Struggling to figure out how much you really need to put down to buy in Minneapolis? You are not alone. Between 0% options, low‑down conventional loans, and local assistance, it can feel like alphabet soup. In this guide, you will learn the key loan types, how down payment assistance works in Minneapolis and Hennepin County, and simple steps to line up the right lender. Let’s dive in.
Quick look: your down payment paths
| Loan type | Minimum down | Key notes | DPA compatible? |
|---|---|---|---|
| Conventional | 3% to 20%+ | 3% available for eligible first‑time buyers through programs like HomeReady or Home Possible; PMI applies under 20% equity and can often be removed later. | Often yes |
| FHA | 3.5% (typically 580+ score); 10% for 500–579 | Requires upfront and annual mortgage insurance; more flexible credit and DTI standards. | Often yes |
| VA | 0% for eligible service members and veterans | No PMI; one‑time funding fee applies; occupancy and COE required. | Sometimes, program rules vary |
| USDA | 0% for eligible rural properties | Income and location limits; most central Minneapolis addresses are not eligible. | Sometimes, depending on program |
Conventional loans: flexible and familiar
Conventional loans fit many Minneapolis buyers. You can put as little as 3% down if you qualify for income‑ and eligibility‑based options like Fannie Mae HomeReady or Freddie Mac Home Possible. Private mortgage insurance (PMI) applies when you put less than 20% down, and you can often remove it once you reach about 20% equity.
Lenders usually look for stronger credit profiles for the best pricing, with many starting around 620 and improving from there. Debt‑to‑income (DTI) caps often sit in the mid‑40% range, but exact limits vary by lender. If you want a path to remove mortgage insurance later, conventional is worth a close look.
FHA loans: easier credit, 3.5% down
FHA loans are designed to be more forgiving. You can put 3.5% down if your credit score is typically 580 or higher. Borrowers with scores between 500 and 579 may qualify with 10% down.
FHA requires an upfront mortgage insurance premium that is usually financed into the loan, plus an annual premium paid monthly. For smaller down payments, that monthly FHA insurance often lasts for the life of the loan. FHA can also have stricter property and appraisal standards, so plan for that inspection mindset. You can review program basics through HUD’s FHA resources.
VA loans: zero down for those who served
If you are an eligible veteran, active‑duty service member, reservist, or certain surviving spouse, a VA loan may allow zero down. There is no PMI on VA loans, which helps lower your monthly payment. A one‑time funding fee applies and is often financed into the loan.
You will need a Certificate of Eligibility and the home must meet VA appraisal and occupancy guidelines. Start by reviewing the VA Certificate of Eligibility and talk with a local lender who does a lot of VA loans in the Twin Cities.
USDA loans: zero down outside the city core
USDA loans offer zero down for eligible rural properties and income‑qualified buyers. Most properties inside core Minneapolis are not eligible, but some exurban Twin Cities areas may be. Income limits and property rules apply.
You can check property and program information through USDA Rural Development’s single‑family housing. If you want more space or a rural setting, USDA can be a strong option to explore.
Layering local assistance in Minneapolis
Local and state programs can help cover part of your down payment and closing costs. Start with Minnesota Housing, which lists state‑run down payment and closing cost assistance, approved lenders, and homebuyer education requirements. Also check Hennepin County HRA and City of Minneapolis housing programs for county and city offerings.
Common assistance formats include forgivable grants, deferred second mortgages that come due when you sell or refinance, low‑interest second loans, closing‑cost grants, and sometimes Mortgage Credit Certificates that reduce federal tax liability. Programs often require you to be within income limits tied to area median income, buy within price caps, and live in the home as your primary residence. Many also require homebuyer education or counseling.
Most assistance can pair with conventional or FHA financing, and sometimes with VA, but rules differ by program. Some programs require you to use an approved lender. Confirm compatibility early so your financing plan, contract timeline, and required classes line up.
Pros and cons at a glance
Conventional
- Pros: PMI can often be removed later, competitive rates for strong credit, broad availability.
- Cons: PMI adds to the payment under 20% down, tighter credit and income standards.
FHA
- Pros: Lower credit‑score thresholds and more flexible underwriting; 3.5% down possible.
- Cons: Upfront and annual mortgage insurance costs, property standards can be stricter, condo approvals may be limited.
VA
- Pros: Zero down for eligible buyers, no PMI, favorable terms.
