The Step-By-Step Process For Buying A Home In Minnesota
- In the state of Minnesota, real estate purchases are typically closed by an attorney or representative from a title agency.
- This professional, called a “closing agent,” will complete the transaction and prepare all paperwork.
- Buyers and sellers will typically complete the transaction at the same table, although this may not be required.
- In Minnesota, it’s possible to continue to market the home to other buyers while contingencies are being worked out. This will depend on the wording in the contract.
Phase 1: Negotiations for the Minnesota Property
Once you agree on a price, there are some initial steps you need to take.
- The first step is to have an offer accepted by the seller and have a contract signed by both parties.
- Next, a deposit, called “earnest money” will be paid to the buyer’s attorney, broker, escrow agent, or whoever is overseeing the purchase. If needed, it’s possible that this deposit could be broken down into two payments. This payment essentially tells the buyer that you fully intend to purchase the property.
- A signed contract will be sent to the attorney or title company.
- A title search will be completed. This is to verify that there are no ownership issues and that the seller has complete legal ownership of the property and, therefore, is allowed to sell the property. (It helps to complete this phase early, just in case you come across problems. Even if you have to pay for it yourself, consider having a title search done as soon as possible.)
- The seller will send disclosures on the property. These are statements of known issues or past repairs on the property.
- The buyer will review all disclosures and sign off on them. Buyers should review these disclosures carefully.
- Now the buyer can complete inspections on the property. These inspections must be competed by the “inspection contingency date,” which is described in the contract. In Minnesota, buyers will likely complete a general inspection, as well as inspections for lead paint, termites, mold, radon, and pests.
- Depending on the results, the buyer can request repairs on the property or adjustments to the contract. The buyer and seller will negotiate until an agreement is reached. If no agreement is reached, the contract can be voided without penalty.
- In certain Minnesota purchase contracts, the seller can continue to list and show the property until the negotiations are complete. After completion of inspections, the seller will likely have to stop showing the property.
- If needed, you can negotiate a home warranty, which covers repairs to appliances for a certain period, usually up to a year.
Phase 2: Finalizing the Minnesota Home Loan
Once you have completed negotiations, you can begin the loan process. It’s best to start early and gather all of your documents as soon as possible.
- You will first submit a loan application. This can be done with a lending professional or on your own.
- You should receive a “good faith estimate” from the buyer. This will be an estimate of how much you’ll need to pay to finalize the loan. While it may not be perfectly accurate, lenders do their best to make sure this document is as close to the final number as possible.
- Before an official finance offer can be made, the lender will request a series of documents, including:
- Banks statements for all accounts you own
- Information on outstanding debts and liens
- Tax returns for at least two years
- Recent pay stubs
- Disclosures and information related to your financial situation. This can include documents on alimony, divorces, child support, bankruptcies, and judgements. Basically, if it impacts your financial situation, it should be included.
- Information on large deposits that will be used for the downpayment or other expenses. The lender may request a “gift letter” if you have received a financial gift to help with your home purchase.
- An explanation for recent credit inquiries
- Repeat or updated information. Lenders want as much information as possible, so don’t be surprised if they ask for more financial information or documents on your credit and rental history.
4. The lender will now issue a lending decision. Assuming you are approved for a loan, they will issue a “loan commitment letter” which officially states their intentions to support your purchase. The letter, however, will outline certain requirements, including the completion of an appraisal.
5. The lender will order an appraisal on the property. This appraisal will verify the value of the home and reassure the lender that the property they are lending against has significant value. If the appraisal comes back with a low number, adjustments to the contract may need to be needed.
6. The “financing contingency” can now be removed from the contract. This is done by sending the final loan commitment letter to the seller or attorney.
7. Homeowners’ insurance will now be ordered. Proof of insurance will be sent to the lender.
Remember that the loan phase can take a long time, so you’ll want to start as early as possible. You can start Phase 1 and Phase 2 at the same time. During the loan phase, avoid taking on new debts or changing your income, as this could result in loan rejection.
