Real Estate & Financial Tips

2023 Minnesota First-Time Homebuyer Programs & Grants

By Grant Edrington – Updated April 4, 2023

Are you a first-time homebuyer in Minnesota? If so, there’s good news! The North Star state offers a range of resources to help you achieve your dream of homeownership. From homebuyer education courses and counseling to special mortgage programs, Minnesota has a lot to offer. 

The rising costs of homeownership can make the dream of purchasing a home seem unattainable. That’s why first-time homebuyer programs exist: to help those who might otherwise be priced out of the market achieve their goal of owning a home. 

We’ll explore the different first-time homebuyer programs available in Minnesota and give you the information you need before you go house hunting.

Ready to see what Divvy can do for you? Explore Our Rent-to-Own Homes in Minnesota.

Shopping for your first home in another state? Check out our full first-time homebuyer program guide here.

Qualifications for First-Time Homebuyers in Minnesota

If you’re a first-time homebuyer in Minnesota and want to take advantage of down payment assistance programs, there are a few things you need to keep in mind. 

To be eligible, you’ll need to:

  • Be a first-time homebuyer or not have owned a home in the past three years.
  • Meet income limits based on the location and size of the household.
  • Have a credit score of at least 640.
  • Complete a homebuyer education course.

2023 Minnesota Homebuyer Statistics

These statistics should help give you an idea of recent homebuying conditions in Minnesota:

  • Median time homes were on the market in 2022: 43 days

Minnesota Housing’s Programs

The Minnesota Housing Finance Agency (Minnesota Housing) offers a variety of first-time homebuyer programs to help residents of Minnesota achieve their goal of homeownership. These programs include low-interest loans, down payment assistance, and other resources designed to make purchasing a home more affordable. 

While federal down payment assistance programs and federal lending options like FHA and VA loans can also be beneficial for first-time homebuyers, Minnesota Housing’s programs can supplement those options and help buyers further reduce their costs.

Start Up for First-Time Homebuyers

Minnesota Housing’s Start Up program is designed to make homeownership more affordable for first-time homebuyers in Minnesota. By offering low fixed-rate loans and down payment assistance, it can help borrowers reduce the costs associated with buying a home.

Borrower requirements:

  • Must be a first-time homebuyer (have not owned a home in the past three years)
  • Must meet minimum credit score requirements
  • Must complete a homebuyer education course (if all borrowers are first-time buyers)
  • Must meet Minnesota Housing income limits, ranging between $104,000 and $134,800, depending on household size and area

Loan options:

  • Offers low fixed-rate loans, including conventional, FHA, VA, and USDA loans
  • The Start Up conventional loan requires only a 3% down payment
  • Down payment assistance is available
  • Government-backed loans have their own down payment and mortgage insurance requirements

Property requirements:

  • Must meet purchase price limits, which are capped at between $349,500 and $372,600, depending upon county

Monthly Payment Loan for Down Payment Assistance

Minnesota Housing’s Monthly Payment Loan program is designed to help first-time homebuyers in Minnesota cover their down payment or closing costs. Buyers can borrow up to $17,000 through this program but must first qualify for the Start Up or another Minnesota Housing loan to be eligible for this assistance. 

The Monthly Payment Loan has a term of 10 years and is repaid through monthly installments at the same interest rate as the borrower’s first mortgage. 

To qualify, borrowers must meet the same requirements as the Start Up program, which includes contributing at least $1,000 of their own funds to the purchase.

Deferred Payment Loan and Deferred Payment Loan Plus

Minnesota Housing offers two types of Deferred Payment Loans to assist first-time homebuyers with down payment or closing costs. The Deferred Payment Loan program provides up to $11,000 in assistance, while the Deferred Payment Plus Loan can offer up to $15,000. To be eligible for these loans, borrowers must meet the standard requirements for a Minnesota Housing first mortgage and contribute at least $1,000 of their own funds towards the purchase.

However, Deferred Payment Plus borrowers must also meet specific “targeting criteria,” which are outlined on Minnesota Housing’s website. By providing additional assistance to those who meet these criteria, Minnesota Housing aims to promote more equitable access to homeownership opportunities for all Minnesotans.

Down Payment and First-Time Homebuyer Programs Throughout Minnesota

Minnesota offers a range of down payment and first-time homebuyer programs to help residents achieve their goal of homeownership. Local programs include Homeownership Opportunity Minneapolis and St. Paul Down Payment Assistance. These programs provide financial assistance to eligible homebuyers to help cover the costs associated with purchasing a home.

