The BEST First Time Buyer Programs in Minnesota 2024

If you’re a first time home buyer anywhere in the great state of Minnesota, you’ll want to know The BEST First Time Buyer Programs in Minnesota 2024 so you can go from renter to successful homeowner!

What is a first time buyer program?

These programs are to purchase 1-4 unit primary residences or single family homes, townhomes, condos, manufactured homes, and multi unit homes as well. First time buyer programs are actually Conventional mortgage loans specifically such as the Fannie Mae HomeReady or Freddie Mac HomePossible programs. Which differ from regular conventional loans and FHA loans, which are also good options for first time buyers. 

In addition, first time buyer mortgage program doesn’t specifically mean down payment assistance or grants, but I’ll touch on that as well.

How do you qualify for a first time buyer program?

Technically you don’t need to a “first time buyer,” as long as you don’t have ownership in more than one finance property, or you’re buying a home with another first time buyer, or you are in-fact a first time buyer, you maybe eligible.

Income Limits for first-time buyers

You also need to be under certain income limits, which is limited to 80% of the area median income where you are buying. This can be found on the Fannie Mae of Freddie Mac websites which you can find by Googling “ami area median income tool” or something to that effect.

They’re actually pretty generous, in most of the Twin Cities, it’s currently $99,440. If you go outside of the metro area, they’re slightly lower; Duluth is $75k, St Cloud $72k, Mankato $76k, Rochester $92k.

This is qualifying income that you’re using on your mortgage application, not household income which some other programs consider. If you’re over the income limits, you can exclude things like commission, overtime, bonus, income or part-time jobs if you don’t need it to qualify .

What’s the minimum credit score for first-time buyer programs?

Conventional loans say you can go down to 620 but in reality, you typically need a 680 credit score to qualify. If you’re under 680, you have some other options, such as FHA loans which go down to a 580 minimum credit score with a 3.5% down payment.

When you apply for a mortgage, your lender will run your file the automated underwriting system or AUS to tell us if you qualify based on the information input into the system. If your file runs, you are golden because you automatically get the best rates available regardless of your credit score is 660 or 800. This is because there are no fees or what we call loan level price adjustments for low scores, the type of property, amount of down payment, etc. which there would be in a normal conventional loan scenario.

What’s the minimum down payment for first time home buyers?

You can put as little as 3% down on a 1 unity property, or 5% down on a mulit unit property. You still get the same rate and fees as if you had an 800 credit score and you were putting 25% down because there are no “loan level price adjustments” or lender fees for these programs.

What are the mortgage interest rates for first time buyer programs?

If you look online and see banks and lenders publishing rates, they’re always quoting the best case scenario, which is a single family home, 760 credit score and 20% – 25% down. This is a no fee lowest rate situation.

A lot of mortgage rate quotes online including Zillow don’t give you a quote for a 3% down loan option, which is inaccurate, also leading people to believe that’s not an option. If you’re using one of these programs putting the minimum 3% down, your rate will be close to the average 30 year fixed rate which is published on a daily basis by Mortgage News Daily, which can also be found on my website mnhomelender.com.

That’s approximate, and you can go higher or lower on your rate to change your closing costs, but if you’re calculating your monthly payment or want a general idea of where rates are, that’ll be in the ballpark.

Are there other mortgage loan options for first time buyers?

If your credit score is low, you have a lot of debt, or you’re over the income limits, your best option might be an FHA loan, which is actually a great program. There are some differences, but it doesn’t matter because if you don’t qualify for conventional, FHA is probably the next best thing.

FHA loan requirements

FHA requires a 3.5% down payment and there are no income limits in contrast to conventional first time buyer loans. If you have a lower income, low credit, higher debt ratios or if you’ve had multiple unrelated jobs in the last 2 years, FHA loans can be a good option

Second, if your credit is lower, like under 680 or 700, your mortgage insurance will be lower and your total monthly payment could be lower with an FHA loan.

You pay mortgage insurance with conventional loans too if you put less than 20% down, but you can eventually get out if it by paying your balance down, refinancing out of it, or taking a higher rate up front to git rid of it.

Down payment assistance and grants for first time buyers

If you need down payment assistance, you can get up to $18,000 regardless of the loan program you use. You can use the $18,000 for your down payment and closing costs for conventional, FHA, USDA and VA loans.

There are also grant programs available, the best ones are $10,000 or $15,000 forgivable grants that not every lender can offer. You can find more information on these DPA and grant programs here.

Your mortgage pre-approval is the first step to homeownership

You’re mortgage pre-approval is really the first step towards home ownership because you’ll know what programs you can use, how much your monthly payment will be, how much money you need and how high you can go on your purchase price.

Which makes sense because you can’t make an offer on a home for sale until you get pre-approved. Most realtors and sellers won’t waste their time unless you have a pre-approval letter from a reputable lender.

Do that ahead of time and talk to a local lender especially if you want down payment assistance or grants or if you think you might need to clean up credit issues.

Zero down payment loan programs

VA loans for military veterans, active military or reservists and USDA loans if you’re living in rural areas are both zero down loan options and great for first time buyers if they apply to you.

There are also programs out there for community workers, such as teachers, nurses, first responders, police, and firefighters.

Income limits change every summer and changes are made to these programs throughout the year. If you have questions about your specific situation, you can contact me.