Key Takeaways
- FHA loans are a flexible, government-backed option for Minnesota homebuyers with limited savings or lower credit scores
- The minimum down payment is 3.5%, and mortgage insurance is required
- FHA loans can be used for single-family or multi-unit properties
- Mortgage insurance typically lasts the life of the loan unless you refinance
- FHA loans are available statewide, from Minneapolis to rural counties
- Borrowers should compare FHA with conventional loans to find the best fit
FHA Loans MN: A Complete Guide for Minnesota Homebuyers
FHA loans are among the most accessible mortgage options for buyers across Minnesota. Backed by the Federal Housing Administration, these loans offer flexible credit requirements, low down payments, and competitive interest rates—making them a strong choice for first-time buyers, lower-income households, and those recovering from financial setbacks.
This guide explains how FHA loans work in Minnesota, who qualifies, what the costs look like, and how to get started.
What Is an FHA Loan?
An FHA loan is a government-insured mortgage designed to make homeownership more attainable. Unlike conventional loans, FHA loans are underwritten with more lenient credit and income guidelines and are protected by federal insurance, which gives lenders greater confidence in offering loans to a broader pool of applicants.
Who Is Eligible for an FHA Loan in Minnesota?
To qualify for an FHA loan in MN, applicants must meet the following core requirements:
- A minimum credit score of 580 (for 3.5% down payment)
- Stable employment and income
- A debt-to-income (DTI) ratio generally under 43%
- The home must be a primary residence
- An FHA-approved appraisal is required
- No recent foreclosure or bankruptcy (within specified timeframes)
Borrowers with credit scores between 500 and 579 may still qualify, but will need a 10% down payment.
What Are the Benefits of FHA Loans in MN?
Minnesota homebuyers often choose FHA loans for:
- Low down payment requirement – as little as 3.5%
- Easier credit score qualifications than conventional loans
- More flexibility with debt-to-income ratios
- Competitive interest rates even for lower-credit borrowers
- Assumable loan option, which may benefit sellers and buyers in the future
These benefits are particularly helpful in markets like Minneapolis, St. Paul, Rochester, and greater rural Minnesota, where affordable housing options pair well with FHA loan limits.
FHA Loan Limits in Minnesota (2025)
FHA loan limits in MN vary by county and are updated annually by HUD. As of 2025:
- Low-cost areas (majority of MN):
- 1-unit property: $498,257
- High-cost areas (select Twin Cities metro counties):
- 1-unit property: Up to $621,000
Buyers can check the exact limit for their county on the HUD website or consult with a local lender.
How Much Do FHA Loans Require for a Down Payment?
The standard FHA down payment is 3.5% of the purchase price for buyers with credit scores of 580 or higher.
For example:
- $300,000 home = $10,500 down payment
For buyers with credit between 500 and 579, FHA guidelines require a 10% down payment.
How Is FHA Mortgage Insurance Calculated?
FHA loans require two types of mortgage insurance:
- Upfront Mortgage Insurance Premium (UFMIP):
- 1.75% of loan amount, paid at closing or rolled into the loan
- Annual Mortgage Insurance Premium (MIP):
- 0.15% to 0.75% annually, depending on loan amount, term, and down payment
- Paid monthly and included in your mortgage payment
Unlike conventional PMI, FHA mortgage insurance is not credit-score dependent.
Can FHA PMI Be Removed?
In most cases, FHA mortgage insurance cannot be removed unless:
- The borrower put 10% or more down
- At least 11 years have passed on a 30-year loan
- The borrower refinances into a conventional loan after gaining 20% equity
This makes refinancing a key strategy for reducing long-term costs later.
What Are the Income Requirements for FHA Loans?
FHA loans do not have a set income minimum. Instead, approval is based on:
- Demonstrated stable income
- A reasonable DTI ratio, generally under 43%
- Ability to cover housing payments, debts, and obligations with current income
Lenders may allow exceptions with strong compensating factors (such as large savings or additional income sources).
Are FHA Loans Only for First-Time Homebuyers?
No. FHA loans are not limited to first-time buyers. They are available to:
- Repeat homebuyers
- Buyers relocating within Minnesota
- Individuals purchasing multi-family properties (up to 4 units) for owner occupancy
However, only one active FHA loan is allowed per borrower unless certain relocation or hardship exemptions apply.
Can You Use FHA Loans for Multi-Family Homes in MN?
Yes. FHA loans allow buyers to purchase 2–4 unit properties if:
- The borrower lives in one of the units
- The property meets FHA guidelines and passes inspection
- The buyer qualifies based on projected rental income and DTI
This makes FHA a smart tool for first-time investors or house hackers in Minnesota.
What Are FHA Appraisal Requirements?
FHA requires an FHA-certified appraisal to:
- Confirm the home’s value
- Ensure the property is safe, sound, and structurally secure
Homes must meet HUD’s minimum property standards, which cover issues like:
- Roofing condition
- Electrical and plumbing functionality
- Absence of lead paint or mold in older homes
- Access to clean water and heating
If the home fails to meet these requirements, repairs may be required before closing.
FHA Loans vs Conventional Loans in Minnesota
| Feature | FHA Loan | Conventional Loan |
| Minimum Credit Score | 580 (3.5% down) | 620+ |
| Minimum Down Payment | 3.5% | 3% (first-time buyers), 5% for others |
| PMI/MIP Required? | Yes (always) | Yes if <20% down, can be canceled |
| Mortgage Insurance Cancel? | After 11 years (10%+ down) or refinance | At 20% equity |
| Debt-to-Income Flexibility | More lenient | Stricter |
| Ideal For | Low credit, low savings | Strong credit, long-term savings |
How to Apply for an FHA Loan in MN
To apply for an FHA loan in Minnesota:
- Choose an FHA-approved lender like First Class Mortgage
- Complete a pre-approval application
- Submit required documents (W-2s, pay stubs, bank statements)
- Receive your pre-approval letter
- Start shopping for a home within your approved budget
Tips for Success With an FHA Loan in MN
- Improve your credit score before applying to get better terms
- Save extra funds to cover closing costs, reserves, or repairs
- Use a mortgage calculator to understand your full monthly payment
- Work with a local lender who understands FHA guidelines and property standards
Ready to Explore FHA Loan Options in Minnesota?
First Class Mortgage is licensed and experienced in helping MN buyers secure FHA financing. Whether you’re buying in the Twin Cities or rural Greater Minnesota, our team can walk you through pre-approval, MIP calculations, and closing with confidence.
Call (763) 416-6789 or schedule a call to get started today.
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