When I bought my first home in Minnesota back in 1986 I took out an FHA loan for $68,000 at an interest rate of 10.5%. When I started originating home loans in 1991 I was helping Minnesota first time buyers obtain FHA loans on a regular basis. About 1 in 4 of the loans I was originating back then were insured by FHA and had rates around 8%. Over the last 3 years FHA has made a dramatic resurgence and upwards of two-thirds of my borrowers are opting for FHA loans now with interest rates less than half of that when I bought my first home!

In this article you will learn some of the basic facts and benefits of Minnesota FHA loans to buy a home. (I will describe FHA for refinance loans in an upcoming article)

FHA Loans Minnesota:  Who is FHA?

The Federal Housing Administration (FHA) is the largest insurer of home mortgages in the world. Since it began helping American homebuyers in 1934 it has insured well over 30 million homes in the United States. FHA provides mortgage insurance on loans made by FHA-approved lenders throughout the United States, allowing lenders to offer mortgage loans with less than the traditional 20% down payment.

Benefits of an FHA Loan in Minnesota

The fact is that today FHA loans are not just for Minnesota first time buyers any more. With its expanded credit features and low down payment requirements, most buyers today are considering using an FHA loan to help finance the purchase of their home.

FHA Loan Down Payments

As a first time buyer in Minnesota, there are additional benefits to FHA that might be attractive as well. For example, the state of Minnesota offers special financing targeted to the first time buyer that work in combination with FHA to offer beneficial interest rates to qualified buyers. Additionally, the Minnesota Housing Finance Agency offers down payment assistance programs which are allowed through the FHA.

While these Minnesota programs have maximum income parameters, FHA loans do not have a maximum cap on income making it available to everyone. The program allows a buyer to obtain the down payment for the purchase of a home entirely as a gift or loan from a relative unlike many other types of financing.

FHA Loan Credit Requirements

There are expanded credit parameters for FHA loans in MN as well. For buyers with minimal credit or a checkered credit history, the FHA guidelines allow for an underwriter to have more understanding of how these things happened. For example and FHA loan currently allows a buyer with a bankruptcy to qualify as quickly as two years since the date of the bankruptcy discharge, provided they have re-established credit. In the case of a recent foreclosure FHA will allow a Minnesota buyer to qualify just three years later.

Employment and Income

In today’s economy many buyers may have experienced a spotty work history as well through layoffs and business closings. With FHA an underwriter can look upon these issues with a broader understanding. While a two year work history is still required, periods of extended unemployment can still be alright in many circumstances.

FHA Co-signer

Unlike most mortgage programs, you can overcome some qualifying issues through the use of a non-occupant co-signer. This used to be a popular option when I first started originating loans in the early 1990’s and has made a comeback today where parents and siblings help each other out through the process of co-signing. While a non-occupant co-signer does not overcome issues of poor credit, it can help overcome an otherwise unacceptable job history, income stream, or debt ratios.

Property types with FHA Loans

Buyers can use FHA loans for many property types such as townhomes, condominiums, or traditional single family homes. Additionally FHA allows you to buy income producing properties such as a duplex, triplex, or four-plex as long as you are going to occupy the residence. (FHA is only available to buyers who are going to live in the home they are purchasing—it is not for investment properties or vacation homes).

Read more about FHA loans in Minnesota in part 2 of this article.