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How to negotiate a mortgage in Minnesota when rates are rising quickly – Star Tribune

Home buyers this spring are facing a double-whammy: Mortgage rates have increased to the highest level in more than a decade and house prices are now at record highs.
The result is that monthly house payments soared compared with just a few months ago.
Wondering how to shop for a house at a time when rates are moving quickly? We asked several Twin Cities housing experts for advice for home buyers.
What to remember
The average rate for a 30-year fixed-rate mortgage was 5.27%, according to the latest weekly survey from Freddie Mac. Though that’s the highest in more than a decade, that’s still a relatively low rate. Over the past several decades, the average 30-year rate was about 8%.
Though mortgage rates have risen faster than anyone predicted, rates aren’t expected to go down anytime soon. In fact, there’s still upward pressure on rates in the coming months so there’s an expectation that rates could increase slightly.
If you’ve been putting off home buying because you’re worried that there aren’t enough houses on the market, don’t despair. There’s been a recent spike in new listings and declines in pending sales, suggesting a slight increase in the number of homes that will be for sale in the coming months. With borrowing costs on the rise, buyers should be less likely to be making the kinds of wild, over-list price offers that were common last fall and earlier this year.
The very first thing you should do
One of the very best ways to get the lowest possible mortgage rate is making sure you have the highest credit score possible. If you have bad credit, lenders will charge you a higher rate because you’re more likely to miss a payment or default on your mortgage.
Talking to a homeownership counselor or financial adviser who can help you pull a credit report and determine the best — and fastest — way to improve your credit score. That’s true whether you’re buying your first home or your last one.
The Twin Cities has an extensive network of home-buyer programs that provide counseling services to buyers, including PRG Inc., which not only provides prepurchase counseling, but also access to down-payment assistance programs and other home-buyer programs.
Jeff Wills, program manager for PRG, said that buyers will often start their house hunt by first talking with a real estate agent or mortgage adviser. Those professionals only get paid if you buy a house, so he recommends talking a nonprofit adviser first to make sure you’re getting unbiased advice.
“We’re the only people who don’t benefit for your decisions,” he said. “We don’t charge anything and we’re not in it to make money.”
Most nonprofit homeownership counseling programs are free. It’s important that they’re certified by HUD. Those nonprofits, including the Minnesota Homeownership Center, can also provide a list of experienced lenders.
Strategies for getting the best rate
During times of rising mortgage rates, buyers tend to shift their focus to a variety of alternative mortgages and financing techniques. That includes adjustable-rate mortgages, contracts for deed and assumable mortgages. But in today’s rapidly-rising rate environment, those standbys aren’t likely to provide relief to most buyers.
Lori Day, senior vice president and director of mortgage at Alerus Financial, said it’s more important than ever to find a very experienced loan office and real estate agent. Buyers should interviewing several agents and loan officers. “You pay the same amount practically for somebody in the business 20 years and someone who got into the business six months ago,” Day said.
Buyers need to figure out whether they’ll qualify for a government-backed FHA mortgage or a conventional mortgage. The conventional one requires a slightly higher credit score and tends to come with a slightly higher interest rate. But it allows for a slightly lower down payment.
Another key consideration is whether they can avoid paying private mortgage insurance, which can cost hundreds of dollars every month. Most conventional loans require borrowers to pay for mortgage insurance if their down payment is less than 20% while FHA loans require mortgage insurance now no matter how big the down payment. Yes, it’s confusing. Just know that making the right decision can save you hundreds of dollars every month.
Buyers can ask their real estate agents to advise them not only on how much to offer, but also on other important terms. One example of a choice you’ll face is whether to ask your seller to help pay for closing costs.
Day also offers this tip: Shop around for a mortgage. Because the true cost of a mortgage is determined by more than the rate itself, avoid loan officers who are only promising the lowest rate, which is not always the best deal.
Instead, ask the loan officer how many loans they’ve done and how long they’ve been in the business. And ask them for detailed information about the loan using the exact same scenario.
The key elements are the loan amount, the down payment amount and closing costs. Ask them to quote the rate with no discount points, which portrays the mortgage in its purest form without the blending in of upfront fees.

Jim Buchta has covered real estate for the Star Tribune for several years. He also has covered energy, small business, consumer affairs and travel. 
© 2022 StarTribune. All rights reserved.

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