Home Buyer's Handbook


Checklists and Worksheets

Loan Qualification Worksheet

You can get an idea of what size loan you might qualify for by going through this worksheet. Before you fill out the Loan Qualification Worksheet, find out the current industry numbers from a loan officer or mortgage broker. The following numbers can change, but were current as of the date of this publication.
Loan Qualification Worksheet (PDF)

Closing Cost Comparison Worksheet

Use this worksheet to compare closing costs. When you walk into a lender’s office with this worksheet, the loan officer will take you seriously!
Closing Cost Comparison Worksheet (PDF)

Monthly Loan Payment Tables

For loans that fully pay off the debt over the loan term. Locate a current interest rate at the top of the following tables. Follow that column down to find the monthly payment closest to your monthly home payment amount from Step 1 of the Loan Qualification Worksheet (if applicable). Then, read across to the far left-hand column to find the total loan amount for which you qualify. Add in any money you’ve saved for a down payment and subtract estimated closing costs, and you have the maximum amount you should consider paying for a home.
Monthly Payment Tables (PDF)

Household Income/Expense Worksheet

Use the worksheet below to figure out what you can comfortably afford to spend each month. This time, write down all your expenses (including the money you’d like to set aside for a retirement fund, travel, or any other items you feel you can’t do without).
Household Income/Expense Worksheet (PDF)

Needs and Wants Checklist

This checklist will help you focus on homes that meet your top priorities. Decide which of the below are “needs” and which are “wants.” List the features you must have in a home in your “needs” column. Then list your wants. This is your dream list. Wants are items you can live without or add later. List your “wants” from most to least important.
Needs and Wants Checklist (PDF)

Inspection Checklist

There are several ways to do an inspection. You can hire a professional inspector or contractor, or, if you’re knowledgeable about construction, inspect the home yourself. An inspection should cover at least the items listed here.
Inspection Checklist (PDF)

Sample Buyer's Contingency

Carefully consider under what conditions you will and won’t buy the house by attaching contingencies that can make the agreement null and void. A real estate agent or an attorney can help you write your contingencies. Make sure it reflects your understanding of the conditions under which you’re willing to make the offer. Below is a common contingency clause used by buyers
Sample Buyer's Contingency (PDF)

Closing Checklist

Are you ready to close on your home? Bring your calculator to the closing and make sure there are no mathematical errors. Use this checklist to make sure you have all your “docs” in a row.
Closing Checklist (PDF)

A Home Buyer's Schedule

The main steps in home buying are covered here. After you have studied the home-buying process, use this checklist to make sure you have done everything needed to buy the home of your dreams.
Buyer's Schedule (PDF)

Real Estate Agency Disclosures

If you work with a real estate agent, you will be asked to sign several contracts to clarify your relationship with the agent. Don’t sign the forms until you understand them. Make the agent keep explaining until you do. These forms are signed when you have your first significant contact with the agent (for instance, when you contact the agent about representing you), or when you are ready to sign a purchase agreement.

Most of these disclosures relate to something called “dual agency.” The term refers to an agent representing both the buyer and seller of a house. An agent in this situation has dual loyalties. This situation arises when your agent finds you a house listed for sale by his or her agency. In some areas there are thousands of homes for sale and just a few big real estate agencies, so there is a good chance your agent will show you homes listed by his or her agency.

Some people say it is nearly impossible for an agent to represent the buyer and seller equally because the seller is trying to get the highest price possible for a home, while the buyer is trying to get the lowest price. State law requires agents to clarify their role and the information they will share before an offer is made.

You may refuse to agree to dual agency if you are worried about the agent also representing the seller. Unfortunately, not agreeing to dual agency may prevent you from buying a home listed by your agent’s company.

