Definition of “Conventional Loan” Expanded in Minnesota

Minnesota Statutes section 47.20 identifies specific requirements relating to conventional loans, requirements of language that must be in a mortgage securing a conventional loan, and what must be in a notice of default, among other requirements. For example, under Minnesota law, lenders are required to provide conventional loan borrowers a thirty-day notice of default on all conventional loans in the state of Minnesota. During the 2024 legislative session, the Minnesota legislature amended the definition of “conventional loan” contained within Minn. Stat. § 47.20, significantly broadening the coverage of the definition. Lenders should review their processes and procedures, along with their mortgage and notice of default forms, to confirm compliance with the new law.

Before the 2024 amendment to Minn. Stat. § 47.20, a “conventional loan” was a loan or advance of credit to a noncorporate borrower in an original principal amount of less than or equal to $100,000.00, secured by a mortgage on residential real property.¹ The $100,000 threshold meant that most residential mortgages were not considered “conventional loans” under Minnesota statute. Now, effective August 1, 2024, the loan amount for a “conventional loan” is less than or equal to “the conforming loan limit established by the Federal Housing Finance Agency (“FHFA”) under the Housing and Recovery Act of 2018.”² The 2025 conforming loan limit value for one-unit properties is $806,500.³ This significant expansion of the definition of “conventional loan” means that financial institutions in Minnesota will need to ensure that loans made after August 1, 2024, to noncorporate borrowers secured by a mortgage on residential real property in amounts less than or equal the applicable FHFA conforming loan limit comply with the requirements for conventional loans established in Minn. Stat. § 47.20.

Among other things, Minn. Stat. § 47.20 establishes maximum interest rates, imposes limitations on a lender’s ability to receive future appreciation of a mortgaged property, sets refund requirements for precomputed loans, provides requirements for loan assumptions, permits the collection of late fees, restricts provisions permitting discount points, and requires certain provisions in and for conventional loans. The requirements are summarized as follows:

• Maximum Interest Rate. Conventional loan interest rates must be less than the Fannie Mae posted yields on 30-year mortgage commitments for delivery within 60 days on standard conventional fixed-rate mortgages as of the last business day of the second preceding month plus 4%.⁴ Because Fannie Mae stopped posting Required Net Yields (“RNY”) in June of 2024, the Minnesota Department of Commerce has published guidance that the Average Prime Offer Rate (“APOR”) as defined in 12 C.F.R. § 1026.35(a)(2) may be substituted for the RNY.⁵ Thus, for example, a conventional loan made on April 25, 2025, would have a maximum interest rate of 10.85%, because the APOR as of the last business day of the second preceding month (February) was 6.85%.⁶ If the conventional loan is for a duration of ten years or less and for the purpose of purchasing subdivided land or a timeshare interest, the maximum interest rate is three points higher, or 15.75%, whichever is lesser.⁷ So, for the same loan discussed above, the maximum interest rate would be 9.85%. An interest rate can be higher, so long as it was locked pursuant to an interest rate commitment or loan commitment and was not higher than the maximum rate of lawful interest at the time the commitment was issued.⁸
• Future Appreciation of Mortgaged Property. If a conventional loan provides that the mortgagee or lender shall receive any share of future appreciation of the mortgaged property, the lender’s proportionate share must be less than the lesser of the acquisition cost or fair market value of the property divided by the original principal amount of the loan, and cannot exceed an annual rate of return higher than the maximum interest rate described above.⁹ A lender can only receive appreciation upon a sale or transfer of the property, or any interest in the property, or upon the maturity of the loan.¹⁰ A lender must disclose the terms and conditions upon which the lender or mortgagee can receive any future appreciation of the mortgaged property. ¹¹
• Precomputed Loan Refunds. If a conventional loan expresses the debt owed as a sum comprised of the principal amount and the amount of interest due for the entire term of the loan, assuming all payments will be made when due, the loan must provide for a refund of any finance charges that would not have been payable if the interest was computed from time to time, in the event that the loan is paid one month or more before the final installment due date.¹² For example, if a conventional loan of $200,000 for 15 years at 6% expressed the debt as being $303,788.46, and at the end of the 13th year, the borrower paid off the remaining $40,505.14, the loan would need to provide a refund of $2,425.47, representing unaccrued interest for the last two years.
• Loan Assumptions. If a conventional loan is made to enable a borrower to purchase a one to four family dwelling for the borrower’s primary residence, the lender must permit a transferee of the property to assume the borrower’s loan if (1) the transferee meets the normal standards of credit worthiness used by the lender, (2) the transferee executes a written assumption, (3) the transferee agrees to pay interest at a new interest rate not exceeding the lender’s current market rate or the most recent Freddie Mac auction yield, if greater than the existing rate.¹³
• Discount Points. Discount points are allowed on a conventional loan only if the loan yield does not exceed the maximum interest rate discussed above.¹⁴
• Required Provisions. A conventional loan must:
  • Be evidenced by a promissory note and mortgage printed in not less than 8-point font, or legible handwriting.¹⁵
  • Provide that the borrower shall be furnished with a conformed copy of the note and mortgage upon execution or within a reasonable time after recording the mortgage.¹⁶
  • Provide that a lender who intends to foreclose must give the borrower a written notice of default, sent by certified mail to the address of the mortgaged property or such other address as the borrower may designate in writing, unless the default consists of a sale of the property without the lender’s consent, and that the notice (1) describe the nature of the default, (2) identify the action required to cure the default, (3) provide a cure date not less than 30 days from the date the notice is mailed, (4) that failure to cure the default may result in acceleration of the amounts secured by the mortgage and sale of the mortgaged property, (5) that the borrower has a right to reinstate the mortgage after acceleration, and (6) that the borrower can bring a court action to assert nonexistence of a default or any other defense to acceleration and sale.¹⁷

