Using the Step Up Program for Refinancing in Minnesota

Using the Step Up Program for Refinancing in Minnesota

If you already own a home in Minnesota and are looking to reduce your monthly mortgage payment, tap into your equity, or purchase a new home with advantageous financing, the Step Up program from Minnesota Housing Finance Agency could be your ideal solution. This often-overlooked program provides competitive rates and unique benefits specifically designed for homeowners who have moved beyond first-time buyer status.

What Is the Step Up Program?

The Step Up program is Minnesota Housing’s mortgage product for repeat homebuyers and existing homeowners. Unlike the Start Up program that targets first-time buyers, Step Up recognizes that experienced homeowners also need support in achieving their housing goals—whether that’s refinancing their current home for better terms or purchasing their next property.

The program offers below-market interest rates on both purchase and refinance transactions, helping Minnesota residents build wealth through homeownership while keeping housing costs manageable.

Step Up Refinancing Options

Rate-and-Term Refinance

A rate-and-term refinance allows you to replace your current mortgage with a new Step Up loan at a lower interest rate or different term length. This option is ideal when:

• Current market rates are lower than your existing mortgage rate
• You want to switch from an adjustable-rate mortgage (ARM) to a fixed-rate mortgage
• You’d like to shorten your loan term (e.g., from 30 years to 15 years) to build equity faster
• You want to eliminate private mortgage insurance (PMI) after reaching 20% equity

Benefits:

• Potentially lower monthly payments
• Reduced interest costs over the life of the loan
• Greater payment predictability with fixed-rate options
• Access to Minnesota Housing’s competitive below-market rates

Cash-Out Refinance

A cash-out refinance lets you borrow against your home’s equity while refinancing into a Step Up mortgage. You can use the funds for:

• Home improvements and renovations
• Debt consolidation
• Education expenses
• Emergency reserves
• Other financial goals

Key Details:

• Available up to 95% loan-to-value (LTV) ratio
• Competitive interest rates on the entire loan amount
• Fixed-rate stability for long-term planning
• Must meet program income and loan limits

Step Up for Home Purchase

Beyond refinancing, the Step Up program shines when you’re ready to purchase your next home. Whether you’re upsizing for a growing family, downsizing for retirement, or relocating for work, Step Up offers:

Competitive Financing:

• Below-market interest rates on conventional, FHA, VA, and USDA loans
• Fixed-rate mortgages for payment stability
• Flexible loan terms to match your financial goals

Down Payment Assistance:

When purchasing with Step Up, you can access the Monthly Payment Loan:

• Borrow up to $18,000 for down payment and closing costs
• Repaid over 10 years with monthly payments
• Interest rate matches your first mortgage rate
• Helps reduce upfront cash requirements

Eligibility Requirements

For Refinancing

Basic Qualifications:

• Minimum credit score of 640
• Must meet income limits for your county
• Property must be your primary residence
• Current mortgage must be in good standing
• Sufficient equity for the transaction type

Income Limits:

Income limits vary by county and household size. In the Twin Cities Metro Area, limits typically range from approximately $105,000 to $160,000 depending on household size. Greater Minnesota counties often have different thresholds reflecting local economic conditions.

Property Requirements:

• Must be a 1-4 unit property
• Must be located in Minnesota
• Must meet minimum property standards
• Property value must fall within program loan limits

For Home Purchase

Qualifications:

• Minimum credit score of 640
• Must meet income and purchase price limits for your county
• Complete homebuyer education (recommended but may not be required for repeat buyers)
• Must contribute funds toward the purchase
• Property must become your primary residence

Important Note: Unlike the Start Up program, Step Up does not require you to be a first-time homebuyer. If you currently own a home or have owned one within the past three years, you’re still eligible.

Income and Loan Limits for 2025

Limits are established based on your county and household size, updated annually to reflect market conditions.

Twin Cities Metro Area

Income Limits:

• Smaller households (1-2 people): Approximately $105,000
• Larger households (3+ people): Up to $160,000 or higher

Loan Limits:

• Purchase price limits typically range from $450,000 to $550,000
• Vary by county within the metro area

Greater Minnesota

Income Limits:

• Generally range from $85,000 to $125,000 depending on location and household size

Loan Limits:

• Purchase price limits reflect local market conditions
• Typically more affordable than metro area limits

Pro Tip: Contact a participating lender for exact limits in your specific county, as they can vary significantly across Minnesota’s 87 counties.

The Step Up Refinancing Process

Step 1: Evaluate Your Current Situation

Before beginning the refinance process, assess:

• Your current interest rate vs. available Step Up rates
• How long you plan to stay in your home
• Your refinancing goals (lower payment, shorter term, cash out)
• Current home value and equity position

Step 2: Check Your Credit

Review your credit report for accuracy and ensure your score meets the 640 minimum. If needed, take time to improve your credit before applying by:

• Paying down credit card balances
• Correcting any errors on your credit report
• Avoiding new credit applications
• Making all payments on time

Step 3: Connect with a Step Up Approved Lender

Not all lenders participate in Minnesota Housing programs. Work with a lender experienced in Step Up refinancing who can:

• Accurately calculate your income eligibility
• Explain all available options
• Navigate the program requirements efficiently
• Provide competitive rate quotes

Step 4: Gather Required Documentation

Be prepared to provide:

• Recent pay stubs (last 30 days)
• W-2 forms (past 2 years)
• Tax returns (past 2 years)
• Bank statements (past 2 months)
• Current mortgage statement
• Homeowners insurance information
• Property tax information

Step 5: Submit Your Application

Your lender will:

• Complete a full loan application
• Order a home appraisal (if required)
• Submit your file to Minnesota Housing for approval
• Coordinate with the title company
• Schedule your closing

Step 6: Close on Your New Loan

At closing, you’ll:

• Sign final loan documents
• Pay any required closing costs (which may be financed)
• Receive your new loan terms and payment schedule

Most refinances close within 30-45 days of application.