- Cons: Funding fee and VA appraisal rules; limited to eligible service members and qualifying surviving spouses.
USDA
- Pros: Zero down for qualifying rural properties.
- Cons: Location and income limits; usually not applicable inside central Minneapolis.
Local/State Assistance
- Pros: Reduces cash to close, may help with closing costs, some aid is forgivable.
- Cons: Income and price caps, extra paperwork and timelines, second‑mortgage liens can affect refinance or resale.
What you actually need to bring to closing
Your down payment depends on the program: 0% for VA or USDA if you qualify, 3% for certain conventional options, 3.5% for FHA, or 5% to 20% for many conventional buyers. Plan for closing costs too, which commonly run about 2% to 5% of the purchase price unless a seller credit or grant covers some of it.
Gift funds are often allowed, especially from family, with a gift letter documenting no repayment. Ask your lender about rules for who can provide gifts and how to document deposits. If you are buying a condo or multi‑unit, expect extra review for the building or property.
For mortgage insurance, conventional PMI can often be removed when you reach around 20% equity, or it may cancel automatically at about 22% equity under certain rules. FHA mortgage insurance works differently and may remain for the life of the loan on smaller down payments. VA does not require PMI.
How to decide: three quick questions
Ask yourself the following:
Do you want the lowest upfront cash or a path to remove mortgage insurance later? If you want a path to drop MI, compare low‑down conventional to FHA.
Are you eligible for VA or USDA? If yes, compare zero‑down terms and total costs to low‑down alternatives.
Could local assistance reduce your cash to close? If you are within income limits and willing to complete education, explore state and city programs.
The right choice balances monthly payment, upfront cash, property fit, and long‑term plans. Use trusted sources like CFPB mortgage shopping resources to compare loan scenarios side by side.
Next steps: connect with lenders early
Getting preapproved with a Minneapolis‑area lender who knows local assistance programs can save you time and money. Bring two years of W‑2s or tax returns if self‑employed, recent pay stubs, bank statements, ID, and documentation of large deposits or gifts.
Ask each lender:
- Which loan products do you offer that are common for Minneapolis buyers, including conventional, FHA, VA, and USDA?
- Do you participate in Minnesota Housing or local DPA programs? Are you an approved lender for them?
- Based on my income and price target, which DPA programs might I qualify for, and what education is required?
- What are your minimum credit score and maximum DTI?
- Can you show monthly payments for 3% down conventional, 3.5% down FHA, and VA zero down if eligible, including mortgage insurance where applicable?
- What documentation is needed for gift funds, and how quickly can you close?
- What are today’s rates and fees? Can I see a Loan Estimate for an apples‑to‑apples comparison?
Also confirm changing loan limits and program rules. You can review FHFA conforming loan limits and program updates via HUD, VA, and USDA Rural Development. For state and local programs, start with Minnesota Housing, Hennepin County HRA, and City of Minneapolis housing programs.
How an agent helps you win the details
A local agent can introduce you to lenders experienced with Minnesota Housing, Hennepin County, and City of Minneapolis programs. Timing matters if a class or counseling certificate is required, so it helps to coordinate early. Your agent can also write contract terms that allow time for DPA approval and any program‑specific contingencies.
If you want a trusted introduction and a clear plan, reach out to Warner Group. We will connect you with vetted local lenders, help you compare scenarios, and keep your timeline on track. Book an Appointment when you are ready to move.
FAQs
Can you combine a conventional or FHA loan with Minneapolis down payment assistance?
- Often yes. Program rules and lender participation vary, so verify compatibility with your lender and the program administrator early in the process.
Are there programs that forgive the down payment second mortgage?
- Yes. Many local programs use forgivable seconds that are forgiven after a period of owner‑occupancy. Always confirm the forgiveness timeline and any recapture rules.
Will down payment assistance make it harder to refinance later?
- Sometimes. Deferred seconds can stay on title until paid, sale, or refinance, while others amortize or forgive. Review the program’s lien and payoff rules before you commit.
Where can you verify if a property near Minneapolis is USDA‑eligible?
- Check the USDA eligibility maps on the USDA Rural Development site. Most addresses inside central Minneapolis will not be eligible.
When can you remove PMI on a conventional loan?
- You can often request PMI removal when you reach about 20% equity, and many loans cancel it automatically near 22% equity under certain conditions. Confirm your lender’s process.
