Minnesota First-Time Home Buyer | 2021 Programs & Grants
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What to know about buying a house in Minnesota

Buying a house can be stressful. But first-time home buyers in Minnesota have plenty of places to turn for help and even financial aid.

The North Star state can provide homebuyer education courses, counseling, and special mortgage programs.

Best of all, Minnesota can deliver down payment assistance to eligible borrowers. And that can help cover your down payment and closing costs to put you in a home sooner than you thought possible.

Verify your home buying eligibility in MN. Start here (Sep 9th, 2021)

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Minnesota home buyer overview

Home prices shot up by about 13% in Minnesota between mid-2020 and mid-2021, according to the Minnesota Realtors organization.

Such home price gains can be frustrating for first-time home buyers, whose savings goals for a down payment must increase by a similar amount.

But many of those first-time buyers will be in line for cash grants or loans from their state, city, or county that could help them bridge that widening gap. So read on for details of these down payment assistance programs.

Minnesota Home Buyer Overview
Average Home Sale Price in MN $359,700
Minimum Down Payment in MN (3%) $10,791
20% Down Payment in MN $71,940
Average Credit Score in MN1 739
Maximum MN Home Buyer Grant2 $17,000 repayment loan (Minnesota Housing) or $40,000 deferred loan (Saint Paul)

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Verify your home buying eligibility in MN. Start here (Sep 9th, 2021)

First-time home buyer loans in Minnesota

If you’re a Minnesota first-time home buyer with a 20% down payment, you can get a conventional loan with a low interest rate. And you never have to pay for private mortgage insurance (PMI).

Of course, few first-time buyers have saved enough for 20 percent down. But the good news is, you don’t need that much. Not by a long shot.

Borrowers can often get into a new home with as little as 3% or even 0% down using one of these low-down-payment mortgage programs:

  • Conventional 97 — From Freddie Mac or Fannie Mae. 3% down payment and 620 minimum credit score. You can usually stop paying mortgage insurance after a few years
  • FHA loan — Backed by the Federal Housing Administration. 3.5% down and a 580 minimum credit score. But you’re typically on the hook for mortgage insurance until you refinance to a different type of mortgage, move home, or pay off your loan
  • VA loan — Only for veterans and service members, reservists, and National Guard. Zero down payment is required. Minimum credit score varies by lender but often 620. No ongoing mortgage insurance after closing. These are arguably the best mortgages available, so apply if you’re eligible
  • USDA loan — For those on low-to-moderate incomes buying in designated rural areas. Zero down payment required. Credit score requirements vary by lender but often 640. Low mortgage insurance rates
  • Minnesota Housing — May include competitive interest rates and can be used with down payment assistance. More information below

Depending on the mortgage loan you choose, you could potentially get into your new house with minimal cash out of pocket.

These programs even let you use gifted money or down payment assistance (DPA) to cover the down payment and closing costs.

If you’re not sure which program to choose for your first mortgage loan, your lender can help you find the right match based on your finances and home buying goals.

Find the best first-time home buyer loan for you (Sep 9th, 2021)

MN first-time home buyer programs

Aside from the standard loan types above, certain Minnesota buyers may qualify for a home loan through the state.

  • The Start Up program offers first-time home buyer loans with 3% down, affordable interest rates, and income limits up to $120,600 (in 2021). Down payment and closing cost assistance are availabe
  • The Step Up program offers loans for repeat home buyers and existing homeowners. Perks are similar to the Start Up program, and refinance/purchase price limits apply

The Minnesota Housing Finance Agency (Minnesota Housing) also says it “offers several HFA conventional mortgage products that must be layered with one of our Mortgage Loan Programs, offering the reduction or elimination of mortgage insurance (MI) costs with options available up to 97% LTV.”

That’s a lot of jargon. Broken down, it simply means:

  • You could get an HFA loan through the state
  • You’d only need 3% down payment
  • Your mortgage insurance costs would be reduced, meaning you’d have cheaper monthly mortgage payments than with many other loan types

As a Minnesota first-time home buyer, expect to need a credit score of 620 or better to qualify for this program. And you’ll need to complete a homebuyer education course to be eligible.

Helpfully, Minnesota Housing provides a list of approved courses, including an online one, on its website. Just click the + symbol next to “Homebuyer education and resources.”

MN first-time home buyer grants

There are multiple home buyer grants and loans in every state. In Minnesota, you should find helpful programs at the city and county level as well as the state level. You can ask your real estate agent or loan officer to point you in the right direction.

Statewide, Minnesota Housing provides down payment and closing cost loans that can help with your upfront home buying expenses.

