MHFA (Minnesota Housing Finance Agency): Diverse Programs for Homebuyers

The MHFA offers several programs aimed at assisting a range of homebuyers in Minnesota:

Start-Up Program:

• Target Group: Designed specifically for first-time homebuyers.

• Benefits: Provides affordable interest rates, down payment, and closing cost assistance up to $18,000. Making the initial steps of buying a home more accessible.

• Education Requirement: Includes a mandatory homebuyer education course to ensure buyers are well-prepared.

• Additional Requirements: Owner occupancy requirement, typically need a minimum FICO score of 640, income under $142,800 based on county.

Step-Up Program:

• Target Group: Suitable for repeat homebuyers or those that fall above the income requirements of the “Start-Up” program.

• Benefits: Provides affordable interest rates, down payment, and closing cost assistance up to $18,000.

• Flexibility: Available to buyers who have previously owned a home, providing a 'step-up' for their next home purchase.

• Additional Requirements: Owner occupancy requirement, typically need a minimum FICO score of 640, income under $185,700 based on county.

Both programs under the MHFA umbrella cater to different homebuyer needs, emphasizing affordability and education, and are designed to make the journey to homeownership more attainable for Minnesotans. These MHFA programs only offer down payment and closing costs loan options - they are either repaid monthly or due in full at the end of mortgage term or sale.

This DPA program is an exclusive government backed program only offered by a few lenders in the U.S

• Program Nature: The Empowered DPA Program is a 100% forgivable grant, provided at closing, designed to support homebuyers in their purchase. The grant is 100% forgiven upon closing, no re-sale requirements.

• Grant Amount: Offers a grant equivalent to either 2% or 3.5% of the purchase price, giving a significant boost towards the down payment.

• Seller Concessions: Can be combined with up to 6% seller concessions, covering closing costs and reducing the financial burden to the buyer. Note: This is not available as a conventional loan option.

• Credit Score Requirement: A minimum FICO score of 620 is necessary to qualify.

• Eligibility Criteria: There are four pathways to eligibility – only one needs to be met:

  • Be a first-time homebuyer.

  • Be an active or retired member of the military, first responder, educator, medical personnel, or civil servant.

  • Have an income equal to or less than 140% of the Area Median Income (AMI).

  • Purchase a property located in an underserved census tract.

The Empowered DPA Program is available for a LARGE range of buyers, offering significant financial assistance and flexibility.

Freddie Mac's BorrowSmart Program: First-Time Homebuyer Assistance

• Purpose: The BorrowSmart Program is designed by Freddie Mac to support first-time homebuyers in overcoming financial barriers to homeownership.

• Down Payment Assistance: This program offers a 100% forgivable upon closing down payment grant, up to a max amount of $1,500. Helping reduce the initial financial burden for eligible buyers.

• Income and Location Eligibility: Eligibility for the BorrowSmart program depends on the buyer's income level and the location of the property. It's tailored to assist buyers in specific communities and income brackets.

• Additional Benefits: Besides down payment assistance, the program offers other benefits like reduced mortgage insurance premiums, further easing the overall mortgage process for those who qualify.

• Educational Component: Freddie Mac requires homebuyer education to be eligible, ensuring buyers are well-informed and prepared for the responsibilities of homeownership.

The BorrowSmart Program is an excellent option for first-time buyers looking for some financial support and education without having to repay the assistance after closing. This helps making the dream of owning a home more attainable.

USDA and VA Loans: Government-backed loan types, both offering 0% down options

USDA Loans:

• Purpose: Specifically designed to encourage homeownership in rural areas.

• Down Payment: Offers a 0% down payment option, making it more accessible for those looking to buy in qualified rural locations.

• Eligibility: Primarily based on property location and income level, tailored to support lower-income households in rural communities.

VA Loans:

• Purpose: Aimed at helping veterans, active-duty service members, and certain military spouses to achieve homeownership.

• Down Payment: Provides a 0% down payment facility, one of its most appealing features.

• Eligibility: Requires military service qualifications and a Certificate of Eligibility from the Department of Veterans Affairs.

Both these government-backed programs are designed to make homeownership more achievable with zero down payment options, each catering to specific eligible groups with their unique benefits.

One of our lending partners is currently offering an innovative 'Conventional 1% Down Program,' and we anticipate more of our lender partners to introduce similar programs in early 2024. Here's a snapshot of how it works:

• Down Payment Structure: The lender contributes 2% towards the total 3% down payment required at closing. Your responsibility is to provide the remaining 1% from your own funds, plus any amount exceeding the lender's maximum concession of $4,000.

• Forgivable Contribution: The 2% contribution or up to $4,000 provided by the lender is completely forgivable upon closing. This means there's no second mortgage and nothing to repay.

• Credit Score Requirement: Generally, a FICO score of 620 or higher is needed to qualify for this program.

This program is a unique opportunity for those who can meet its requirements, offering a more accessible path to homeownership with a minimal down payment requirement from you!

We partner with a few lenders offering 'Second Mortgage Down Payment Assistance' programs. Here's how it works:

• Dual Mortgages: You get a second mortgage to cover the minimum down payment (3% for conventional loans, 3.5% for FHA loans). This results in two separate mortgages and payments.

• Mortgage Breakdown: The first mortgage covers the down payment (either 3% or 3.5%), while the second mortgage accounts for the remaining balance (97% or 96.5%).

• Monthly Payments: Be aware that this arrangement increases your total monthly mortgage payment. You must qualify for both payments combined.

• Credit Score Requirement: Our lender partners typically require a minimum credit score of 600 for these programs.

This option can be a viable solution for those who can manage the dual payments, offering an alternative pathway to homeownership.

In many Minnesota cities and counties, you'll find various down payment assistance or grant programs. Typically, these programs require coordination with a lender who needs to approve the specific city/county program as well as the mortgage. They often are tied to particular credit and income guidelines as well. Your application approval is needed from both the city/county program and the lender. Remember, these programs usually extend the closing timeline due to additional processing requirements. This needs to be factored into your closing date on your purchase contract which makes it important that your real estate agent and mortgage broker are working together and on the same page!

Leverage your mortgage broker's expertise to identify programs in your target areas. They can check with city/county officials to clarify guidelines for you. Let's look at some examples from the Twin Cities area:

Ramsey County "FirstHome" Program: This program aids first-time and first-generation homebuyers with low-to-moderate incomes buying in suburban Ramsey County. Some key details:

• Eligible home purchase value up to $372,600.

• First-time buyers can receive up to $20,000 with a 0% deferred interest loan, repayable upon sale.

• First-generation buyers may qualify for up to $93,150, with a maximum loan of 25% of the purchase price. This low-interest loan is forgiven at 5% per year.

Community Keys Plus Down Payment Assistance: Available in Hennepin, Ramsey, Washington, Dakota, and Anoka counties, this program offers up to $10,000 for home buying.

• The property must be located within specific census tracts in these counties to maintain eligibility.

• Buyers must contribute a minimum of $1,000 or 1% of the purchase price from their own verifiable funds.

City of Shoreview First-Time Homebuyer Down Payment Assistance Program: Exclusively for Shoreview, MN, this city program offers two types of assistance.

• For buyers at or below 120% AMI, up to $30,000 is available as a loan, repaid in monthly installments.

• Buyers at or below 80% AMI can receive $20,000 in a due-on-sale loan with 0% interest.

• The purchase price should not exceed $425,000.

• A minimum buyer contribution of at least 3% of the purchase price (up to $10,000) is required. This can include earnest money, seller-paid closing costs, gift funds, or buyer's own funds.