By: Lim Chan

July 1, 2025

According to mortgage giant Zillow, the average Minnesota home value is approximately $346,239. It’s no surprise that, for most people, the most expensive purchase they will ever make is a house. Buying a house is a major investment that significantly impacts personal finances. Let’s discuss all the big and small factors involved in purchasing a house, assuming the buyer is taking out a mortgage.

Preparation for the Purchase

Down Payment: This typically ranges from 3% to 20% of the home’s purchase price. A larger down payment lowers the loan amount and monthly payment.

Private Mortgage Insurance (PMI): Usually ranges from 0.5% to 1.5% annually of the loan amount. It can be avoided or canceled with a 20% down payment.

Credit Score: A higher credit score qualifies you for more favorable terms and lower interest rates. Lenders consider your income, debt-to-income (DTI) ratio, and financial stability when determining pre-approval and loan limits.

Real Estate Agent: A buyer’s agent typically represents the buyer’s interests and is paid through the seller’s commission. Still, always confirm payment terms before signing any agreements.

Earnest Money: Typically, 1% to 3% of the home’s price, this deposit shows serious intent to buy. It’s applied to the down payment or closing costs if the sale proceeds. If the buyer backs out without a valid reason, the seller may keep the money.

Closing Costs: Usually, 2% to 5% of the purchase price, covering items such as loan origination, appraisal, title insurance, and recording and transfer fees.

Loan Options

Fixed-Rate Mortgages: Maintain a consistent interest rate for the loan’s duration, commonly 15, 20, or 30 years. Shorter terms generally mean lower rates but higher monthly payments.

Adjustable-Rate Mortgages (ARMs): Begin with a fixed rate for a set period (e.g., 3, 5, 7, or 10 years), then adjust periodically. A “3/1 ARM” has a fixed rate for three years, adjusting annually thereafter. A “7/6 ARM” adjusts every six months after the seven-year fixed period.

Conventional Loans: The most common type of loan, not backed by the government.

FHA Loans: Government-backed loans with lower down payment requirements and more flexible credit standards.

VA Loans: Available to eligible veterans and active-duty service members, often with more favorable terms.

Jumbo Loans: Designed for high-value properties exceeding conforming loan limits. These come with stricter qualifications, including higher credit scores and larger down payments, as they’re not backed by Fannie Mae or Freddie Mac. The lender assumes a higher risk.

After the Purchase

Mortgage Payments: The predetermined monthly payment for a home loan.

Property Taxes: Minnesota’s property tax rate averages around 1% of the property’s value, though it varies by county. You can check rates on county websites or ask your realtor.

Homeowners Insurance: Covers risks like fire, theft, or natural disasters. It’s paid monthly or annually.

Homeowners Association (HOA) Fees: Monthly fees in HOA-governed communities that cover shared amenities and maintenance. Some also include services like lawn care and trash removal. Clarify coverage with your realtor.

Utilities: Include water, electricity, trash, and sometimes lawn or snow services.

Maintenance and Repairs: Budgeting for routine upkeep helps avoid large, unexpected repair costs later.

Furniture and Moving Costs: If you’re starting fresh, furniture can be a substantial expense. If not, you may still need to rent a truck or hire movers.

Concluding Thoughts

Buying a house isn’t just about selecting a property, it’s about choosing a mortgage strategy, a lender, and a budget that works for your long-term finances. I hope this guide provides you with the insight to approach that decision with confidence.