The expanded definition of “conventional loan” likely is not retroactive,¹⁸ meaning a loan made prior to August 1, 2024, in the original principal amount of more than $100,000 continues to not be a “conventional mortgage”, so there is no need to modify preexisting mortgages which do not comply with the requirements discussed above. But, for any loan which fits the newly expanded definition of conventional loan, a notice of default should comply with the requirements set forth in Minn. Stat. § 47.20, subd. 8(3). Moving forward, it is likely that most of your institution’s residential loans will be “conventional loans”. Financial institutions in Minnesota should review their mortgage forms, processes, and procedures to ensure compliance with section 47.20.

1. Minn. Stat. § 47.20, subd. 2(3) (2023). ↩︎
2. Minn. Stat. § 47.20, subd. 2(3) (2025). ↩︎
3. FHFA Announces Conforming Loan Limit Values for 2025, FEDERAL HOUSING FINANCE AGENCY, Nov. 26, 2024, https://www.fhfa.gov/news/news-release/fhfa-announces-conforming-loan-limit-values-for-2025. ↩︎
4. Minn. Stat. § 47.20, subd. 4a(a). ↩︎
5. Crow, Michael, Interpretive Opinion Regarding Maximum Interest Rates under Minn. Stat. §47.20, subd. 4a(a), MINNESOTA DEPARTMENT OF COMMERCE, July 2024, https://mn.gov/commerce-stat/money/home-loan-rates-interpretive-opinion.pdf. ↩︎
6. Rate Spread Calculator, CONSUMER FINANCIAL PROTECTION BUREAU, https://ffiec.cfpb.gov/documentation/tools/rate-spread. ↩︎
7. Minn. Stat. § 47.20, subd. 4a(c). ↩︎
8. Minn. Stat. § 47.20, subd. 4a(d). A commitment is issued when delivered or mailed to the borrower. Id. If a forward commitment fee is required, the commitment is issued when delivered or mailed to the person paying the fee. Id. ↩︎
9. Minn. Stat. § 47.20, subd. 4b(1). ↩︎
10. Minn. Stat. § 47.20, subd. 4b(2). ↩︎
11. Minn. Stat. § 47.20, subd. 4b(3). ↩︎
12. Minn. Stat. § 47.20, subd. 5. ↩︎
13. Minn. Stat. § 47.20, subd. 6a. ↩︎
14. Minn. Stat. § 47.20, subd. 7. ↩︎
15. Minn. Stat. § 47.20, subd. 8(1). ↩︎
16. Minn. Stat. § 47.20, subd. 8(2). ↩︎
17. Minn. Stat. § 47.20, subd. 8(3). ↩︎
18. Statutes are presumed not to be retroactive unless the legislature clearly and manifestly intended the statute to have retroactive effect. Minn. Stat. § 645.21; Gorman v. Northland Family Physicians, Ltd. 645 N.W.2d 413, 416 (Minn. 2002). Nothing in 2024 Minn. Laws, ch. 114, art. 2, § 9, which made the amendment discussed in this article indicates a legislative intent that the statute have retroactive effect. ↩︎