This is the real meat of this blog: I want to find all the best programs for new buyers, translate the housing jargon, and get it to you packaged all nice and clear for you to consider!
Minnesota Housing works with everything from homeless shelters to rental help and into homebuying! Start Up is their flagship program for first-time homebuyers, so let's dig into some of the requirements to qualify and how it will look when you go to buy a home. I read the whole manual so you don't have to, and here are the highlights:
- Requirements of the borrower (you):
-- 18 years or older
-- may not have owned a home at least for the 3 years prior to this loan
-- you need to intend to live in this home within 60 days of closing, and it needs to be your primary residence.
-- attend a Homebuyer Education Program. There's don't expire, so you could do it anytime! I'll do a separate blog on these, but basically, it will be a course to learn the details of buying a home - a good class for anyone to attend, and you'll get a certificate at the end to give Start Up and your lender. Home Stretch is an example of one I did years ago, as it's backed by HUD (Housing & Urban Development)
-- minimum credit score of 640, but there are options for manual underwriting if you have no score or a unique case. If you don't know your credit score, CreditKarma can give you an idea or annualcreditreport.com is the most official place to get your accurate report for free once a year.
-- DTI (or Debt-To-Income) ratio needs to be 45% or less. That means, if your income is $3,000 per month, you need combined debt payments (all your loan payments, credit card minimum payments, rent, insurance, child support/alimony, etc.) to total less than $1,350 per month (that's 3000x0.45=1350). There will be a whole other blog on debt to income, too!
-- Income limits change, so you can find the current numbers here, but it's based on your annual combined income and how many people will be in the home. For two people (you and a dependent) in the 11-county metro, the annual limit would be $117,300 for this year.
- Types of Homes You Can Buy:
-- total home price (after discounts, etc.) cannot exceed the Acquisition Cost Amount (today, in the Twin Cities, that is $372,600, and in the outstate its $349,500)
-- a single-family detached home (the most common type of "house")
-- a unit in a condo or PUD (Planned Unit Development)
-- a duplex IF you intend to live in one unit, even if you rent out the other
-- a manufactured home that is permanently affixed to a foundation and meets HUD standards
-- a modular home
-- and remember, you have to be able to live in it 60 days after closing, so not TOO much of a fixer!
- Requirements of the Loan You Take On:
-- Only certain lenders can do this kind of loan. They agree to stricter than normal industry standards to meet the state's requirements, and they adhere to things like the lower interest rate and down payment options that might not be otherwise offered in their company. This is a good thing, we just have to find a good match for someone you want to work with on this!
-- fixed interest rate
-- fully amortized over the term of the loan (no interest-only payments)
-- 15 or 30-year term
-- PMI (Private Mortgage Insurance) is required if your down payment is less than 20% of the value
-- closing costs cannot exceed a reasonable industry average, and cannot exceed the actual amount expended for outside service (appraisal, credit check, etc.) This is where some lenders will try to scam you, so this is what I mean by "higher standard" for the lenders who agree to MN Start Up!
-- secondary financing (maybe a grant or down payment assistance from your city, county, private org., etc.) needs to be disclosed and considered prior to configuring the loan
Down Payment and Closing Cost Help
These options take away the barrier of needing to save up thousands of dollars to put down. Instead, with the monthly payment loan (MPL) or deferred payment, they pay it down up front, and you pay them back over time. You can see the differences and requirements of each program here. Overall, the Deferred program is the better deal but has more requirements and limitations for the buyer.
- a minimum contribution of the buyer is $1,000 or 1% of the purchase price, whichever is less
- you have to pay it in full if you sell or refinance before the end of the loan term
Other than that, the loan expectations and terms are the same as normal AND since they're through US Bank, they offer a Hardship Policy - which I used after my divorce - to help if you eventually have a bump in the road - you lose an income or can't make payments. They help you get back on track if you get 6 months behind, but before a foreclosure. It was a godsend at a low point in my life, it's a great safety net for you to have on such a big, long-term purchase!
So that's this jist of a great program many Minnesotans use every year! I'll have a few more blog posts to dig into some of the terms here, but you can look at it all online or let me know if you have any questions!
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