Minnesota First-Time Home Buyer Guide: Programs And Grants

Buying a house for the first time can be intimidating, which is why many states offer programs and resources to make this process easier. This article will explain how to buy a house as a Minnesota first-time home buyer.

Purchasing A House In Minnesota As A First-Time Home Buyer

Minnesota is a midwestern state bordering Canada with a population of roughly 5.7 million. It’s a great place to live for a first-time home buyer, especially if you enjoy being near the lake and engaging in water-based activities.

The state is home to 11,842 lakes, and its rivers and streams add up to 69,200 miles. It also borders Lake Superior, the world’s largest freshwater lake.

According to the Bureau of Labor Statistics, Minnesota has the second-lowest unemployment rate, falling short only to Utah. As of November 2022, Minnesota’s unemployment rate was 2.3%.

Tourism accounts for over $16 billion of Minnesota’s economy, but there are also significant opportunities in health care, technology and finance. Minnesota is also the headquarters for major companies like Target, General Motors, St. Jude Medical and Best Buy.

Average Cost Of Living In Minnesota

Affordability is a big concern for first-time home buyers who may not have a lot to spend on a mortgage and down payment. Minnesota is an affordable place to live overall, and the cost of living is 1% lower than the national average.

Housing is 11% lower than the national average, which includes the cost of renting or buying a home. Utilities are 3% lower and transportation costs are 2% lower than the national average.

However, the exact costs will vary by city and county. And in 2023, Minnesota’s preliminary property taxes will increase statewide by $697.7 million, or 6%. But if you’re looking to buy a house in the coming year, Minnesota is still one of the cheapest states to buy a house.

Minnesota First-Time Home Buyer Loans

As a Minnesota home buyer, one of the first things you want to consider is how much house you can afford. Once you have an idea of your budget and the type of home you want, here are some first-time home buyer loans you can consider:

• FHA loan: An FHA loan is a good option for home buyers with bad credit, or anyone looking for low down payment requirements. If you qualify, your down payment could be as low as 3.5%.
• Conventional mortgage: A conventional mortgage loan isn’t backed by the government. Conventional loans will be either conforming or non-conforming. Conforming loans have maximum loan amounts, and other guidelines set by Fannie Mae and Freddie Mac. Non-conforming loans are less standardized and can vary between lenders.
• VA Loan: A VA loan helps veterans, active-duty service members, and eligible family members buy a home. These loans come with competitive interest rates, no down payment requirements, and no private mortgage insurance (PMI).
• USDA loan: A USDA loan is a good option for low-income borrowers looking to buy in an eligible rural area. There are no down payment requirements, and the credit requirements are flexible.

Who Qualifies For First-Time Home Buyer MN Programs And Grants?

As a Minnesota resident, you’re considered a first-time home buyer if you haven’t owned a home in the past 3 years. First-time home buyers may qualify for certain grants and programs after meeting the following requirements:

• Meet the minimum credit score
• Must not exceed the maximum purchase price of $402,000 for certain metro areas
• Meet income limits (vary by household size and location)
• Home buyer education course may be required
• Must contribute 1% of the purchase price or $1,000 to get down payment assistance

Programs Available For Minnesota First-Time Home Buyers

Buying a home in Minnesota is fairly affordable, especially if you take advantage of the resources the state provides to first-time home buyers. Below are a few assistance programs currently available.

Start Up For First-Time Home Buyers

The Start Up program provides low-interest loans to low- and moderate-income borrowers, and it’s available through participating lenders. You’ll be required to make a 3% down payment, and PMI is required.

You have the option to pair the loan with down payment or closing cost assistance. To qualify, you must be an eligible first-time home buyer.

Step Up For Repeat Home Buyers And Homeowners

The Step Up program can be used to purchase or refinance a home and it’s available to repeat buyers. If you qualify, you can make a down payment as low as 3% and receive a low fixed interest rate on your mortgage.

Down Payment And Closing Cost Assistance In Minnesota

Saving for a down payment and closing costs is one of the biggest hurdles many first-time home buyers face. The following loan programs can help make these costs more affordable. 

Monthly Payment Loan

You can apply for a Monthly Payment Loan (MPL) of up to $17,000, and the funds can be put toward your down payment and closing costs. An MPL is only available through the Start Up or Step Up programs, and you must use a participating lender.

An MPL comes with 10-year repayment terms, and the interest rate will be the same as your mortgage. To qualify, you must meet the income limits and credit requirements, and contribute either $1,000 or 1% of the purchase price.

Deferred Payment Loans

Deferred Payment Loans (DPL) are only available through the Start Up program. There are two different loans you can choose from — a Deferred Payment Loan (DPL) or Deferred Payment Plus Loan (DPL+).

A DPL is available up to $12,500 and a DPL+ is available up to $15,000, and the funds can be used for a down payment or closing costs. There is no interest rate and the term is the same as your mortgage.

However, both loans come with a deferred, balloon payment. This means the loan will be repaid in full once the property is sold, the title is transferred, or the property is no longer your primary residence.  

FAQs For First-Time Home Buyer Programs And Grants In Minnesota

If you have more questions about buying a home in Minnesota, the following frequently asked questions might help.

Who can I contact for questions about Minnesota housing programs and grants?

If you have questions about Minnesota housing programs and grants, you can contact Minnesota Housing by phone or email. Your mortgage lender may also be able to provide general information about programs you might qualify for.

Can borrowers with no credit scores still be approved? 

It may be possible to buy a house with no credit score, but you’ll need to prove that you’re creditworthy in other ways. For instance, you could apply with a co-signer or save up a very large down payment. But if you want to buy a house, it’s a good idea to start looking for ways to improve your credit score first.

What training and program resources are available?

Minnesota provides education courses and counseling for first-time home buyers. This is a good opportunity to get your questions answered and learn more about the process of buying a home.

Are non-occupying co-signers like parents allowed to be included?

Yes, co-signers are permitted on any Start Up loans, and they aren’t required to be listed on the title or live on the property.

The Bottom Line

Minnesota is a great place to live, especially if you enjoy living near the water. There are a lot of statewide programs and grants available to help first-time home buyers and make homeownership more affordable.

If you’re ready to get started, you can start the approval process with Rocket Mortgage^® today.