Agency Relationships in Real Estate Transactions

This is a disclosure that is generally given at the first significant contact with an agency. This disclosure explains the difference between a “customer” and a “client.” The difference between the two is important. A customer of the real estate agency is shown houses and is given help with the mechanics of the transaction. Customers elect not to have an agent help with price and terms of the sale. The agent is a messenger, merely delivering the customer’s offer to the seller.

A client of the real estate agency does have an agent assist them with price and terms of the sale. If you decide to become a client, you sign one of two agreements:

Contract for Exclusive Right to Represent Buyer
You agree to work only with that agent for a specific period and to pay the agent either a commission or flat fee. The drawback is that if you later decide you want to work with someone else or go it alone, you may still owe the agent a commission. These contracts have expiration dates, so you can always change agents later. On the positive side, an agent with an exclusive agreement may be more inspired to work hard on your behalf because he or she is assured of being paid when you buy a home. If you decide on an exclusive contract, put in a clause stating that your agent may contact sellers who are not using an agent to negotiate a commission. That way you’re not limited to just purchasing homes listed by an agency.

Contract for Nonexclusive Right to Represent Buyer
Signing a nonexclusive agreement will allow you to switch agents if you’re not happy. Of course, under this agreement, your agent may give priority to other clients with whom they are assured of making a commission.

Clients may also be asked to sign the following:

Addendum to Buyer’s Representation Agreement
Some agencies ask you to sign this dual agency disclosure if your agent is not an exclusive buyer broker and finds you a home listed by his or her agency that you want to make an offer on. The disclosure form specifies that the agent will keep information about the price or terms you will accept confidential. When agents work for the seller, their commissions rise with the price of the home. It’s wise to keep quiet about the price you’re willing to pay for a house in a dual agency situation.

Affiliated Business Arrangement Disclosure Statement
This form is signed when you are ready to sign the purchase agreement. Whether you are a client or a customer, you’ll receive this disclosure if you are working with a real estate agency that is affiliated with another company that provides real estate services. For example, several Minnesota agencies own title and mortgage companies.

It’s important for you to know that an agent could refer you to one of these “inside” companies. The costs associated with using the company could be higher than those of competitors. The best advice is to research lenders and title companies. You may end up using your agent’s company, but if you do, you’ll know it’s truly the best deal for you.

Agency Disclosure to Buyer and Seller at Time of Offer to Purchase
This dual agency representation is also signed at the time you’re ready to sign the purchase agreement and is often included as part of the purchase agreement. Once again, agencies and their regulators want to make sure
you know if you are in a dual agency relationship. With this form, you
will acknowledge your understanding before you sign a purchase agreement.

Problem With an Agent?

The Real Estate Recovery Fund Can Help

The Real Estate Education, Research, and Recovery Fund is run by the Minnesota Department of Commerce. The fund is used for educational purposes, and also to pay uncollected claims against licensed real estate agents. If you bring a lawsuit and succeed in obtaining a court judgment against a licensed agent for fraudulent, deceptive, or dishonest practices, and cannot collect from the agent, call the Department of Commerce at (651) 539-1500. Contact the department within a year after obtaining a judgment to see if you can collect from this fund.

Explanation of Closing Costs

The following fees can vary, depending on the provider and the market. It is recommended that you shop around and compare fees prior to choosing a provider.

Application Fee: There may be a separate “application fee.” This is broker-driven fee. Some lenders won’t refund this fee if your application is turned down. Before filing an application, ask the lender under what circumstances, and to what extent, this fee is refundable. Get the lender’s answer in writing. This fee should always be negotiable.

Appraisal Fee: This is a fee for the appraisal of your property’s value. An appraisal is required for most loans.

Attorney’s Fees: In unusual cases, you may be required to pay for the services of the lender’s attorney in connection with the closing. This would not cover your attorney’s fees.

Credit Report: The lender will order credit reports on you (and your spouse or other co-signer) to evaluate your credit history.

