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2022 Minnesota First-Time Homebuyer Programs

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The state of Minnesota offers first-time homebuyer programs to potential borrowers who need financial assistance to meet their down payment and closing costs.

You may be able to afford a home in the “land of 10,000 lakes” if you can meet the eligibility requirements, such as attending a homebuying education course, for one of these programs. Understanding how first-time homebuyer assistance programs can work for you can be your first step toward homeownership.

Minnesota statewide and local first-time homebuyer programs

Most of the first-time homebuyer offerings in Minnesota are loans designed to help cover closing costs or provide down payment assistance. Some Minnesota counties, such as Dakota County, used to offer down payment assistance to first-time homebuyers. However, many of these programs were not available at the time of publication for this story.

Minnesota Housing Finance Agency (also called Minnesota Housing) offers first-time homebuyer programs to potential borrowers needing assistance.

If you are a first-time borrower in Minnesota, here’s what you should know about getting assistance.

Program nameAssistance amountAssistance typeWhere it’s available
Minnesota Housing Monthly Payment Loan (MPL)Up to $17,000 (with a Start Up or Step Up mortgage)Low-interest loanAll counties in Minnesota
Homeownership Opportunity Minneapolis (HOM)Up to $10,000 or up to $20,000Zero-interest loanCity of Minneapolis
Minnesota Housing Deferred Payment Loan (DPL) Up to $11,000 (with a Start Up mortgage)Interest-free deferred loan for the length of first mortgage termAll counties in Minnesota
Minnesota Housing Deferred Payment Loan Plus (DPL+)Up to $15,000 (with a Start Up mortgage)Interest-free deferred loan for the length of the first mortgage termAll counties in Minnesota

What to know about different types of down payment assistance

Most first-time homebuyer programs provide monetary assistance in the form of grant money, a forgivable second mortgage or a low-interest loan. While the funds may not have to be paid back immediately (or ever), there are strict guidelines you need to understand. Here’s how each type of down payment assistance works.

  • Grant. If you are given grant money to use for a down payment, you may be required to meet specific criteria, such as living in the house for a designated number of years. Grants don’t need to be repaid.
  • Forgivable loan. This is considered a second mortgage (or lien) on your home. While forgivable loans typically do not need to be repaid, you often must live in the home for a specified number of years before the loan is forgiven. If you sell or refinance the house, the loan may need to be repaid in full.
  • Low- or no-interest loan. This type of loan can come with low interest or no interest. You may be required to make monthly payments or pay the loan outright when your home is sold or refinanced. This is the type of assistance currently available for Minnesota homebuyers who wish to use a Start Up mortgage to buy their first home.

How Minnesota first-time homebuyer programs work

Here are four steps you must take before you can qualify for Minnesota’s first-time homebuyer programs.

1. Complete your homebuyer education requirements. The Minnesota programs listed here call for the completion of a homebuyer education course. The courses are designed to help first-time homebuyers understand the rewards and challenges of buying and maintaining a home.

2. Get a mortgage approval from a program-approved lender. If you want to enroll in one of Minnesota’s programs, you must qualify for a first mortgage. Most programs come with a list of approved lenders. A loan officer can walk you through the mortgage application process and should be knowledgeable about first-time homebuyer programs.

3. Learn the income limits. The programs offered are designed to assist low- to moderate-income earners. You can ask your lender about the program’s income limits as they pertain to your situation, or check the program’s website.

4. Know the payback requirements before you sell or refinance. When you use a first-time homebuyer program, you will sometimes be required to live in your new home for a set amount of time. If you move or refinance before that time is up, you will likely have to pay back some or all of the money to the program.

Minnesota’s first-time homebuyer program requirements

A review of the requirements for each first-time homebuyer program in Minnesota could show you areas you need to improve so you can qualify, including your debt-to-income (DTI) ratio and credit score.

Program name Credit score minimumDTI ratio maximumMaximum income limitHow long you have to live in the home
Minnesota Housing Monthly Payment Loan (MPL) Varies based on loan productsVaries based on loan products$93,100-$120,600 (Start Up) and $139,200-$156,800 (Step Up), depending on location and/or household sizeN/A
Homeownership Opportunity Minneapolis (HOM)Depends on the lender/type of mortgageDepends on the lender/type of mortgageMay not exceed 80% of the area median income (AMI)N/A
Minnesota Housing Deferred Payment Loan (DPL)Varies based on loan productsVaries based on loan products$67,000-$116,300, depending on location and household sizeN/A
Minnesota Housing Deferred Payment Loan Plus (DPL+)Varies based on loan productsVaries based on loan products$67,000-$116,300, depending on location and household sizeN/A

THINGS YOU SHOULD KNOW

If you are planning to use a first-time homebuyer program, it’s important to understand the median income limits for the area in which you want to live. If you make too much, it could disqualify you from a program. Search the most recent Minnesota income limits by using the Department of Housing and Urban Development (HUD) website’s lookup tool and entering your state and county information.

National first-time homebuyer programs

All of the Minnesota-based programs listed above require you to obtain a mortgage, such as a Start Up mortgage, before qualifying for the assistance. You may be able to apply for government-backed loans (in addition to these programs). Many of these national programs don’t require a large down payment or any down payment.

Conventional loans. If you are shopping for a conventional loan product, note that these loans have strict requirements and higher loan limits than those backed by a government agency. If you want to use a conventional mortgage, look at the Fannie Mae HomeReady and Freddie Mac Home Possible programs. These are two popular homebuyer loans because they have cancelable mortgage insurance.

FHA loans. Borrowers often use a Federal Housing Administration (FHA) loan if they have higher debt ratios and lower credit scores. In some cases, lenders will approve financing on an FHA loan with a credit score of 580. There are downsides: FHA loan limits are lower than those of conventional mortgages, and you have to take out two forms of mortgage insurance. And some assistance programs designed to help you pay for closing costs call for at least a 640 credit score. One upside to an FHA loan is the low threshold for a down payment — just 3.5% of the purchase price.

VA loans. The U.S. Department of Veterans Affairs (VA) guarantees VA loans. These loans require no down payment, no mortgage insurance and, unlike FHA loans, no limits on the amount you can borrow. VA loans are the most flexible of the government-backed loan programs, but not everyone can meet the loan’s first requirement; you must have served in the U.S. military or be an eligible spouse.

USDA loans. If you are a low- to moderate-income borrower interested in rural living, this U.S. Department of Agriculture (USDA) loan is designed for people like you. No down payment is required, but you may have to pay guarantee fees.

FAQs about Minnesota’s first-time homebuyer programs

Who qualifies as a first-time homebuyer in Minnesota?

A first-time homebuyer in Minnesota is an individual who hasn’t owned a principal residence in the last three years.

Can I qualify for down payment assistance in Minnesota?

If you meet the income eligibility requirements and you are able to complete an education course and, of course, qualify for a mortgage, you should be able to obtain assistance.

How much of a down payment do I need to buy a house in Minnesota?

It depends on the type of mortgage product you are using to buy your home. If you qualify for one of Minnesota Housing’s down payment assistance programs, you may only need to come up with the lesser of $1,000 or 1% of the purchase price. If you use an FHA loan to buy your house, you will need to make a down payment of 3.5%, but an assistance program may help cover the down payment if you qualify.

Home price trends in Minnesota’s major areas

As with most places around the country, home prices in Minnesota experienced increases in the past year. In Hennepin County (included in the Minneapolis/St. Paul metropolitan area), the median home listing price was up 8.9% to $346,414 in the second quarter of 2021, and monthly mortgage payments rose by $71, according to data from the National Association of Realtors.

 

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