Minnesota Housing down payment assistance fund is tapped, but other support remains

Dec. 29—ROCHESTER — First-time Minnesota homeowners have exhausted $50 million in down payment assistance within eight months.

The Legislature made the funds — part of a $1 billion housing bill passed in 2023 — available to Minnesota Housing to support first-time homebuyers, who are less likely to have generational wealth to tap.

MyKitta Davis, a Three Rivers Community Action homeownership adviser, said the assistance has been crucial for homebuyers needing to provide a downpayment with limited incomes.

“I think we live in a world now where down payment assistance is probably used in 50% of the homes,” she estimated.

While home loans can be secured with a 3% down payment, Davis pointed out that anything less than 20% requires mortgage insurance, which adds to the monthly home cost.

Additionally, the competitive housing market means paying more than the minimum downpayment could boost the chances that an offer will be accepted.

While Minnesota Housing’s first-generation homebuyers program appears to be tapped after assisting approximately 1,500 households throughout the state, it is not the only support available.

State funding also helped create a $100 million First-Generation Homebuyers Community Down Payment Assistance Fund, which launched in June.

Since its June launch, the program has supported 351 new homeowners and another 240 are shopping for their first homes, with 75% of the funds remaining available.

Overseen by Detroit Lakes-based Midwest Minnesota Community Development Corp., the statewide program offering up to 10% down payment support was created to help reduce Minnesota’s racial homeownership gap, with 88% of distributed funds going to BIPOC households.

Providing up to $32,000 in a forgivable loan, it is open to all prospective first-generation homebuyer households in Minnesota with earnings at or below 100 percent of the area median income, regardless of race. However, the reality is that more BIPOC residents qualify as first-generation homeowners without the support equity built through past ownership.

The racial gap among homeowners in Olmsted County is one of the nation’s largest, with only 22% of black households having achieved homeownership, while 77% of white households own their own homes.

Three Rivers is working with the Coalition for Rochester Area Housing in efforts to address that gap, pairing mentors with aspiring homeowners to address challenges that frequently face people of color and new immigrants when it comes to buying a house.

“Over half of the people that were in mentorship have either closed, are pending with pre-approval or are almost on that path,” Davis said of the first group of 20 participants.

She said down payment assistance is a big part of that effort, so continuing paths to new programs will be important for future efforts, especially since many support programs can be stacked to meet the needs created by a challenging market, where the size of a down payment can determine whether an offer is accepted.

“We have been able to work with lenders who are experts at stacking the down payment assistance to help that client get their payments lower,” Davis said of helping clients be more competitive.

While the state-funded programs couldn’t be stacked, Minnesota Housing Commissioner Jennifer Ho said both have been playing their part in helping create new homeowners.

With one fund depleted, she said it’s unclear whether additional financial support will be seen this year, since the combined $150 million in state assistance was seen as one-time funding when approved by the Minnesota Legislature.

With a nearly even split in the upcoming legislative session, she said her department will work with lawmakers to define the best path and policies to address housing needs, which includes down payment support, as well as addressing housing shortages throughout the state.

“Hopefully, we can really get a shared idea of what the right strategic investments are,” she said. “The housing shortage isn’t going away, and we’ve seen how housing prices really drove a lot of inflation. The cost of housing was a big part of that, and it doesn’t go away as long as there’s a shortage.”

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