Homeownership Opportunity Minneapolis

If you’re in the Minneapolis area, you can take advantage of The Homeownership Opportunity Minneapolis program. This down payment initiative offers eligible homebuyers a 30-year loan with $10,000 in assistance for those with an annual income between 61-80% of the area median income (AMI), or $20,000 in assistance for those with an income below 60% AMI, to purchase any home in Minneapolis. 

Be aware that prior to signing a purchase agreement, you’ll need to complete financial wellness counseling. The program provides a list of financial wellness counseling agencies that applicants can choose from.

St. Paul Down Payment Assistance

Looking to live in St. Paul? The St. Paul Downpayment Assistance Program helps low- and moderate-income families become homeowners with the aim of reducing racial disparity. 

Eligible homebuyers can receive up to $40,000 for a down payment, closing costs, or inspection. First-time buyers can get up to $10,000 more, and those eligible for the Inheritance Fund may receive up to $60,000 extra. 

Bear in mind that funding is limited and provided by the Housing Trust Fund, so applications are processed on a first-come, first-served basis.

Rochester Gap Loan Down Payment Assistance

First Homes is a non-profit organization that operates under the Rochester Area Foundation. They offer down payment assistance to potential homeowners through either the Minnesota Housing Start Up program or their own First Homes Gap Loan.

If you’re eligible, you could receive up to $12,000 from the First Homes Gap Loan, but funding availability may vary. The loan is interest-free and deferred until you sell, refinance, move out, or pay off your main mortgage. 

To find out if you qualify for the program and if there are funds available, contact one of First Home’s participating lenders.

Learn How Divvy Could Make Buying Your First Home More Affordable

When looking at your options as a first-time homebuyer in Minnesota, consider Divvy. Divvy differs from these first-time homebuyer programs in that it’s a rent-to-own process that helps you make the transition from renting to homeownership if you currently can’t qualify for a more traditional route. 

Divvy allows you to live in a home and rent it before choosing to purchase, and your monthly rent can count toward your down payment if you choose to purchase the home. If you decide to purchase the home, you could also be eligible for traditional financing options for first-time buyers, or you can choose to walk away with your savings, minus a 2% surrender fee and any costs owed at lease end.

Divvy gives prospective homeowners more flexibility in their choices. You’re not locked into a mortgage or home right away and, while you’re renting and contributing to your downpayment savings, you have time to decide if this will be your “forever home.” 

Best of all, Divvy has more relaxed financial requirements for credit score and income levels which may make it easier for aspiring homeowners to qualify for the program.

Learn more about Divvy and how it works.

Note: Divvy is not affiliated with the first-time homebuyer programs mentioned in this article. Be aware that requirements for these programs may change. We recommend consulting with a lender or real estate agent when evaluating first-time home buyer programs. 

Minnesota First-Time Homebuyer FAQs

What credit score do I need to buy a house in Minnesota?

Most lenders require a credit score of 620 or higher to qualify for a conventional mortgage in Minnesota, though specific requirements can vary. A higher credit score may help you secure a better interest rate and save money over time. If you have a lower credit score, options like an FHA loan or improving your credit before applying can help. Other factors like income, debt-to-income ratio, and employment history are also considered. 

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

The amount of down payment required varies depending on the type of loan and the lender’s requirements. For conventional mortgages, the down payment typically ranges from 3% to 20% of the home’s purchase price.

For government-backed loans like FHA and VA loans, the down payment requirement may be lower, with some programs allowing as little as 0% down payment for eligible borrowers. However, these loans may have additional fees or mortgage insurance requirements.

Some first-time homebuyer programs in Minnesota offer down payment assistance or grants to help with the upfront costs of buying a home. It’s important to research and compare different loan options and programs to find the best fit for your financial situation.

What program is best for first-time homebuyers in Minnesota?

There are several programs available to first-time homebuyers in Minnesota that offer financial assistance and other resources to make the home buying process more affordable and accessible. The best program for you will depend on your individual financial situation and needs.

Programs for first-time buyers include the Minnesota Housing Start Up program, Homeownership Opportunity Minneapolis, St. Paul Down Payment Assistance, and First Homes Gap Loan offered by the Rochester Area Foundation.

Divvy is another option for first-time homebuyers in Minnesota, offering greater home selection and more flexible eligibility requirements than traditional programs.

It’s important to research and compare different programs to find the one that best fits your financial situation and goals. 

Sources:

Grant Edrington

Grant is a member of the marketing team and focuses on connecting aspiring homeowners in our metros with Divvy. He's worked on marketing teams spanning all parts of the homeownership journey, including home loans, power tools and home improvement, siding and flooring, and now Divvy. Grant graduated from Villanova University and became a homeowner in 2021.