What to know about Minnesota’s new down payment assistance programs

New state programs launched this week will help more Minnesotans buy homes, cementing Minnesota as one of the states with the most down payment assistance for prospective homebuyers.

Applications opened up Monday for a pair of programs for first-generation homebuyers. Together, the programs are offering $150 million in forgivable loans to first-time homebuyers who earn below the median income for their area, and whose parents never owned a home. 

Minnesota already offers robust down payment assistance to homebuyers who borrow money through Minnesota Housing programs, though the loans are not forgivable; the revenue generated from the loans finances more down payment assistance, meaning those programs are essentially self-funding. 

A March audit of Minnesota Housing down payment assistance programs found that Minnesota ranked among the top five states for the amount of down payment assistance provided — not including the new programs. 

What are the differences between the two new programs? 

The First-Generation Homebuyer Loan Program is exclusively for borrowers who finance their homes with a Minnesota Housing Start Up mortgage loan. Start Up mortgages are for first-time homebuyers with low or moderate income for their county — in the most expensive counties, households earning up to $142,800 per year may qualify. The First-Generation Homebuyer Loan is capped at $35,000 and may be combined with other Minnesota Housing closing costs and down payment assistance loans for a total of $53,000 in loans.

Half of the down payment assistance provided by the First-Generation Homebuyer Loan is forgiven after 10 years; the other half is forgiven after 20. If a recipient sells or refinances the house, they must pay back the balance in full.

The First-Generation Homebuyers Community Down Payment Assistance Fund is available to borrowers who do not finance their home purchase through the state. It is capped at $32,000 in assistance per household, or up to 10% of the purchase price. The loan is completely forgiven over 5 years, with 20% of the balance forgiven annually.

The two programs cannot be used together. 

Who qualifies for the programs? 

Both programs are for Minnesota residents who are first-time homebuyers and whose parents have never owned a home in any country. If a prospective buyer’s parents owned a home, but it was foreclosed, the buyer can still qualify.

At least one person listed on the mortgage must meet the above criteria. The First-Generation Homebuyers Community Down Payment Assistance Fund allows co-borrowers — any other person listed on the mortgage who will occupy the home, including a spouse — whose parents have owned a home, as long as the co-borrower has not owned a house in the past three years.

For the First Generation Homebuyers Community Down Payment Assistance Fund the following income limits apply (counting the incomes of all buyers listed on the mortgage): 

• $124,200 in Anoka, Carver, Chisago, Dakota, Hennepin, Isanti, Ramsey, Scott, Sherburne, Washington and Wright counties.
• $118,000 in Dodge or Olmsted County.
• $111,700 in all other Minnesota counties. 

Income limits for Minnesota Housing’s First-Generation Homebuyer Loan program also vary by county.

Is a borrower’s race considered as part of the application? 

No. 

DFL lawmakers have touted the programs as an important step for closing the racial homeownership gap, which is acute in Minnesota — 77% of white, non-Hispanic households own their home, while 29% of Black Minnesotans own the home they live in, according to a Minnesota Housing Partnership report.

Republicans have mischaracterized the programs on social media, implying only people of color are eligible; that is not true. 

While race is not a factor in the program applications, the existing homeownership gap means non-white Minnesotans are more likely to meet the programs’ eligibility criteria, because their parents are less likely to have owned a home compared to white homebuyers.

Income disparities also mean Black, Latino and Native American homebuyers are more likely than white and Asian buyers to fall within the income limits for the programs. The average household income for Asian Minnesotans is $98,000 per year; white Minnesotans earn around $88,000 a year; Latinos take home $68,000 per year and Black and Native American households make less than $50,000 per year.

How do I get started?

Minnesota Housing is encouraging interested applicants to reach out to a housing advisor or a mortgage lender to find out which programs you qualify for based on income, location and other eligibility criteria.

Both programs also require applicants to complete a homebuyer education class.