Overview of Minnesota Housing Market
Homebuyers in Minneapolis and St. Paul have to contend with a competitive housing market. Elsewhere in the state, however, home prices remain affordable. Minnesota's average effective property tax rate is in line with the national average.
National Mortgage Rates
Note, for purchase the minimum down payment on a $ home is , or $
Your Total Monthly Payment
Your Total Monthly Payment
Mortgage Payment (P&I)
Mortgage Insurance (PMI)
Recommended Minimum Income
This is based on our recommendation that your total monthly spend for housing and debts should not exceed 36% of your monthly income.
Minimum Down Payment
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Factors in Your Minnesota Mortgage Payment
After you get an idea of what your mortgage payment will be (principal plus interest), you’ll want to consider property taxes and homeowners insurance. These two costs go hand-in-hand with homeownership.
Minnesota property tax rates are close to the national average, meaning you won’t save money in this department if you’re moving from a low-tax state. The state’s effective average tax rate is 1.17% of your home’s value.
Property taxes are calculated in two different ways in Minnesota: levies on net tax capacity and market value levies. Counties generally collect net tax capacity for ongoing government functions. For net tax capacity, you subtract exclusions from your home’s market value. The homestead exclusion is the most commonly claimed as it applies to owner-occupied residences. After you subtract applicable exclusions, multiple by the home’s class rate to get net tax capacity. Class rate will depend on the type of property. For example, residential homestead are taxed at the rate of 1% up to the first $500,000 in market value, and then 1.25% on anything above $500,000.
Market value levies are usually voter-approved and for projects rather than ongoing government costs. These taxes apply to your estimated market value. Your effective tax rate will depend on where the property is located. If you’re interested in calculating your Minnesota property taxes, we have a county break down as well as calculator to help you do so.
The county where you home is located is generally responsible for assessing your home’s value. Some counties will assess sales in the previous 12 months to determine market value each year. You may see your property’s value increase or decrease during this time. If you disagree with the assessment, there are provisions for you to dispute the assessment. There are also provisions for special populations. If you’re over 65 and make $60,000 or less, Minnesota has a senior citizen tax deferral program that issues a low-interest loan from the state to cover your taxes until you can afford to pay. Disabled veterans can receive various amounts of market value tax exclusion depending on disability level.
For homeowners insurance, Minnesota ranks 14th-most expensive in the U.S. It wasn’t always this way: In the 90s Minnesota was around 35th-most expensive in the U.S., according to the Insurance Federation of Minnesota. Once 2002 hit, insurance rates skyrocketed for most homeowners and continue to climb. Partly to blame is the amount of damage claimed for various weather-related damages. Minnesota homeowners face hail, straight line wind and tornadoes. In fact, in 2016 Minnesota experienced 44 tornadoes. As for hail, Minnesota had the second-highest average annual property claims loss from 2000 to 2013.
As of 2017, the average annual homeowners insurance premium in Minnesota was about $1,319. If you’re looking for specifics, the Minnesota Commerce Department website has a section dedicated to home insurance basics. This can help you understand what coverage generally includes, and what it leaves out, such as sump pumps and pools. Lastly, Minnesota has FAIR Plan coverage which is a market of last resort for those unable to obtain homeowners insurance or dwelling fire coverage from a private insurance company.
Costs to Expect When Buying a Home in Minnesota
If you’re still in the initial stages of home-buying planning, you’ll want to consider some of the one-time upfront costs. One of the first costs you’ll come across is a home inspection. This is when you find a home you’d like to buy. Generally most buyers will arrange for a home inspection after putting in an offer on the house, but some buyers will negotiate for a pre-offer inspection. Whichever you choose, the cost is the same. Most home inspections run between $300 and $500, and depend on the size and type of home. Smaller square footage dwellings and condos generally are on the lower end of the scale. While a home inspection covers structural system, roof, plumbing, electrical and more, it won’t cover specialties such as radon, termite damage or mold. If you’d like to arrange additional tests, it will cost you extra and is optional.
One of the last costs you’ll factor in is the bundle of service fees and charges known as closing costs. These fees are for your mortgage lender, the state and county and a number of other entities depending on who was involved in the mortgage and buying process. The exact sum depends on a number of factors and you’ll pay it on the day you finalize paperwork and get keys to the property.
Average Closing Costs by County
|County||Avg. Closing Costs||Median Home Value||Closing Costs as % of Home Value|
|Lac Qui Parle||$2,534||$83,000||3.05%|
|Lake of the Woods||$3,154||$117,000||2.70%|
Our Closing Costs Study assumed a 30-year fixed-rate mortgage with a 20% down payment on each county’s median home value. We considered all applicable closing costs, including the mortgage tax, transfer tax and both fixed and variable fees. Once we calculated the typical closing costs in each county we divided that figure by the county’s median home value to find the closing costs as a percentage of home value figure. Sources: US Census Bureau 2015 5-Year American Community Survey, Bankrate and government websites.
Closing costs can be thought of as lender origination fees and third-party fees. Lender fees include underwriting, tax service, broker charge, document preparation, commitment fees and origination points. Each of these fees will depend on the size of the loan as well as your particular lender. Some charge for certain services such as document preparation and some don’t.