Phase 3:
In Minnesota, real estate purchases are usually completed at one table, with all buyers signing documents related to their loans. After the documents are signed, the deed is recorded with the appropriate municipality and the buyer can take possession of their new property.
The closing process generally follows these steps…
- The closing attorney or lending professional will calculate the final closing costs, which the buyer will need to bring to the closing, probably in the form of a cashier’s check. This will include the downpayment, fees, property taxes, and other cost for completing the loan.
- A final walkthrough will be performed before the final closing. This is simply to verify that the home has not been damaged since it was last seen.
- The buyer and seller will sign all documents at the closing. This will include all appropriate loan documents.
- The buyer will now pay the remaining funds of their downpayment to the attorney or title company representative.
- The representative from the title company or the attorney will record the transaction with the appropriate municipality.
- You can now receive the keys to your wonderful Minnesota home!
Minnesota Loan Limits
Many Minnesota homebuyers will use conforming loans, which include a variety of mortgage products like FHA, conventional, and VA loans. These loans, which are supported by the federal government, have specific limits that are set by the Federal Housing Finance Agency.
This agency sets limits on a county-by-county basis, with high cost counties getting higher limits. In the state of Minnesota, however, the entire state is under the national base limits.
The limit for a conforming loan on a single-family property in the state is $548,250. This limit includes the Twin Cities metropolitan area and all other counties in Minnesota. It also the limit from gorgeous Cook County on the “North Shore,” to Kittson County on the border with North Dakota and Canada, all the way down to Rock County and Houston County on the southern border with Iowa.
Conforming loans are also available for multiunit housing. The limit for a two-unit is $702,000, while three-unit properties in Minnesota have a limit of $848,500. If you want to buy a four-unit property, the limit is $1,054,500.
If you need a larger loan, contact our team to learn about Minnesota jumbo loans.
Downpayment Assistance Programs in Minnesota
If you want to purchase a home in Minnesota but have struggled to save a downpayment, there are numerous options available. You can find support from both state and local organizations.
Minnesota Statewide DPA Programs
The Minnesota Housing Finance Agency, or “Minnesota Housing,” is the largest organization in the state for DPA programs. This agency, which is part of the state government, provides downpayment support through two programs…
Minnesota Housing Monthly Payment Loan
The first option is a downpayment loan that is paid off monthly. This option offers eligible buyers up to $17,000 in support and has an interest rate equal to the first mortgage. (So if your mortgage interest rate is 4.5%, the DPA loan will also be 4.5%.)
Minnesota Housing Deferred Payment Loan
The other option, which comes in two forms, is a deferred loan. This is available as a standard option that offers $12,500 in support, or the “Plus” program, which can deliver up to $15,000. This is an interest-free deferred loan that will not require repayment until you move, sell the house, refinance, or pay off the first mortgage.
Major Local Programs From Minnesota Counties, Cities, and Non-Profit Groups
In addition to support from the state government, there are also options from cities, counties, and non-profit organizations.
Community Development Agency of Dakota County
Dakota County in the Twin Cities area offers downpayment assistance up to $8,500. This support comes as a fixed-rate, low-interest loan.
Minneapolis Downpayment Assistance
There is a downpayment option for buyers in Minneapolis. The city says that financing is available for downpayments as well as closing costs.
Three Rivers Community Action Gap Financing
A non-profit organization, Three Rivers serves southeast Minnesota buyers and offers as much as $18,000 in downpayment assistance. The program is available in 20 different Minnesota counties, encompassing cities such as Rochester, Wabasha, and Faribault.
Common Requirements for Minnesota DPA Programs
These programs are generally intended for low- and middle-income buyers, so you’ll usually need a moderate income to qualify. You may also need to reach a certain credit-score requirement, and most programs have a limit on the purchase price.
Some also require that you are a first-time homebuyer, but there are workarounds for this restriction. Some allow homebuyers who have owned properties before but have not owned in the past three years. Others allow essential public servants, such as police, firefighters, and military, to skip the first-time-buyer requirement.
Want to learn more about downpayment options in Minnesota? Contact our staff today and we’ll help locate a program that fits your needs and budget.