Mortgage Insurance Premium (MIP): This is also called FHA Mortgage Insurance because it is the insurance required for an FHA loan. For additional information on MIP, including how the monthly premium is calculated, go to the HUD website at www.hud.gov. You never need both private mortgage insurance and FHA mortgage insurance.

Mortgage Registration Tax: This is a tax from your state and county that most Minnesota mortgage borrowers must pay.

Origination Fee: Origination fee is the term lenders use for the fee they charge you for extending a loan, above and beyond the interest they charge. Be sure to consider the origination fee along with points and all other fees in deciding which lender offers the best deal. Some lenders may charge more if they consider you a credit risk. This fee is negotiable.

Plat Drawing/Survey: The lender or the title insurance company may require a plat drawing showing the location of the home and the lot line, as well as any easements and rights of way. But plat drawings often are inaccurate depictions that won’t show you the exact property you own. For a precise drawing of your property lines, have the land surveyed. The survey will keep you from accidentally putting up a fence on your neighbor’s property, chopping down a tree that doesn’t belong to you or other actions that can result in lawsuits between neighbors.

Points or Discount Points: Points may or may not be added, depending on the loan interest rate you apply for. If you are willing to pay more points (also called “up-front interest”), you should be able to get a lower interest rate on your loan. Paying points can be a good investment if you plan to live in your home for a fairly long time—about 10 years if you have a 30-year mortgage, or seven if you have a 15-year mortgage. Points are tax deductible in the first year of most loans.

Private Mortgage Insurance (PMI): This is the insurance required on some conventional loans. Typically, the larger the down payment, the lower the PMI costs.

Processing/Commitment/Administration Fee: These are actually three different fees that may be grouped together or listed separately, however, the combined total of these three fees should not exceed .5 percent of the loan value. These are negotiable broker- and lender-driven fees.

Recording Fees: These fees are passed on to the county by the lender or closing company to record the documents. But sometimes closers tack on their own charge for having the documents filed. Your county recorder can verify the actual cost of the county’s recording fees. Any fee charged to you beyond the amount quoted by the county recorder should be negotiable.

Settlement or Closing Fee: This fee is paid to the “settlement agent,” “closing agent,” or “closer” for conducting the closing.

Tax Service Fees: Some lenders charge to verify that you pay your taxes with the county. The county does not charge for the service, so consider this fee negotiable.

Underwriting Fee: Most lenders charge you to process your application. This is often known as an “underwriting fee.”

Glossary of Terms

Addenda (addendum, singular): Supplemental documents added on to the purchase agreement that become part of the legally binding document.

Adjustable Rate Mortgage (ARM): A loan in which the interest rate fluctuates during the term, based on an index to which the interest rate is tied.

Amortization Chart: A chart that breaks out the principal and interest you pay on a loan each year, over the term of the loan.

Annual Percentage Rate (APR): Expressed as an annual rate, this is really the cost of the loan. It includes the interest rate, points on a loan, the loan origination fee, and all other charges made by the lender.

Arbitration Agreement: When a seller and buyer agree to settle all disputes about the property out of court. If both parties sign, they agree to have an independent arbitrator decide disputes.

Assessments: City taxes homeowners must pay periodically when the city decides to make improvements to city property.

Association Dues: The monthly payment condominium and townhouse owners must make for upkeep and management of shared property. The association is made up of condominium or townhouse owners.

Assumable: Describes a loan that a buyer can arrange to take over from the seller.

Buyer’s Broker: An agent who works on behalf of a buyer.

Closing Costs: Costs involved in transferring ownership of a home.

Closing Disclosure: This five-page form includes final details about the mortgage, including loan terms, projected monthly payments, and closing costs. The form replaced the HUD-1 and final Truth-in-Lending Disclosure Statement for borrowers who applied for a loan on or after October 3, 2015.

Commitment Letter: The letter your lender may send you stating that your loan is approved and describing the terms of the loan.

Contingency: A clause that is added to a purchase agreement stating that certain conditions must be met within a specified time period for the purchase agreement to be valid.

Contract for Deed: Some sellers may choose to offer you financing, consequently you make your monthly payments to the seller.

Conventional Loans: Home loans not backed by the government.

Credit Score: The rating a credit reporting agency gives you based on your credit report.

Default: Failure to comply with the terms of the loan documents.

Down Payment: The amount of the purchase price you pay up front to the seller when you buy a home. The amount depends on the loan you are taking out, but is usually a minimum of 3.5 percent of the total loan amount.

Earnest Money: “Good faith” money usually given to the agent when you make a bid on a home.

Equity: The portion of the home’s value that you own, free and clear of any mortgage or lien.

Escrow: Lenders often ask homeowners to keep future tax and insurance payments in a bank account called an escrow account.

FHA Loans: A home loan made by the Federal Housing Administration that has a low down payment and offers more relaxed guidelines than a conventional loan.

Fair Credit Reporting Act: A federal law that gives citizens the right to challenge the accuracy of incorrect information in their credit reports.

Fixed Rate Loan: A loan with a constant interest rate over the term of the loan.

For Sale By Owner (FSBO): FSBO, pronounced “fisbo” is a home that is offered for sale by the owner without the benefit of a real estate professional.

Good Faith Estimate: The disclosure form on which your lender estimates all closing costs. This form applies only to mortgages taken out before October 3, 2015. For mortgages after that date, see Loan Estimate.

Gross Income: Your income before you pay taxes.

HUD-1: A settlement statement listing all the closing costs for loans taken out before October 3, 2015. For mortgages after that date, see Closing Disclosure.

Homeowner’s Insurance: Also called hazard insurance. This is insurance home buyers must purchase to protect the investment they and their lender have in the home.

Homestead Taxes: Property taxes paid by live-in property owners.

Interest: A lender’s charge for the loan.

Loan Estimate: A three-page form that provides important information about your loan, including the estimated interest rate, monthly payment, and closing costs of the loan.

Loan Origination Fee: This is a fee you pay a lender for handling your loan application.

Loan Processing: A lender’s analysis of your ability to qualify for a loan. The analysis involves weighing your income, credit report, and financial records against the value of the home you want to buy.

Lock-In Agreement: An agreement you can make with your lender to guarantee you the interest rate your lender quotes for your loan. You can lock in a rate when you apply for a loan or at any time before the closing.

Long-Term Debt: Any debt you will continue to owe for ten months or more.

Mortgage Discount Points: Prepaid interest on a loan. One point equals one percent of your total loan.

Mortgage Insurance Premium (MIP): An insurance premium the buyer is required to pay for an FHA loan. This can be paid as part of monthly loan payments.

Multiple Listing Service (MLS): A service that real estate agents subscribe to that lists homes for sale and homes that have sold by neighborhood, price and features.

Non-Homestead Taxes: Taxes paid by landlords who rent their property, or by owners who do not use the property as their primary residence.

PITI: The monthly loan payment which includes “Principal, Interest, Taxes and Insurance.”

Prepayment Penalty: The payment of a penalty due to the early payoff of the entire mortgage. Terms of prepayment penalties may vary.

Prime Mortgage: A prime mortgage is the highest grade of mortgage for which you can qualify.

Principal: The total amount you are borrowing to pay for a home. This is usually the purchase price minus the down payment.

Private Mortgage Insurance (PMI): Insurance you pay when you take out a conventional loan. Most lenders charge this if you make less than a 20 percent down payment on a home. It protects the lender from losing money owed on a loan if a buyer defaults on the loan, and is cancelable under Minnesota state law after two years if certain requirements are met.

Purchase Agreement: The legally-binding document that lists all the terms of a home sale including contingencies.

Real Estate Settlement Procedures Act (RESPA): The federal law that regulates lenders’ closing or settlement practices.

