What to know about Minnesota mortgage rates

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Minnesota has plenty to offer, from the Minneapolis Institute of Art to the state’s “10,000 lakes.” Once you set foot in the North Star State, you’ll find prairies and forests, as well as charming towns and bustling cities.

If you’re searching for a home in Minnesota, remember to shop around and compare mortgage rates. What may seem like a small difference could add up to thousands over the course of a 15-year or 30-year mortgage.

Mortgage debt in Minnesota

Credit Karma members with mortgages in Minnesota had average mortgage debt of $190,544 in 2020, with average monthly mortgage payments of $1,331.

That puts Minnesota a bit below average for both mortgage debt and average monthly mortgage payments compared to Credit Karma members across the U.S. in 2020.

Types of home loans

If you choose to finance your dream home, you might be overwhelmed with the number of mortgage loan options out there. Here are some of the more common mortgage types Minnesota homeowners may consider.

Conventional loans in Minnesota

Conventional loans are mortgages that aren’t part of government programs. These loans tend to be good for people with solid credit and a down payment of at least 3% to 5%.

Minnesota FHA loans

FHA loans are a good option for first-time homebuyers to explore — particularly if your credit is less than perfect. That’s because you may be able to qualify with credit scores as low as 580 with a 3.5% down payment or 500 with a down payment of 10%. This FICO® score requirement is the FHA minimum standard. In general, additional lender credit score requirements may apply.

The FHA loan limit in 2021 is generally $356,352 for a one-unit property, but it can reach as high as $822,375 depending on where you live.

The only area in Minnesota with higher limits is Minneapolis-St. Paul-Bloomington, MN-WI.

You can find the exact limit by county on the U.S. Department of Housing and Urban Development website.

VA loans in Minnesota

If you’re an eligible veteran or service member comparing mortgage rates in Minnesota, a VA loan can be attractive since down payments and mortgage insurance typically aren’t required by the VA, and you may be able to qualify even without perfect credit.

Similar to FHA loans, VA loans are insured by the federal government but issued by private lenders.

Conforming loan limits in Minnesota

Conforming loans are a type of home loan that meets certain loan limits set by the Federal Housing Finance Agency. This means they can be bought by Fannie Mae and Freddie Mac, federal-government-sponsored enterprises that guarantee mortgages.

Loans that exceed conforming loan limits are known as jumbo loans. Lenders often consider these loans riskier than conforming loans.

All of Minnesota’s counties have a conforming loan limit of $548,250 in 2021.

First-time homebuyer programs in Minnesota

If you’re hoping to buy your first home, there may be some assistance programs available to you in Minnesota.

  • Minnesota Housing Start Up: Featuring loans offered through a network of participating lenders, Start Up offers fixed-rate mortgage loans and down payment assistance in the form of down payment and closing cost loans. To be eligible, you must meet certain credit score, purchase price and income requirements. These mortgage loans feature “low or no” mortgage insurance requirements.
  • Minnesota Housing Step Up: Step Up is a program for repeat homebuyers and those who wish to refinance via a network of participating lenders. Step Up features down payment and closing cost assistance for those who qualify. Purchase price restrictions, minimum credit score requirements and income limits may apply.
  • Minnesota Housing Down Payment and Closing Costs loans: The Monthly Payment Loan option provides up to $17,000 in down payment and closing assistance. You must repay the loan within 10 years via monthly installments at the same interest rate as your first mortgage, and a minimum borrower contribution is required. A homebuyer eduction class may be required. You’re eligible for this program as long as you qualify for a Start Up or a Step Up loan. There’s also a Deferred Payment Plus Loan option, which offers up to $15,000 in down payment and closing cost assistance and is only available for those choosing (and qualifying for) the Start Up mortgage. This is an interest-free deferred loan for the length of the first mortgage term. A homebuyer education class is required. Step Up loans do not qualify for Deferred Payment Plus loan assistance.

Mortgage refinancing rates in Minnesota

If you’re thinking about refinancing your mortgage, keep a few things in mind:

  • Break-even cost — Once you know the closing costs for your refinance, you can use any savings on your monthly mortgage payment to calculate how long it will take you to recoup that investment and “break even.”
  • Cash-out refinance — Have you accumulated equity in your home that you’d like to convert to cash? A cash-out refinance lets you refinance your home for more than what you owe and get cash in return. But you’ll owe the full amount plus interest and you’ll end up owning less equity in your home, which means less cash in your pocket if you sell in the future.
  • Loan term — You also may want to either shorten or extend your loan term. For instance, if you have a 30-year mortgage, you may want to convert it to a 15-year loan. Keep in mind that reducing your term likely means you’re paying more each month — but less in interest over time. Lengthening your loan term may mean you pay less each month, but more interest over the course of the mortgage.

About the author: Anna Baluch is a freelance personal finance writer from Cleveland, Ohio. You can find her work on sites like The Balance, Freedom Debt Relief, LendingTree and RateGenius. Anna has an MBA in marketing from Roosevelt Un… Read more.