Benefits of Step Up Refinancing

Financial Advantages

• Lower Interest Rates: Minnesota Housing programs typically offer rates 0.25% to 0.75% below conventional market rates, translating to substantial savings over time.
• Reduced Monthly Payments: A lower interest rate or extended loan term can significantly decrease your monthly housing costs, freeing up cash flow for other priorities.
• Long-Term Savings: Even a small rate reduction compounds over the life of your loan. For example, reducing your rate by just 0.5% on a $300,000 mortgage could save you over $30,000 in interest over 30 years.

Stability and Security

• Fixed-Rate Protection: Lock in a stable rate and payment, protecting yourself from future interest rate increases.
• Predictable Budgeting: Fixed monthly payments make long-term financial planning easier and more reliable.
• Equity Building: Lower interest means more of each payment goes toward principal, helping you build equity faster.

Flexibility for Life Changes

• Access to Equity: Cash-out refinancing provides funds for important expenses without taking on high-interest debt.
• Debt Consolidation: Consolidate higher-interest debts into your lower-rate mortgage, potentially saving thousands annually.
• Home Improvements: Finance renovations that increase your home’s value and improve your quality of life.

When Does Step Up Refinancing Make Sense?

Ideal Scenarios

• Interest Rates Have Dropped: If current rates are at least 0.5% to 0.75% lower than your existing rate, refinancing often makes financial sense.
• You Have an Adjustable-Rate Mortgage: Converting to a fixed-rate Step Up loan provides payment stability and protection from rising rates.
• Your Credit Has Improved: Better credit since your original purchase may qualify you for a lower rate.
• You Want to Eliminate PMI: Reaching 20% equity through appreciation or payments may allow you to refinance without PMI.
• You Need to Consolidate Debt: High-interest credit card or other debts could be consolidated at your lower mortgage rate.

Considerations Before Refinancing

• Break-Even Analysis: Calculate how long it will take for monthly savings to offset closing costs. If you plan to move before breaking even, refinancing may not be advantageous.
• Closing Costs: While often lower than conventional refinances, Step Up refinancing still involves costs. Consider whether you’ll pay these upfront or finance them into your loan.
• Loan Term Reset: Refinancing to a new 30-year mortgage extends your payoff date. Evaluate whether a shorter term or making extra payments makes sense for your goals.
• Prepayment Penalties: Check your current mortgage for any prepayment penalties that could reduce refinancing benefits.

Combining Step Up with Other Programs

One of the Step Up program’s advantages is its compatibility with other assistance:

• Local Down Payment Assistance: When purchasing your next home with Step Up, you may combine the program with city or county down payment assistance programs.
• VA Benefits: Veterans can use Step Up for VA loans, accessing both Minnesota Housing’s low rates and VA loan benefits like zero down payment.
• FHA Streamline Refinance: If you currently have an FHA loan, you might combine FHA streamline benefits with Step Up advantages.
• Energy Improvement Programs: Some lenders can help you access additional financing for energy-efficient improvements when refinancing.

Common Questions About Step Up Refinancing

Q: Do I need to take homebuyer education to refinance?

A: Generally, homebuyer education is not required for refinancing your current home. It may be recommended if you’re purchasing your next home with Step Up, but requirements are less strict for repeat buyers.

Q: How long do I need to wait after my last refinance?

A: While there’s no mandatory waiting period for conventional refinances, lenders typically prefer at least 6 months have passed since your last refinance. Some loan types have specific seasoning requirements.

Q: Can I refinance if I owe more than my home is worth?

A: Standard Step Up refinancing requires equity in your home. However, other programs may be available for underwater mortgages. Discuss options with your lender.

Q: Will refinancing affect my property taxes?

A: Refinancing itself doesn’t change your property taxes. However, if you escrowed taxes with your previous lender, you’ll need to set up a new escrow account.

Q: How much does Step Up refinancing cost?

A: Closing costs typically range from 2% to 5% of your loan amount, though they’re often lower than conventional refinances. Many borrowers choose to finance these costs into their new loan.

Why Choose Step Up Over Conventional Refinancing?

Rate Advantage

Minnesota Housing’s mission-driven approach means Step Up rates are consistently below market rates. This isn’t a temporary promotion—it’s a structural advantage that saves you money throughout your loan term.

Accessibility

With reasonable credit requirements (640 minimum) and income limits that accommodate middle-income households, Step Up serves Minnesotans who might be offered less favorable terms elsewhere.

Mission Alignment

By choosing Step Up, you’re working with a program designed to support Minnesota homeowners and communities, not maximize lender profits.

Expert Support Network

Participating lenders specialize in these programs and can navigate requirements efficiently, often resulting in smoother transactions than conventional refinances.

Take Action on Your Refinancing Goals

Whether you’re looking to lower your monthly payment, access your home’s equity, or purchase your next property with favorable financing, the Step Up program offers Minnesota homeowners a powerful tool for achieving their goals.

The key to maximizing Step Up benefits is working with a lender who thoroughly understands the program and can structure your refinance optimally.

Ready to explore whether Step Up refinancing is right for you? Contact First Class Mortgage today for a personalized refinancing analysis. Our team specializes in Minnesota Housing programs and will:

• Calculate your potential savings from refinancing
• Compare Step Up rates against your current mortgage
• Determine your eligibility and loan options
• Explain all costs and break-even timelines
• Provide a clear recommendation based on your specific situation

Don’t leave money on the table by paying more than necessary. Call First Class Mortgage now. Our Minnesota mortgage experts are ready to help you make the smartest decision for your financial future in 2025.