Breaking down homeownership barriers

Buying a home is one of the most consequential financial decisions most people will ever make, with repercussions that extend well beyond providing a roof over their heads.

Data from the Federal Reserve proves the point: The median net worth of U.S. homeowners is $255,000, while renters hover down around $6,300.

Surveys show that nearly 40% of Americans who don’t own their homes report a lack of savings for down payment as a primary reason.

To unlock homeownership and help Minnesotans build wealth, the state created a three-year $150 million fund in 2023 to provide down payment assistance to first-generation homebuyers. The fund is set aside for people who’ve never owned a home and whose parents never owned a home—or those who lost their home to foreclosure. 

The program was designed to help close racial disparities in homeownership rates across the state. It operates on a first-come, first-served basis until the money runs out.

Nationally, only 44% of Black individuals own a home, compared to nearly 73% of white individuals—a vestige of discriminatory housing practices such as redlining and blockbusting. In Minnesota, the disparity is even greater.

Data from the Prosperity Now Scorecard—a comprehensive resource featuring data on family financial health and racial economic inequality—found that 77.5% of white households in Minnesota own their homes, compared to just 30.5% of Black households. That disparity is even more pronounced in the Twin Cities metro area.

The downpayment assistance program has restrictions, but it is easy to navigate with help from groups like the Minnesota Homeownership Center.

“The focus on first-generation homebuyers was intentional, as this is the group least likely to have financial help from their parents or relatives in making that downpayment,” said Bill Gray, stakeholder relations director with the Minnesota Homeownership Center. “We keep it simple for consumers. Yes, you have to go through a specific set of hoops, but it’s designed to be easy and reliable.”

Program basics

Before applying for funds, people must sign a First-Generation Homebuyer Affidavit, a legal document confirming their qualifications. If someone knowingly misrepresents their eligibility, they are committing mortgage fraud.

At least one buyer must be a First-Generation Homebuyer and a resident of Minnesota. All other buyers (co-borrowers) must be first-time homebuyers, meaning they haven’t owned a home in the last three years. Non-occupant co-borrowers and co-signers are not allowed.

The total income of all buyers (everyone listed on the mortgage loan) must be at or below:

• $124,200 for buyers currently living in the 11-county Twin Cities Metro (Anoka, Carver, Chisago, Dakota, Hennepin, Isanti, Ramsey, Scott, Sherburne, Washington, and Wright counties);
• $117,200 for buyers living in Dodge or Olmsted counties;
• $111,800 for buyers living in any other Minnesota county.

First-generation buyers must have completed an approved homebuyer education workshop within the last year. Eligible recipients can receive up to 10% of a home’s purchase price, capped at $32,000.

Down payment assistance is essentially a zero-interest loan, forgiven over five years (20% each year) as long as the first-generation buyer lives in the home as their primary residence.

Participants can purchase a one- or two-unit home anywhere in Minnesota, but the program sets limits for the maximum purchase price. In the 11-county metro, a one-unit home cannot cost more than $515,200, and a two-unit home cannot cost more than $659,550.

There are several things you need to do before applying to the program:

• You need to be pre-approved for a fixed-rate mortgage from the lender of your choice. Sharia Compliant and Individual Taxpayer Identification Number (ITIN) mortgages are accepted.
• While not required, you can enlist a Homebuyer Advisor to assess your mortgage readiness and create a personalized road map to securing a low mortgage interest rate. These services are free and available to anyone in Minnesota.

Applications are accepted on a first-come, first-served basis. Being accepted into the program does not guarantee that you will receive funds. Once this process is complete, approved applicants will have funds reserved for 90 days.

The First-Generation Homebuyers Community Down Payment Assistance Fund is different from Minnesota Housing’s First-Generation Homebuyer Loan Program. The programs cannot be used together. Both are funded by the state, and the goal of the programs is to help more first-generation homebuyers access homeownership.

“The program was put together to have the greatest impact on reducing the racial homeownership gap in Minnesota,” Gray said. “We hope that the results speak for themselves —and will lead to continued investment in the program.” 

For more on Minnesota’s First-Generation Homebuyers Community Down Payment Assistance Fund, go to www.firstgendpa.org.

Cynthia Moothart welcomes reader responses to cmoothart@spokesman-recorder.com.