Third-party fees can include appraisals, attorney fees, credit reports, flood certification and surveys. Not all home purchases will include these charges, such as a survey. It will depend on your particular situation and the property you’re buying.
You’ll also pay for title insurance at closing. Title insurance protects against defects such as unpaid taxes, liens, easements, missing heirs and more. Most lenders will require you to purchase a policy that will cover the lender’s interest in the property, but you also have the option to purchase an owner’s policy. Technically, who pays for the title insurance can be a negotiable item between buyer and seller. However, in Minnesota, the buyer usually pays for the premium.
Minnesota is one of the states that charges a mortgage tax. The state collects 0.23% and Ramsey and Hennepin Counties collect an additional 0.01%. The tax is imposed on the recording of a mortgage, and the borrower is the person who’s liable to pay it.
Lastly, Minnesota has a deed tax that the seller of the property pays. The tax rate is 0.33% for all counties except Hennepin and Ramsey which have a rate of 0.34%.
Details of Minnesota Housing Market
Minnesota, also known as the North Star State, has just 5.5 million residents, according to 2016 U.S. Census Bureau estimates. In comparison, that’s about 65% of New York City’s population. What Minnesota lacks in people, however, it makes up in size. The Canada-bordering state is the 12th-largest in the U.S. by size, encompassing roughly 86,900 square miles. While much of the land is farm or forest, you will find a number of metro areas in the state. The largest cities in Minnesota are Minneapolis, St. Paul, Rochester, Duluth and Bloomington. The twin cities of St. Paul and Minneapolis are on the southeastern side of the state and border Wisconsin. Duluth is northeast and borders Lake Superior. The most northern and southern and western parts of the state have the least number of residents.
Minneapolis and St. Paul experienced an extreme shortage of homes available for sales, according to the University of St. Thomas Real Estate Analysis for June 2017. Between May and June 2017 the median sale price increased 3.6%, from $250,000 to $259,000. Year-over-year increase from June 2016 to June 2017 was 7.0%. Since 2012, the median sales price has steadily increased from a starting point of around $230,000. The shortage of available homes has driven rent increases of 4.8% in 2016. Projected rent increases look even higher for 2017.
However, if you’re looking to buy outside of the Twin Cities, prices are a little more reasonable. Duluth had a median list price of $179,900 in August 2017, according to Zillow data. Median home value was a little less, at $155,600. As for Rochester, the third-largest city in Minnesota, median list price in August 2017 was $249,000 and median home value was $198,900.
The most affordable places to live in Minnesota, as ranked by our study, are Albertville, Montevideo, Chisholm, Hibbing and Crookston. This study factored in average closing costs, property taxes, homeowners insurance, average mortgage payment and median income.
Local Economic Factors in Minnesota
In 2016, Minnesota had the 17th-highest state GDP in the U.S. with a total of $335.1 billion. Much of the state’s GDP stems from industries such as manufacturing, biosciences and health care services, data centers, banking and technology. In 2017, the North Star State had 18 companies on the Fortune 500 list including UnitedHealth Group, Target, Best Buy, Land O’Lakes and 3M. The largest employers in the state include the famed Mayo Clinic, the State of Minnesota, the Federal Government, Target and the University of Minnesota, according to Minnesota Employment and Development.
With an average unemployment rate in June 2017 of 3.7%, Minnesota was below the national rate of 4.4%. It tied with Kansas, Oregon and Virginia for 16th-lowest unemployment rate in the U.S. Minnesota’s per capita personal income (PCPI) was $52,117 compared to the national average of $49,571 in 2016, according to the Bureau of Economic Analysis. Minnesota moved up from 16th-highest national average PCPI to 13th from 2006 to 2016. Although the state has seen steady growth in the last 10 years, in 2016 Minnesota’s Budget and Economic Forecast stated a slower projected growth in revenues due to a weaker economic outlook. This is partly due to falling commodity prices, including iron ore which is part of Minnesota’s mining sector, along with a stronger U.S. dollar.
Minnesota has one of the highest tax burdens overall. If you move to the North Star State, you’ll be looking at a steep income tax, one of the highest in the nation and ranging from 5.35% to 9.85%. How much you’re taxed will depend on your income. The higher taxable income you bring in, the higher tax bracket you’ll find yourself. You won’t find a break if you’re retired, either. Minnesota is one of the few states that taxes Social Security benefits. In addition, sales tax will cost you about 7%, depending what county you’re purchasing goods in. Lastly, estates more than $1.4 million are subject to estate tax at progressive rates. This means if you inherit a fortune in Minnesota, be prepared to shell out significant taxes.
An easier way to gauge how far your money will go in this state is using a cost of living calculator. You can plug in your current or projected income and see how much taxes, food costs and house expenses differ from your current home. For example, if you were a couple living in Boston, MA with a combined income of $120,000, your average cost of living in Minneapolis would be 8% lower overall due to lower housing and food costs. Or, if you were moving north from Austin, TX to St. Paul in the same scenario (two people with household income of $120,000), your cost of living would be 2% higher due to much higher taxes in Minnesota than Texas.
