Buying a home comes with many different expenses that need to be considered. What is your overall price range? What kind of monthly payment are you comfortable with? Are there closing costs to consider? How much money should you have in savings in case updates or repairs are needed? And when it comes time to think about buying your first home, some of the biggest questions are about the down payment.
A down payment is the amount of money paid towards the purchase price of the home at the time of purchase. Most home mortgages require a down payment. It is typically a certain percentage of the entire loan. Many buyers will find 20% to be the customary down payment associated with the average mortgage. But there are some mortgage options for homebuyers that don’t require a large down payment.
Down Payment Options for Buying Your First Minnesota Home
Down payment assistance options in Minnesota include getting a zero down payment mortgage from a bank, a USDA loan, down payment assistance, or a loan from Twin Cities Habitat for Humanity’s mortgage company, TCHFH Lending, Inc. Here is a closer look at some of your options:
Zero Down Payment Mortgage
A zero down payment mortgage is a loan to buy a home that does not require any money down at the time of purchase. This type of loan is not very common. Not many people are able to qualify for a zero down payment mortgage. Qualifications include things like a very high credit score, income requirements, and proven ability to repay the loan. Many banks do not even offer zero down payment loans.
The USDA Rural Development Guaranteed Housing Loan Program provides zero down payment loans for low- to moderate-income families in suburban and rural areas. A USDA loan allows buyers to finance 100% of their home purchase and provides access to lower than average interest rates. Loans are received through a bank and backed by the USDA. The purpose of these loans is to help get people into safe, clean housing who otherwise would not be able to secure a loan. USDA loans include many eligibility requirements.
Minnesota Housing Finance Agency
If you get a mortgage from Minnesota Housing, you can get some help with your down payment, to the tune of $15,000! On top of that, as a first-time homebuyer, you can qualify for their Start Up program. As long as you meet the right financial criteria, you can receive an extra loan of up to $10,000.
There are various counties and cities within the Twin Cities metro area that provide some level of assistance with a down payment on a house in their area. So, if you’re looking to buy a house, check with the cities and counties where you’re searching to see what they have to offer. In the meantime, here are some examples to give you an idea of the types of city- or county-specific assistance that exists in the Twin Cities market:
- Ramsey County FirstHOME. To help out with keeping your monthly housing cost down to 30% of your income, you can receive up to $10,000 as a first-time homebuyer on a Ramsey County house at zero interest. According to their website, “This principle-only subordinate mortgage must be repaid when the property is sold.” Learn more about eligibility requirements.
- City of Woodbury. If you’ve not owned a home in the past 3 years, you could qualify for a low interest loan of up to $25,000 from the City of Woodbury on a Woodbury home! The loan can be used for down payment or closing costs and the home cost cannot exceed $390,000. Learn more about the low-interest loan.
TCHFH Lending, Inc.
Twin Cities Habitat for Humanity's mortgage company, TCHFH Lending, Inc., provides mortgages to low- and moderate-income households across the seven-county metro area. The mortgage can be used on a Habitat-built home or a home found on the open market. This allows homebuyers to select the perfect house to meet their needs.
A mortgage from TCHFH Lending, Inc. can be for a maximum of 96.5% of a home’s value or purchase price. Twin Cities Habitat for Humanity has funding or down payment assistance available to help fill that additional 3.5% gap, so it doesn’t always need to be provided by the borrower as a down payment. Some savings are still needed—in fact, it's required to have at least $6,300 in savings, which is used toward up to $3,000 of closing costs and your first year’s homeowner’s insurance policy, and leaves you with some money in reserves. Other benefits of a mortgage from TCHFH Lending, Inc. include an affordable monthly housing payment set at no more than 30% of gross income, and no mortgage insurance.
Benefits of a Down Payment
Being able to put a small amount of money down towards the purchase of a home helps to bring down the monthly payment. This also means the overall amount of interest paid over the course of the loan will be lower.
Taking the step to become a homeowner is exciting. While looking at loan options can seem complicated, there are many organizations, like Twin Cities Habitat for Humanity, available to provide assistance. Thoughtful planning and preparation can help make the process a success.