: In Minnesota, homes typically stay on the market for 59 day before going under contract — more desirable homes could sell for much faster! If you find a home you love, you shouldn't hesitate to submit an offer.
  • Know how to sweeten the deal: Price is only one factor you can use to convince a seller to accept your offer. You can also sweeten the deal with other compromises — like no contingencies — to create a deal that works for you and the seller.

Once you find a Minnesota house you love, it's time to make an offer. Your real estate agent will help you write a compelling offer that gives you the best shot of convincing the homeowner to sell to you.

Currently, in Minnesota, homes stay on the market for 59 days before going under contract. However, every market goes through seasonal changes. During busier months, homes get snatched up more quickly than others.

Historically, Minnesota homes sell fastest in June, where the average property is only on the market for 44. If your home search falls around this time, you should be prepared to move quickly and potentially make offers on several homes before yours is accepted.

On the other hand, if you buy in January, you have a bit more time to search. Homes typically stay on the market 28 days longer than Minnesota's annual average.

Average time homes spend on market in Minnesota

Annual average
59 days

January
82 days
February
73 days
March
48 days
April
43 days
May
41 days
June
42 days
July
44 days
August
48 days
September
51 days
October
54 days
November
60 days
December
72 days
Based on May 2022 data from Realtor.com

What should your offer include?

Your real estate agent can help you decide which of these common options you should include in your offer:

  • Seller concessions: You'll have to pay for most of your closing costs out of pocket when you buy a home, but you may be able to ask the seller to cover some of those costs for you. This option may allow you to offer a higher purchase price and essentially include your closing costs in your mortgage.
  • Repair credits: If the home is in need of repair, you could ask for credits instead of having the seller make and pay for the repairs. The seller avoids the hassle of waiting for contractors to complete the job, and you get to oversee the repairs in the future to make sure they meet your expectations.
  • Inspection contingencies: Most purchase agreements have inspection contingencies that allow you to change your offer (or back out all together) if the inspection turns up major problems. If you have a high degree of certainty about the house's condition (like if the seller can show you a recent inspection report), you can forgo this contingency to give the seller a higher sense of confidence.
  • Letter to the seller: Many sellers have a personal attachment to the home. They've lived there for years and want to know the next owner will take care of the property. Writing a letter to the seller can show them how you picture your life in the house and appeal to their sentimental side.

👋 Next Steps: Talk to an expert!

If you're weighing your options for buying or selling a house, Clever can help!

Our fully-licensed concierge team is standing by to answer questions and provide free, objective advice on getting the best outcome with your sale or purchase.

Ready to get started?

Give us a call at 1-833-2-CLEVER or enter your info below. Our concierge team will be in touch shortly to help.

Remember, this service is 100% free and there’s never any obligation.

Step 7: Inspections and appraisals

Inspections and appraisals are an opportunity for you to better evaluate the home's condition and value before officially purchasing it. You may have an opportunity after this step to renegotiate the terms of your contract with the seller if something unexpected pops up.

  • Inspections: A licensed professional checks the house for any unseen, unexpected, or potential issues.
  • Appraisals: An appraiser hired by your lender examines the house to determine how much it's worth.

Home inspections in Minnesota

Having your Minnesota home inspected by a licensed inspector gives you peace of mind about the condition of the property before you commit thousands of dollars to purchase it.

Your inspector should check out the following parts of the property:

  • Roof
  • Foundation
  • Electrical system
  • HVAC system
  • Plumbing

If the home has a septic system, you should also pay for a septic inspection to make sure it doesn't have any problems that wouldn't be covered in a typical home inspection.

Minnesota-specific inspections

Minnesota law requires sellers to disclose all known issues with a property to potential buyers. However, it's possible that there are undetected issues that the seller isn't aware of. To avoid expensive repairs later, it's highly recommended to have additional inspections done before closing on a home.

In addition to a general home inspection, here are a few tests you should consider:

  • Radon testing: Radon can be dangerous at elevated levels, so homes should get tested for the substance annually. If the seller hasn't conducted a radon test recently, homebuyers are strongly urged to get a test done before closing.

  • Pest inspection: Some lenders require buyers to have a pest inspection completed, but all homebuyers should consider doing one. Catching potential infestations before closing will save you from expensive repairs and health hazards in the future.

Appraisals

Appraisals determine the value of the property. If you're using a mortgage to buy your new home, your lender will order an appraisal to make sure the home is worth the money that it's loaning you.

inspections and appraisals

» LEARN: 3 options for buyers after a low appraisal

Step 8: Close on your new home!

Once you finish your inspections and your lender approves your financing, you'll be ready for closing! Closing is the process of finalizing your mortgage and transferring ownership of the property.

Before you close on your new home, you and your agent will do a final walkthrough of the property to ensure that it's still in the expected condition.

» READ: The final walkthrough checklist every buyer needs

To officially close on your Minnesota home, you'll meet at the title company to process some legal paperwork and settle your closing costs. It's recommended to review the documents before the closing date to make sure you fully understand everything before signing.

Expect to spend about an hour reading and signing the legal documents. There will be several important sections to double-check, including:

  • Your final loan application
  • The deed
  • The mortgage promissory note
  • The disclosure statements

Once you complete the paperwork, you’ll have to pay your closing costs. The title company will make this easy by collecting the total amount you owe and then distributing the funds to the right recipients.

Closing costs for buyers can usually be divided into four main categories:

  • Lender fees: Fees paid to your mortgage lender for originating and underwriting your loan. Lender fees can also cover other costs related to your loan, such as appraisal and survey fees.
  • Title and escrow charges: Charges for the title company's services, including conducting the closing process, performing the title search, and providing title insurance.
  • Prepaid costs: Ongoing costs of homeownership. Lenders often require new homeowners to pay for certain expenses up front, such as property taxes and homeowners insurance.
  • Other closing costs: Miscellaneous fees that can vary according to each buyer's needs. Some common costs may include natural disaster certification fees or real estate attorney fees.

Buyers in Minnesota typically pay 3-5% of the purchase price in closing costs. For a $333,600 home — the typical home value in Minnesota — that's between $10,008 and $16,680!

» MORE: Closing costs for buyers in Minnesota

Frequently asked questions

  1. Save for down payment
  2. Get pre-approved for a mortgage
  3. Choose your preferred Minnesota neighborhoods
  4. Partner with the right real estate agent in Minnesota
  5. Go house hunting
  6. Make a strong offer
  7. Inspections and appraisals
  8. Do a final walkthrough and close

Yes, Minnesota Housing offers the Start Up program to eligible first-time buyers borrowing from approved lenders. The program provides home loans with low interest rates and three down payment assistance options.

To qualify for the program, your income must not exceed $120,600. The purchase price of your home cannot exceed $311,900 for counties outside the metro area. If the property is in one of the 11 metro counties, the purchase price limit is $352,300.

» READ: What are the top first-time homebuyer programs?

Related links

Better real estate agents at a better rate

Enter your zip code to see if Clever has a partner agent in your area.

If you don't love your Clever partner agent, you can request to meet with another, or shake hands and go a different direction. We offer this because we're confident you're going to love working with a Clever Partner Agent.