Minneapolis Minnesota

Home Buying

Advice for First-Time Homebuyers in Minnesota

December 20, 2018 | by Andrew Schmeerbauch

Minneapolis Minnesota

Are you one of the thousands looking to purchase a home in Minnesota? As a first-time homebuyer, you likely have many questions specific to buying a home in MN. If so, this is for you. Here's our best advice for first-time homebuyers in Minnesota.

What options exist for first-time homebuyers in Minnesota?

Before you begin your search for a dream home, you’ll first want to figure out what purchase price you can afford and how to pay for it. There are lots of home loans available for first-time homebuyers, and it’s important to find the one that best fits your situation. We will review programs available nationally, as well as some programs specific to Minnesota.

Traditional Loan Programs: FHA, VA, and USDA

For someone who wants to buy a home, there are many programs available to help you afford it. Some popular programs available anywhere in the country include:

  • Federal Housing Administration (FHA)
  • Veterans Affairs (VA) and
  • US Department of Agriculture (USDA)

Each of these loan programs has their own set of requirements, including minimum credit scores and down payment amounts. The VA loan also requires that you or someone in your immediate family be affiliated with the military.

Minnesota-Specific Loan Programs

In addition to these national programs, there are several programs available specifically to first-time homebuyers in Minnesota. Although the term would naturally make you think you only qualify if you’ve never owned a home, the Minnesota Housing finance agency defines a first-time home buyer as anyone who hasn’t owned a home in the past three years. This means that repeat buyers are also eligible if the right amount of time has passed.

Most of these programs are set up as payment assistance programs, helping first-time homebuyers to afford all the costs associated with a home purchase. This assistance can go toward down payments, mortgage insurance, and even closing costs.

Start-Up Mortgage

This program is meant to help first-time homebuyers to get better interest rates, as well as to provide the funds for down payments and closing cost assistance. In order to be considered for this program, in addition to being a first-time homebuyer, you must also have a credit score of at least 640 and meet the program’s income limits.

Step Up Mortgage

This program is for those buying their first home or existing homeowners who wish to refinance. Like the Start-Up mortgage program, the goal is to help with better interest rates as well as the costs associated with closing on a mortgage. One difference with this program is that it helps you to reduce or eliminate mortgage insurance costs.

Monthly Payment Loan

This program is available to all homebuyers. It provides up to $15,000 to be used toward down payment and closing costs. It is basically like a second loan in that you have a monthly payment due and you are charged interest that matches the rate of your mortgage. To qualify you must attend a homebuyer education course. You have a total of 10 years to pay back the amount you’ve borrowed.

Deferred Payment Loan

This loan program provides up to $8,000 for most borrowers. However, in order to be eligible for $10,000, at least two of the four following things must describe you:

  • You're the sole head of the household with an eligible dependent,
  • There are at least four people in your household,
  • You have a household member with a disability, and
  • You have a front-end debt-to-income ratio of 28% or higher.

This loan is special because no payments are due while you are paying your mortgage. It must be repaid in full when the home is sold, refinanced, or paid off.

Minnesota Mortgage Credit Certificates

Unlike the other loan programs discussed the Minnesota mortgage credit certificate allows homeowners to claim a sizeable amount, 35%, of their mortgage interest as a federal tax credit. This can save families a lot of money each year in taxes. Like the other programs, there are eligibility requirements such as income limits and being a first-time homebuyer.

How to Find a Home in Minnesota

Once you’ve figured out how much you can afford and what kind of loan program you want to use, you’ll begin house hunting. Thanks to the internet, there are plenty of ways to search for a home.

As a first-time homebuyer, you may wonder where to start. Websites like Realtor.com or Zillow.com will show you plenty of available homes. If you are budget conscious, it may be worth focusing your search on one of the more affordable areas in Minnesota.

Homesnacks.com analyzed the food, energy, and housing costs of 130 cities in Minnesota to find the 10 cheapest places to live. Below is a list of cities you may want to consider:

  1. Albert Lea
  2. Austin
  3. Stewartville
  4. Rochester
  5. Redwood Falls
  6. Fairmont
  7. Worthington
  8. New Ulm
  9. Waseca
  10. Glencoe

Each of these cities had a very low cost of living indexes. This is a measure calculated on the cost of housing, food, gas, health insurance, utilities, and transportation. This list is where all those things are the least expensive and where your dollar will go further when buying a home.

Happy house hunting!

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