First-Time Homebuyer Programs in Minnesota

The down payment on a new home often presents the biggest hurdle for first-time homebuyers. In Minnesota, with an average home value of $334,240, you would need a down payment of $66,848 to avoid private mortgage insurance.

Fortunately, Minnesota has first-time homebuyer programs to help achieve homeownership. There are also mortgages that allow first-time homebuyers to put less down on a home, but these usually have income requirements and require mortgage insurance. MoneyGeek explores several state-specific and government-backed first-time homebuyer programs for people from different financial backgrounds.

Minnesota offers grants and loans to assist first-time homebuyers in covering both down payment and closing costs. We have compiled the first-time homebuyer programs the Minnesota Housing Finance Agency (MHFA) provides to help you find the best option for your needs and situation.

The Start Up program, offered by Minnesota Housing, is designed for first-time homebuyers, helping them achieve homeownership with affordable mortgage options. It offers income-based limits, and buyers can access down payment and closing cost loans of up to $53,000. The program requires at least one borrower to complete a homebuyer education course. Maximum purchase price limits apply, with different thresholds for the 11-county Metro area and the rest of the state.

Minnesota Housing’s Step Up program is designed for repeat homebuyers and first-time homebuyers who exceed the income limits for Start Up. It provides affordable mortgage financing with options for down payment and closing cost loans of up to $18,000. This program allows borrowers to purchase homes or refinance existing mortgages. The Step Up mortgage has income limits of up to $185,700 and maximum home purchase price limits of $659,550 in the Metro area and $637,950 in other counties.

The First-Generation Homebuyer Loan Program offers up to $35,000 in assistance for down payment and closing costs to first-generation homebuyers. This assistance is provided as a deferred, interest-free and forgivable loan, with 50% forgiven after 10 years and the remainder after 20 years if you stay in the home. To qualify, you must pair this loan with a Start Up First Mortgage. Keep in mind that funds are limited and distributed on a first-come, first-served basis.

Aside from statewide first-time homebuyer programs in Minnesota, city-specific programs are also available to help you pursue homeownership in your chosen city. Check out the table below for some of the cities in Minnesota that provide first-time homebuyer programs for potential residents.

In Minnesota, zero-down-payment loan programs allow you to purchase a home without putting money down. USDA and VA loans are two examples of government-backed loans with no down payment.

USDA loans assist homebuyers in rural areas, providing an opportunity for affordable homeownership. Issued through the USDA loans program by the U.S. Department of Agriculture, these loans aim to support individuals and families in rural communities.

USDA loans offer several benefits, including zero down payment options, competitive interest rates and reduced mortgage insurance costs. These loans are geared towards those who may not qualify for conventional financing, making homeownership more attainable for many in rural areas.

Certain criteria must be met to qualify for a USDA loan. The property must be 2,000 square feet or less and located in a USDA-eligible rural area with a population under 35,000. Additionally, there are income limits based on location. For instance, in Douglas County, MN, the income limit is $77,700, whereas in Goodhue County, MN, it is $85,350 for a four-person, low-income household.

VA loans are a unique mortgage option offered by the U.S. Department of Veterans Affairs. These loans assist veterans, active-duty service members and eligible surviving spouses in purchasing homes. VA loans provide several benefits, making homeownership more accessible for those who have served the country.

VA loans offer a variety of advantages, including the absence of a down payment requirement, which can significantly lower the initial cost of purchasing a home. Additionally, these loans do not require private mortgage insurance (PMI), further reducing monthly payments. Borrowers also benefit from lower interest rates compared to conventional loans. In Minnesota, the current APR for a 15-year fixed-rate VA loan is 6.29%, while a 30-year fixed-rate VA loan stands at 6.36% as of November 2024.

To qualify for a VA loan, you must meet specific eligibility criteria. These include your length of service or service commitment, duty status and character of service. Additionally, you must meet certain income limits based on your location. A valid Certificate of Eligibility (COE) is also required to apply for a VA loan.

First-time homebuyers in Minnesota can take advantage of low-down-payment loan programs that allow them to finance their home with a down payment of 3.5% or less. These programs include conventional, FHA and FHA 203(k) loans.

FHA loans and conventional loans are often compared as they are the two most common types of mortgages. FHA loans require a minimum down payment of 3.5%, while conventional loans require as low as 3% for first-time homebuyers. Conventional loans generally have stricter credit score and debt-to-income ratio requirements than FHA loans.

In terms of interest rates, the current APR for a 15-year fixed-rate conforming loan in Minnesota is 6.08% as of November 2024. In contrast, the current APR for a 15-year fixed-rate FHA loan is 8.10%. APRs on FHA loans can be higher because there tend to be more fees and extra costs associated with borrowing money on government-backed loans.

You can use our FHA vs. conventional loan calculator below to help compare FHA and conventional mortgage programs and determine the best option for you.

We answered frequently asked questions about first-time homebuyer programs in Minnesota to help you determine the best option and get closer to homeownership.

Explore additional MoneyGeek resources for first-time homebuyers in Minnesota to help you with the homebuying process.