Mortgage Legal Issues in Minnesota
If you’re buying a property in Minnesota, you’ll be somewhat protected by Minnesota disclosure requirements. While most states have moved away from traditional “buyer beware” property laws, many haven’t put those protections in writing. Minnesota law states that the seller of residential property must “include all material facts of which the seller is aware that could adversely and significantly affect an ordinary buyer's use and enjoyment of the property or any intended use of the property of which the seller is aware.” To capture this data, the Minnesota Association of Realtors has a nine-page disclosure that most sellers fill out. The disclosure includes questions regarding the property’s plumbing, electrical, structure and a variety of other home condition information.
Curious how the Land of 10,000 Lakes deals with foreclosure? Minnesota generally has two types of foreclosures: foreclosure by action or foreclosure by advertisement. Foreclosure by action involves a lawsuit and the judicial system. This is generally a slower process, but lenders can pursue a deficiency judgment with this type of foreclosure. A foreclosure by advertisement is non-judicial and generally quicker as it doesn’t involve a lawsuit. The Minnesota Homeownership Center foreclosure infographic outlines the general timeline for foreclosure. It includes a default notice, pre-foreclosure notice, and Sheriff’s sale date. During this period homeowners can seek free counseling or apply for loan modifications and other options. There are many chances for homeowners to seek help or file for postponement during the process; the lender by law has to comply with certain requests. If the house goes to sale, and is sold, the homeowners has a redemption period of six to 12 months where the homeowner can redeem the home if he or she can pay off the sale amount.
In 2013, Minnesota passed a new law regarding foreclosure rules in the state. Some of the key provisions include a “private right of action” where homeowners can bring a foreclosure case to court if they believe their lender has broken the law. If the homeowner wins the case, he or she can collect legal fees. Another provision is that lenders have to officer loan modifications and halt foreclosures while eligibility is determined.
Minnesota Mortgage Resources
|Resource||Problem or Issue||Who Qualifies||Website|
|City of Lakes Community Land Trust – Homebuyer Initiated Program (HIP)||Selected buyers purchasing homes currently on the market, up to $40,000 for home purchase or up to $15,900 for rehab.||Homebuyers who have an income limit of up to 80% of area median income.||http://www.clclt.org/ownership-options/|
|Minnesota Housing Deferred Payment Loan||An interest-free, Deferred Payment Loan to help with downpayment and closing costs.||Borrower must meet two of the four criteria:|
-Single parent household with a dependent
-Household of four or more people
-Disabled household member
-Front-end ratio of 28% or higher
|Minnesota Housing Mortgage Credit Certificate||Tax credit for up to $2,000/year.||First-time homebuyers in the Twin Cities metro area.||http://www.mnhousing.gov/wcs/Satellite?c=Page&cid=1391029245339&pagename=External%2FPage%2FEXTStandardLayout|
|USDA Rural Development - Single family loans||Offers payment assistance to increase an applicant’s repayment ability.||Applicants must be without decent, safe and sanitary housing; Be unable to obtain a loan from other resources on terms and conditions that can reasonably be expected to meet; Agree to occupy the property as your primary residence; Have the legal capacity to incur a loan obligation; Meet citizenship or eligible noncitizen requirements; Not be suspended or debarred from participation in federal programs.||http://www.rd.usda.gov/programs-services/all-programs/single-family-housing-programs|
|Home Affordable Refinance Program||Refinancing.||Single family homes and condos that fit within lending loan limits.||http://www.harp.gov|
If you’re wondering what resources Minnesota offers homebuyers, you might be pleasantly surprised. The state has a range of entities offering help. The Minnesota Housing Finance Agency offers a variety of programs. There’s Start Up, a down payment and closing cost assistance program for eligible first-time borrowers. Step Up is a program for current homeowners hoping to purchase a different home or refinance a home. The program includes affordable loan interest rates and down payment and closing cost assistance. Both Start Up and Step Down have income limits that will impact your eligibility. You can also find information on the mortgage credit certificate program which allows certain borrowers to claim a percentage of mortgage interest to save up to $2,000 a year in taxes.
Minneapolis low- to moderate-income families can search for affordable homes through the City of Lakes Community Land Trust (CLCLT). The nonprofit organization also offers a Homebuyer Initiated Program (HIP) which helps people purchase and fix single-family homes with affordability and rehab grants.
For even further resources, you’ll find a list of homebuyer incentive programs on OwnAHomeMN.org, including affordable housing financing, education, incentive programs and downpayment assistance.
You can also find plenty of areas in Minnesota within USDA eligibility, if you’re looking at rural property. To qualify for a USDA loan, you will need to meet certain eligibility criteria, including certain income limits.
If you’re facing foreclosure in Minnesota, there are a number of places to turn, including the Minnesota Homeownership Center. This is the resource the Minnesota government points homeowners to for advice and confidential counseling for a statewide network of advisors.
If you’re hoping to move to Minnesota from elsewhere in the country, here’s quick refresher that’ll remind of all the things you’ll love about the state with 10,000 lakes. More interested in money matters? Plug your salary into the Minnesota paycheck calculator to get an idea of your projected take home pay.