MN Partially Deregulates Business-Purpose Residential Mortgage Loans

The enactment of Minnesota House File (HF) 3437 clarifies that certain consumer residential mortgage lending protections will not apply to purchase money, first lien, or debt service coverage ratio (DSCR) residential mortgage loans made for investment purposes, where the property is not occupied by the borrower, guarantor, or cosigner, and the seller will not occupy the property post-closing.  Specifically, the prohibition against charging lender fees that exceed 5% of the loan amount as well as prepayment penalty limitations and certain disclosures will not be required for eligible business purpose residential mortgage loans.  The law defines a DSCR loan as a non-QM loan, secured by investment property, where the credit decision is made based on the expected cash flow from the property and not the borrower’s personal income.

The law will become effective for loans executed on or after August 1, 2026.