Re-Issue Credit: A savings on the cost of title insurance, when the title company’s issuance is based on a previous policy. Because the company is “re-issuing” the insurance, it can offer a lower rate.

Subprime Mortgage: A subprime mortgage is a lower grade and has a higher rate of interest than a prime mortgage.

Subagent: A seller’s agent who may bring a potential buyer to a home, but owes his or her loyalty to the seller.

Title Insurance: The insurance you pay to protect your lender against claims on the title to your property. As a buyer, you also can take out title insurance to protect yourself against claims.

Truth-in-Housing Report: A report the seller completes that discloses the conditions relating to the house.
Truth-in-Lending Disclosure Statement: A statement for loans taken out before October 3, 2015, that was provided by lenders to explain the costs of your credit. For loans taken out after this date, see Closing Disclosure.

Underwriting: Risk analysis conducted by a lender to decide whether or not to approve you for a loan.

Veterans Administration Loan (“VA Loan”): Low interest, no down payment loans that are, generally, available to those who have served, or are currently servicing, in the U.S. military or, in some cases, their spouses.

Referral Guide

Office of Minnesota Attorney General Keith Ellison
445 Minnesota Street, Suite 1400
St. Paul, MN 55101
(651) 296-3353 (Twin Cities Calling Area)
(800) 657-3787 (Outside the Twin Cities)
(800) 627-3529 (Minnesota Relay)

Equifax Information Services
PO Box 105252
Atlanta, GA 30348
(877) SCORE-11
www.equifax.com/fcraexternal link icon

P.O. Box 2002
Allen, TX 75013
(866) 200-6020
www.experian.comexternal link icon

P.O. Box 1000
Chester, PA 19022
(800) 888-4213
www.transunion.com external link icon

Minnesota Department of Human Rights
540 Fairview Avenue North, Suite 201
St. Paul, MN 55104
(651) 539-1100 or (800) 657-3704
www.mn.gov/mdhr external link icon

USDA Rural Development
375 Jackson Street, Suite 410
St. Paul, MN 55101
(651) 602-7800
www.rd.usda.govexternal link icon

Minnesota Housing Finance Agency (MHFA)
Offers below-market loans for buyers with low or moderate incomes and for first-time buyers. MHFA has statewide reach.

Minnesota Housing Finance Agency
400 Wabasha Street, Suite 400
St. Paul, MN 55102
(651) 296-7608 or (800) 657-3769
www.mnhousing.gov external link icon

Home Ownership Center
Refers low-income residents to trained home ownership counselors in nonprofit agencies in Minneapolis and St. Paul. Call (651) 659-9336 or (866) 462-6466 or go online www.hocmn.org.external link icon

Minneapolis Public Housing Authority
Provides information, referrals and assistance to people seeking low-income and Section 8 housing. Minneapolis residents call (612) 342-1400 or TTY: (612) 342-1415 or go online www.mphaonline.org.external link icon

Minneapolis Community Planning and Economic Development (CPED) Department
Information about housing and low-interest mortgages for people in Minneapolis is available by calling (612) 673-5095 or by going online www.ci.minneapolis.mn.us/cped.external link icon

City of Saint Paul’s Information and Complaints Office
Housing information, low-interest mortgages, education, counseling and advocacy for people in the St. Paul area. Call (651) 266-6712 or TTY: (651) 266-6378 or go online www.stpaul.gov.external link icon

St. Paul Public Housing Agency
Provides information, referrals and assistance to people seeking low-income and Section 8 housing. St. Paul residents call (651) 298-5664 or go online www.stpha.org.external link icon

U.S. Department of Housing and Urban Development (HUD)
Provides brochures and housing programs. HUD also handles most low-income public housing assistance claims and programs:

United States Department of Housing and Urban Development (HUD)
Minneapolis Field Office
212 Third Avenue South, Suite 150
Minneapolis, MN 55401
(612) 370-3000
www.hud.govexternal link icon