It has three main down payment assistance options, all of which can be used for closing costs as well:

  1. Monthly Payment Loan — Borrow up to $17,000 as a second mortgage and repay it over 10 years in parallel with your main mortgage
  2. Deferred Payment Loan — Borrow up to $11,000 at 0% APR. No monthly payments but you have to repay the loan in full when you move, sell, refinance, or finish paying down your main mortgage
  3. Deferred Payment Loan Plus — Borrow up to $15,000 at 0% APR. No monthly payments but you have to repay the loan in full when you move, sell, refinance, or finish paying down your main mortgage. This has stricter eligibility criteria than the ordinary Deferred Payment Loan

You need to use a lender approved by Minnesota Housing to be eligible for any of these. And the one you choose will tell you which, if any, you can get. Always get quotes from multiple lenders before you commit.

Verify your home buying eligibility in MN. Start here (Sep 9th, 2021)

Buying a home in Minnesota’s major cities

Home purchase prices in Minnesota’s three biggest cities haven’t been rising as quickly as in the rest of the state. Indeed, they’ve been falling recently in Minneapolis.

Each major city also has at least one down payment assistance program. And they’re all likely to have similar eligibility requirements, including that you’ve completed a home buyer education course; that you use an approved lender; and that you meet local income limits. (The smaller your income, the more you’re likely to get.) Check with the provider for other terms and conditions.

Minneapolis first-time home buyers

The median list price in Minneapolis in July 2021 was $325,000, according to Realtor.com. That actually fell -1.5% year over year.

If you want to buy a home at that median price, your down payment options might fall between:

  • $9,750 for 3% down payment
  • $65,000 for 20% down payment

The city of Minneapolis runs a range of down payment assistance programs. This can be confusing so download the program’s PDF, which explains the differences between the programs and lays out the eligibility criteria and terms and conditions for each.

The two most attractive appear to be:

  1. Minneapolis Homes: BUILD Homebuyer Incentive — Offers up to $20,000 to those who wish to buy a vacant lot and build a 1-4 unit home. This seems to be an interest-free loan with no monthly payments, which is forgiven over five years at a rate of 1/60th of the amount borrowed each month. So, by the end of the fifth year, you should own nothing
  2. Neighborhood Stabilization Program — You can get $5,000 – $17,500 if you buy an existing home rehabilitated or constructed through the Neighborhood Stabilization Program. The arrangement is similar to the other program: an interest-free loan with no monthly payments, which is forgiven over five years at a rate of 1/60th of the amount borrowed each month. So, by the end of the fifth year, you should own nothing

If neither of those appeals, you can choose from a range of other programs. But these are mostly interest-free loans that have to be repaid when you move, sell, refinance, or finish paying down your main mortgage.

Most are capped at $5,000 – $10,000, depending on your income. But much more is available if you buy a home constructed through Minneapolis Homes Development Assistance.

Saint Paul first-time home buyers

Redfin says, “In July 2021, St. Paul home prices were up 8.0% compared to last year, selling for a median price of $270,000.”

If you want to buy a home at that median price, your down payment options might fall between:

  • $8,100 for 3% down payment
  • $54,000 for 20% down payment

The city of St. Paul normally offers help to first-time home buyers. But, when we visited its website, it said: “All Downpayment Assistance funds have been reserved. No new requests are being accepted at this time.”

Of course, that may have changed by the time you read this. So click that link to see whether funds are currently available.

When it’s operating, the program offers up to $40,000 to those who are eligible, with amounts varying depending on your need. And that takes the form of an interest-free loan that falls due only when you move, sell (unless there are no “net proceeds”), refinance, or finish paying down your main mortgage. Download the full program guidelines (PDF) for all the details.

Rochester first-time home buyers

The median list price in Rochester in July 2021 was $299,900, according to Realtor.com. That was up 11.1% year-over-year.

If you want to buy a home at that median price, your down payment options might fall between:

  • $9,000 for 3% down payment
  • $59,980 for 20% down payment

First Homes is a nonprofit subsidiary of the Rochester Area Foundation. And it can provide down payment assistance either using the Minnesota Housing “Start Up” program (above) or through its own First Homes Gap Loan.

For the latter, it offers up to $10,000 to eligible buyers, but that depends on funding being available. This appears to take the form of an interest-free deferred loan. And you don’t have to repay that until you move out, sell, refinance, or finish paying down your main mortgage. Check with one of First Home’s participating lenders to see whether you’re eligible and funds are available.

Where to find home buying help in Minnesota

All the organizations we’ve listed above should provide advice freely to any Minnesota first-time home buyer or one purchasing in their local area.

In addition to our selection, the U.S. Department of Housing and Urban Development (HUD) provides a few lists for statewide, regional, and local resources.

Statewide home buyer resources in Minnesota

MN home buyer resources by county

City-level home buyer resources in MN

What are today’s mortgage rates in Minnesota?

You can see today’s live mortgage rates in Minnesota here.

When you’re ready to start the home buying process, make sure you get personalized rate quotes from at least three mortgage lenders.

Don’t just look at advertised rates online; actually apply for preapproval and compare the interest rates and fees you’re offered. That’s the only way to know you’re getting the best deal possible on your new home loan.

Verify your new rate (Sep 9th, 2021)