Use These Minnesota First-Time Home Buyer Programs
Updated: Jun 8
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Minnesota is one of America's gems. Beautiful cities, amazing forests, 10,000 lakes, and The Mall of America are just some of the trademarks of the North Star State. Given that there is something to do for everyone, real estate in Minnesota is in high demand, especially for first-time homeowners.
Coupled with prices that have soared since 2020 and increasing interest rates from their lows during the pandemic, some prospective buyers have been priced out of the real estate market for now.
The good news in this is that Minnesota has support programs in place to spur first-time homeownership among Minnesotans nationwide.
This article will explore MN's various mortgage, down payment assistance, and grant programs for first-time buyers.
Related: A Guide for First-Time Home Buyers
Buying a home in Minnesota
Home prices in Minnesota increased by 12.5% in the twelve months ending in May 2022, following a national trend of increasing prices. As of May 2022, the average home price in Minnesota is $333,581, according to Zillow.
Given the increase in home prices, here are some estimated costs you could encounter when you purchase your first home in Minnesota.
Average home price | $333,581 |
3.5% down payment (FHA loan min) | $11,675 |
10% down payment | $33,358 |
20% down payment | $66,716 |
With this in mind, let's explore your options for first-time home buyer mortgage programs in MN.
First-time home buyer loans in MN
As a first-time homeowner, you'll have many options for mortgage programs to consider. Among your options are:
Conventional loans
Conventional 97
FHA loans
USDA loans
VA loans
Deciding which program is right for you depends on a couple of different factors, none more important than whether you have a significant down payment saved up. Even if you don't, there are multiple other programs in this list designed to help you get into your dream home more quickly. After we review these loan programs, we'll cover Minnesota's down payment assistance and grant programs.
1. Conventional mortgages
Buyers may opt for a conventional mortgage through a traditional lender (bank). These mortgages, which usually carry terms between 15-30 years, may carry either a fixed or adjustable interest rate, but will require the most money in a down payment.
Conventional mortgages will also subject you to PMI payments if your down payment is less than 20% of your home's purchase price.
2. Conventional 97 loans
Minnesota buyers may also consider Conventional 97 loans, a mortgage program that requires a down payment of only 3% and allows for private mortgage insurance (PMI) to be cancelled once you hit 20% equity. They are intended to be a competitive alternative to FHA loans, since FHA loans don't currently allow for PMI to be cancelled.
They also carry less upfront fees than FHA loans, and carry the following terms and program guidelines:
Fixed-interest rates
Loan amounts below $647,200
The property must be used as a primary residence
3. Federal Housing Administration (FHA) loans
Your next option is taking an FHA loan through an approved lender in MN. These federally backed loans are reserved for those that have never purchased a home before, and require a 3.5% down payment. Eligible program participants will:
Have a credit score of at least 580 (those with lower scores may qualify but will need a larger down payment
Have a debt-to-income ratio of less than 43%
Have steady income and employment
4. USDA home loans
Low to moderate income Americans buying homes in USDA designated rural areas may qualify for low or zero down payment mortgage loans through the United States Department of Agriculture.
Large areas of rural Minnesota qualify for the program. Better yet, you may even qualify for the USDA loan without a down payment if you:
Are a U.S. citizen or non-citizen national
Occupy the purchased home as your primary residence
Meet income requirements in your area (cannot exceed 115% of the median household income in your area)
5. VA loans
If you are a Veteran, service member, or surviving military spouse in MN, you may be eligible to utilize a VA home loan. Among the many benefits to taking out a VA loan are:
Competitive interest rates offered
Lower closing costs
No need for private mortgage insurance (PMI)
No down payments required
As a VA benefit, they are available throughout your life. As such, you do not have to be a first-time home buyer to take advantage.
Minnesota's first-time home buyer programs
In addition to the loan programs above, prospective home buyers across the state will want to pay attention to the Minnesota Housing Start Up program, which is offered by the Minnesota Housing Finance Agency.
Minnesota Housing Start Up
Start Up is a homebuying program established only for those that either:
Have never owned a home before
Have not owned a home for at least the previous three years
Start Up offers mortgage loans with lower interest rates via conventional, FHA, USDA, and VA as long as you use a lender approved by Minnesota's Housing Finance Agency. These loans can then be paired with other state down payment or closing cost programs.
Prospective borrowers will need to meet the following eligibility requirements as well:
Not exceed program income requirements (between $117,300 and $134,800 depending on your household size and county of home purchase)
Buy a home below the maximum purchase price ($349,500 or $372,600, depending on the county)
Meet program minimum credit requirements
Have a minimum 3% down payment (for conventional loan)
Complete a home buyer education course
Down payment assistance programs in MN
Minnesota Housing Deferred Payment program
The Deferred Payment program is intended to help new homeowners to more easily make a down payment or handle closing costs on a home. There are two iterations of this program:
Deferred Payment Loan (DPL)
Deferred Payment Loan Plus (DPL+)
The DPL program can be paired with MN Start Up, and can provide you with up to $12,500 to use towards the down payment on your new home. DPL+ comes with a slightly higher maximum award, $15,000, and has some additional targeting criteria to use the program.
Other eligibility requirements are the same as with the Start Up program.
MN Housing Monthly Payment Loan (MPL) program
The second program to aid in your down payment or closing costs is the Monthly Payment Loan (MPL) program. Offering up to $17,000 in assistance, the MPL program is available to those utilizing a MN Housing mortgage loan and is structured as a second mortgage that will carry the same interest rate as your primary mortgage.
Furthermore, this second mortgage will have a term of ten years and you will make a fixed payment over ten years to repay the assistance that you received.
If you sell, refinance, or transfer the home's title before you pay off your second mortgage, it will become due in full.
First-time homeowner programs in nearby states
Michigan first-time homebuyer programs
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