How Your Down payment works when you buy your Minnesota home
When you search Minnesota houses for sale you’ll want to know if you can get pre-approved and for how much, like what’s the price point.
Once you know those numbers more accurately you can know what your down payment is that’s needed and then add earnest money, inspection and appraisal to the list of other expenses.
As far as how much money you need upfront of course the sales price and pre-approval matter when you are doing the math, but how you buy the home matters a lot as well. Examples are owner financing and the loan programs with the lenders.
In general, the worse your credit the fewer options that you have and the higher a risk you are seen as by a bank or home seller, so start saving your money every week.
Minnesota Home buying program types
Figure out the down payment amount for each of the 3 programs below. When you use these 3 programs it’s not very much upfront or even zero in some cases.
If you buy with seller financing such as a Minnesota contract for deed or on a lease option (rent to own), or if you get a VA loan, USDA, an FHA loan, or bank loan with really poor credit all will require different amounts upfront or down payments.
VA and USDA government subsidized type of programs offer 100% with pretty low credit scores for those I’ve seen here in Minnesota. The USDA program has been tougher as lending has started to tighten some.
FHA has required a 3.5% down payment for awhile which is still pretty low, comparable to 1st months rent plus deposit.
FHA has allowed buyers to qualify with only a 580+ credit score and it did briefly go up to 660+ when the lending got tighter in the spring of 2020, but a few mortgage brokers still allow as low as a 580+ credit score to get qualified with the 3.5% down payment.
Lease option could be 1st months rent, deposit and $5000 to $10,000 option money, for the Minnesota home seller to consider a price and selling the property.
If you want an agent to help you find the property and do all of the negotiating and show houses etc. don’t think of option money as a down payment because it’s usually non-refundable, but applied to your Minnesota home purchase IF you eventually purchase with bank refinancing, or a new purchase finance situation.
As far as you having really poor credit, like in the low 500’s with a bank or going with a contract for deed you are looking at 10% to 20% for a down payment to be allowed to buy, as the lender or Minnesota homeowner will see you as higher risk.
Past credit issues and applying for a Minnesota home to buy
If you have a Minnesota foreclosure, short sale, bankruptcy or loan modification in the past 3 years, in general it will be hard for you to get bank financing.
A big enough down payment may get something unconventional or get you a contract for deed.
It’s common for those with hard to document income, or hard to source down payments, or self-employed buyers to choose owner financing. Banks usually wait years to allow for qualifying with some of the major stuff. No recent taxes can delay your pre-approval also.
Time usually helps your situation if you continue to save money, pay your bills on time and pay down your balances.
Seller financing without banks is very popular for those Minnesota home buyers who still want an opportunity to own a home and build equity.
Your large down payment increases your options of homes available to you, protects the seller more and will save you on interest.
It could also make refinancing easier in the future as your loan to value with the refinance appraisal will be lower and easier to qualify even with a lower credit score.
Reach out and find out what options you have to qualify for with your current job, income, and down payment.
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