Perspectives

WFJ Presents: Qualifying for a Home Mortgage as a First-Time Home Buyer in Minnesota

Looking for your first home is an exciting and overwhelming experience. Before the house-hunting begins, a first time home buyer should be aware of mortgage qualification requirements. An understanding of the process will allow you to determine whether you need to make any financial changes before applying for a loan. By taking just a few simple steps, you can vastly improve the likelihood that your mortgage will be approved.

Improve your Credit Score and Reduce Debt.
Before applying for a mortgage, improving or increasing your score may be a necessity. Your credit score indicates the likelihood that you will make full mortgage payments on time each month. Your credit score also has a bearing on the interest rate applied to your loan. Decreasing your debt is one of the most effective ways to increase your loan eligibility.

Ways to improve your credit score and decrease your monthly debt include: paying down the balance on credit cards and car loans, paying bills on time every month, refraining from opening any new credit accounts, and correcting any errors or inaccuracies on your credit report. As a general rule, you should check your credit report annually for mistakes or inaccuracies.

Save for the Down Payment.
The down payment necessary to obtain a loan can be a substantial amount depending on the price of the home and the required percentage of the purchase price. Start putting away some funds so that you don’t get hung up on the down payment.

Get Pre-Approved:
The lender will use your financial information and determine the loan amount you are approved for. After receiving pre-approval amount, it is important to keep your monthly debt in mind. Before deciding how much to spend on a home, you should complete a monthly budget. This will help determine how a mortgage payment will affect your current bills and the amount of a mortgage payment you are able to afford.

First-Time Home Buyer Programs in Minnesota:

Minnesota Mortgage Program (MMP)
MMP is designed to help Minnesotans with low to moderate income buy their first home. To meet the program requirements, applicants must be first time home buyers with acceptable credit and have an income at or below the prescribed Minnesota Housing income limits. Additionally, the home buyer must be purchasing a qualified home. A qualifying home must be in the 11 county metro and a 1-4 person household with an income under $84,000.00. If the home is outside the metro area, the income limits may be lower depending on the county.

Community Activity-Set Aside Program (CASA)
CASA is an affordable, low interest, fixed rate loan that is available to eligible homebuyers through lenders in Minnesota. In order to receive a CASA loan, the homebuyer must: 1. Be a first time home buyer; 2. Have acceptable credit; 3. Have an income at or below the prescribed Minnesota housing income limits (maximum for a 1-4 person household is $67,200.00); 4. Be purchasing a qualifying home; 5. Complete home buyer education and; 6. Apply $1,000.00 of his or her own funds to the transaction.

CASA gives the homebuyer $4,500.00 to be used towards the down payment or closing costs. CASA is a “special mortgage” because it acts as a lien against your home. However, the lien is interest and payment free. If the homebuyer sells or refinances the home, the special mortgage must be repaid.

Homeownership Assistance Fund (HAF)
HAF provides qualified homebuyers with an interest-free, deferred loan to assist with the down payment and closing costs. A Minnesota Housing approved lender will assist the homebuyer to determine if the buyer qualifies for this program. Approval should be determined prior to signing a purchase agreement. A homebuyer may be eligible for HAF if he/she is eligible for the CASA program, qualifies as an eligible target market (households of Color or Hispanic Ethnicity or pilots endorsed by the Emerging Markets Homeownership Initiative, single headed household, and household with a disability), or a has a household earning 60% or less than the area median income.

Homeowner Entry Loan Program (HOME HELP)
HOME HELP applies to eligible homebuyers who qualify for a Minnesota Housing loan. For an eligible homebuyer, HOME HELP provides an interest-free, deferred loan, with repayment of the full loan amount in the first 6 years of the loan, to assist with the down payment and closing costs. After the first 6 years, the principal of the assistance will be reduced to 30% of the initial loan amount. Up to $8,500.00 is awarded, depending on how much of the homebuyer’s payment is relative to his or her gross income.

A homebuyer may be eligible for this program if the homebuyer is spending 25% of his or her gross monthly income towards a house payment, is eligible for the CASA program, has $1,000.00 of his or her own funds towards the transaction (excluding gifts), has an income at or below HOME HELP program limits (lower than MMP and CASA limits), and qualifies as an eligible target market for one of the CASA Community Initiatives approved to offer HOME HELP.

To qualify for The Minnesota Mortgage Program your MHFA Eligibility Income must not exceed the following: