The median price of homes sold in Minnesota has trended upward since 2012, reaching $226,000 by the end of 2018, according to Zillow. Home values have risen more than 6 percent year over year and are expected to increase more than 8 percent in 2019.
Relative to national medians, the prices of homes sold in Minnesota are more than $100,000 lower, making the Gopher State a bargain for homebuyers interested in purchasing property in the Great Lakes region.
As the U.S.’s largest producer of green peas, sweet corn, sugar beets, and other staple crops, Minnesota’s agribusiness industry powers a large portion of its statewide economy. Additionally, the Twin Cities metropolitan area (Minneapolis and St. Paul) continues to drive economic growth, new construction, and affordable educational opportunities.
Lifelong residents and younger transplants have found Minnesota to be an accommodating environment due to its low poverty rates, low cost of living, and high median household income, making it a beneficial region for prospective homebuyers seeking favorable mortgage rates.
7 Critical Elements That Affect Mortgage Rates & Refinance Rates in Minnesota
When researching mortgage options in Minnesota, borrowers should evaluate both the macroeconomic landscape of the nation and the local aspects of their region that may impact the mortgage rates for which they qualify.
A percentage point difference in interest over the life of a 30-year home loan can lead to tens of thousands of dollars in savings or, vice versa, in overpayment.
Whether it’s taking out a loan for the first time or refinancing a home purchased a decade ago, the importance of understanding some of the meatier details of mortgage terms cannot be overlooked. While shopping for a home in Minnesota, take into account these seven factors:
Type of loan
Mortgage types are defined by the needs and financing capabilities of borrowers. While an adjustable-rate mortgage (ARM) often starts with a lower interest rate for a period of five, seven, or 10 years, it is likely to adjust upward after this period ends.
The opposite of an adjustable mortgage is a fixed-rate mortgage, which retains the same interest rate throughout the entirety of the loan, making it a consistent, reliable financing option for borrowers hoping for steady payment obligations month to month.
Various other home loans exist, such as construction, VA, and USDA loans, which come with their own mortgage requirements.
Amount of loan
A $1 million loan is riskier than one that is $300,000. As such, lenders may impose more stringent rate requirements to ensure their investments are protected against borrowers’ potential trouble paying back the entirety of the loan in the future.
More massive loans often result in larger down payments and higher interest rates, although borrowers who front a significant amount of money (20% or more) can defray higher interest rates. Borrowers may also opt for low adjustable-rate terms and then refinance into a fixed low-rate term.
Impacting a borrower’s current and future interest rates, down payment amounts are often an initial point of negotiation. More substantial down payments, in general, produce lower interest rates because borrowers have shown they are capable of fronting enough money (and responsibility) to kick-off home loan terms in good standing.
Borrowers aren’t locked into 20% down payment terms (the industry standard) across the board; mortgage insurance and various down payment assistance programs can reduce the amount owed upfront.
Profiles characterize how risky a borrower may be, factoring in items like credit score, credit history, employment history, personal debt, and previous foreclosures, if applicable. If you take these variables into account, you’ll have a more comprehensive portrayal of the risk you entail to the lender, more so than what you’d obtain from just a simple credit score.
Each lender uses its own unique borrower profile scoring system, but, typically, borrowers who fare worse on their profiles end up with higher interest rates and more substantial down payments. Consequently, borrowers may need to purchase mortgage insurance to alleviate additional risk vectors.
Type of interest rate
Under a fixed-rate arrangement, borrowers pay the same percentage of interest every month on top of their monthly mortgage balance. Fixed-rate mortgages are the most popular home loan option, especially for borrowers who don’t foresee their future income levels to rise considerably.
Adjustable rates mean that the interest paid each month can change after an established time period during which they remain fixed, typically in line with fluctuating lender-by-lender benchmark rates. Borrowers must pay more in interest each month should lenders increase their rates, though these changes are usually established yearly.
The loan-to-value ratio is the amount a borrower owes on home versus the appraised value of that home. For example, if half of a home loan is paid off, there is still half to go, making the LTV 50%. Alternatively, if just $200,000 of a $1 million loan is paid off, then the borrowers’ LTV is 80% ($800,000 is still owed).
Borrowers looking to refinance can lock in better interest rate terms by reducing their LTV, typically below 80%. As more of the mortgage is paid down, the borrower essentially projects a stronger, more reputable borrower profile and a less-risky investment.
Type of residence
While a single-family home is often viewed as a safe and calculated investment, condos, manufactured units, and multiunit structures come with added risk for lenders. That’s because, as Fannie Mae notes, some property types are riskier than others.
Refinancing into a lower interest rate may be more difficult if the residence is a condo versus a traditional home. Outside of major metropolitan areas in Minnesota, prospective buyers are more likely to come across single-family homes, perhaps offering them more promising refinancing capabilities.
Across the financial industry, traditional homes typically have interest rates that are 0.25 percentage points lower than condos.
How to Get the Best Mortgage & Refinancing Rates in Minnesota
Comparative shopping is another critical point in the mortgage and refinancing process, as having as many options as possible can help borrowers choose terms and rates that best fit their needs.
The problem is that most homebuyers aren’t familiar with protocols and etiquette surrounding financial legalese. Moreover, for first-time homeowners, the entire process is a brand-new experience. As a result, too many homebuyers don’t shop around; they simply select the first lender they interact with and purchase a home.
It’s estimated that up to 47% of mortgage borrowers (nearly half!) don’t shop around, according to the Consumer Financial Protection Bureau, which means homeowners could potentially be leaving tens or hundreds of thousands of dollars in savings on the table right out of the gate.
The only way to honestly know whether a borrower is getting the best mortgage rate is if he or she has spoken to or received offers from multiple lenders.
Part of surveying the options on the table is opening negotiations armed with all the pertinent details surrounding market forces in the region, economic trends that cause housing prices and interest rates to fluctuate, local conditions that are unique to a given city or neighborhood, and the current rates that lenders are offering at that time.
A simple glance at most lender websites can quickly yield a snapshot of competitive mortgage rates.
Once borrowers are clued into general economic factors and lender terms, they can dive deeper into specifics like loan amounts, down payments, and credit score requirements.
As the home buying process moves along, borrowers should similarly gain clarity on fees pertaining to appraisals, applications, document preparation, origination, and other types of surcharges. To entice borrowing, lenders often waive some or all of these fees, but they may not be inclined to do so if these details are not addressed in negotiations.
Recommended Companies in Minnesota
Top lenders in Minnesota include:
Quicken Loans provides loans to borrowers in all 50 states and lists daily updates to its mortgage rate offerings on its website. Appearing on J.D. Power’s Primary Mortgage Origination and Mortgage Servicing rankings for eight and five consecutive years, respectively, the financial institution makes it easy for mortgage borrowers to quickly find the best rates on all the major home loan types.
As the online lending platform for Quicken Loans, Rocket Mortgage allows borrowers to access and customize loan options outside of standard mortgage terms.
Rocket Mortgage also provides intuitive recommendations each time borrower information is entered, making the home buying process more straightforward with the help of an end-to-end online assistant. All government loan options are available.
Ally Bank is the premier online-only lending option for borrowers across the country, and Minnesotans with excellent credit scores can secure 30-year fixed-rate mortgages at less than 4.75% interest. Borrowers can also prequalify, submit documents, and close on home loans all at the click of a button
Offering fast-tracked credit approval, a full range of purchase and refinance products, free consultations, and the ability to check in on loan statuses, CrossCountry Mortgage serves Minnesota borrowers through its customer service and breadth of services. The lender states it can close home loans in as little as 21 days.