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First-Time Home Buyer Programs in Missouri for 2018

Liz Smith
Missouri first-time home buyer programs

With expansive plains, bustling river towns and below-average mortgage rates, we don’t blame you for wanting to plant your own roots in the Missouri. The purchase of buying your first home can be intimidating, though. You will likely face several financial situations and big-ticket price tags you have never encountered. That’s why the federal and Missouri state governments created first-time home buyer programs. There are options for every type of borrower, but each one makes homeownership more accessible and affordable. The SmartAsset financial advisor matching tool affords you access to local financial advisors that can aid you in navigating this new terrain.

Federal First-Time Home Buyer ProgramsFHA Loans Pros – Low down payment
– Available to borrowers with low credit scores Cons – Lower credit scores may necessitate higher down payments Eligibility – Credit score of 500 or above
– Down payment of at least 3.5% Best For – Anyone without a perfect credit history or sufficient savings for a down payment

The FHA loan program is one of the most popular first-time home buyer programs in Missouri. Backed by the Federal Housing Administration (FHA), FHA loans are distributed by local, third-party lenders throughout the state. They come with lower interest rates, but the biggest benefit is a low down payment requirement.

Rather than the standard 20%, borrowers only need to provide 3.5% of the home’s value at closing. Better yet, FHA loan requirements are inclusive so almost anyone can qualify. You need a FICO® credit score of 580 to receive the down payment perk in its full glory, but you can still qualify so long as your score is at least 500.

VA Loans Pros – No down payment
– No private mortgage insurance
– Usually comes with reduced closing costs Cons – VA funding fee
– Long application process Eligibility – Credit score of 620 or above
– Military members and veterans, their spouses, and other beneficiaries Best For – Veterans without adequate income or savings to afford a down payment

Everyday, members of the military fight for the American Dream. To show the country’s appreciation, the Department of Veterans Affairs developed VA loans, which are insured by the VA and distributed through external lenders.

The 3.5% down payment of FHA loans may sound good, but what about 0%? Since many retired military professionals struggle to scrape together a down payment, the VA doesn’t require one. Plus, since they back part of your risk, VA borrowers also do not have to get private mortgage insurance (PMI). VA loans usually come with low closing costs too, leaving even more money in your wallet.

To qualify for these impressive perks, veterans need to contribute 1.25% to 2.4% of your home’s value into the VA fund, depending on the size of your down payment (should you choose to make one at all). In order to prove that you’re a worthy and reliable borrowers, you’ll need a credit score of at least 620.

USDA Loans Pros – No down payment
– Available to borrowers with low credit scores Cons – Not available to anyone that can get a conventional mortgage
– Only available in select areas Eligibility – Earn within 115% of the local median income
– Home in an eligible area Best For – Low- and mid-income buyers willing to live in a rural part of the state

The United States Department of Agriculture (USDA) sponsors “Section 502 Single Family Housing Guaranteed Loan Program.” Also known as USDA mortgages, these loans attract new home buyers to rural or, at the very least, semi-rural communities throughout Missouri. So long as you have a decent credit history, they completely eliminate the need for a down payment.

In addition to a decent credit score, you must earn less than 115% of the local median income. You also have to prove that you are unable to secure a conventional mortgage.That way, the USDA can ensure that only buyers that need the support get it. You may still be eligible even if your credit score is a bit low. You’ll just have to pay a 10% down payment.

Good Neighbor Next Door Program Pros – 50% flat discount on home price Cons – Only available in select areas Eligibility – Remain in home at least three years
– Police officers, firefighters, emergency medical technicians or pre-K through 12th grade teachers Best For – Public servants without enough income or savings to afford a home

Housing and Urban Development‘s (HUD) Good Neighbor Next Door Program rewards police officers, firefighters, emergency medical technicians, and teachers with a 50% reduction on the listing price of their home. It’s really more of a discount than a loan.

To qualify, the home must be in a HUD-designated “revitalization” area. In addition to having a certain job and buying a home in a certain area, you must also agree to live in the home for at least three years after the purchase. On the bright side, you can sell the home and retain any equity and profit once the three years are up.

Fannie Mae/Freddie Mac Pros – Low down payment
– Available to borrowers with poor (and no) credit history
– Cancellable private mortgage insurance
– Multiple loan types available Cons – Higher rates than other federal programs Eligibility – Earn within local income requirements Best For – Buyers that need a low down payment but don’t qualify for other federal programs.

The previous federal first-time home buyer programs are a partnership between a federal organization and a third-party lender. Freddie Mac and Fannie Mae, on the other hand, are government-sponsored mortgage providers. They are similar entities, but offer different programs with different benefits.

Fannie Mae’s first-time home buyer program is known as a HomeReady® loan. To qualify, you must also earn an income at or near the U.S. median, have a minimum credit score of 620, and pay a 3% down payment. Though you need private mortgage insurance at the time of purchase, you can cancel it once you’ve accrued 20% equity in your new home.

Freddie Mac has two different first-time home buyer programs. They’re known as Home Possible: 95% LTV and Home Possible Advantage: 97% LTV and require minimum down payments of 5% and 3%, respectively. With a Home Possible loan, you can choose both the length (15 or 30 years) and terms (5/5, 5/1, 7/1 or 10/1 adjustable-rate) of the loan. You also get the cancelable private mortgage insurance benefit described above. Perhaps best of all, you won’t need any credit to qualify. A Home Possible Advantage mortgage is basically the same thing, but it always comes with fixed rates and has credit requirements.

NADL Pros – No down payment
– No private mortgage insurance
– Reduced, fixed rate
– Available to borrowers with low credit scores
– Usually comes with reduced closing costs Cons – Only available in select areas Eligibility – Home in an eligible territory
– Military members or veterans of Native American descent, their spouses, or other beneficiaries Best For – Native American veterans that don’t lack the income or savings to make a down payment

The VA also sponsors Native American Direct Loans (NADL), which provide Native American veterans and their families the tools they need to buy a home. As with VA loans, Native American veterans won’t have to make any down payment, take out any private mortgage insurance, or pay typical closing costs.

What sets NADLs apart is the reduced, set interest rate. To make things even better, you do not need a strong credit history to qualify. Keep in mind that the home must be located on allotted lands, Alaska Native corporations, Pacific Island territories or federally-recognized trusts.

Missouri First-Time Home Buyer Programs

Missouri first-time home buyer programs

The Missouri Housing Development Commission (MHDC) helps Show-Me State buyers purchase their first home. All MHDC mortgages are 30-year, fixed-rate loans with below-market interest rates administered through a network of certified lenders. Any buyer that hasn’t owned or had principal interest in their primary residence in the last three years is encouraged to apply. In some cases, there are credit score requirements and income and purchase price limits.

First Place Pros – Reduced interest rates
– Multiple loan types available
– Potential to combine with down payment assistance Cons – Must meet lender and FHA, VA, USDA, or Fannie Mae requirements Eligibility – Income and purchase price limits dependent on household size and home location Best For – Low- and mid-income buyers that need to secure lower interest rates on federal mortgage programs

The First Place program grants first-time home buyers lower interest rates for FHA, VA, USDA, or Fannie Mae conventional loans. As with all MHDC loans, the mortgages are for 30 years and the rate will remain the same the entire life of the loan, making it easy to set a long-term budget and financial goals.

The biggest hurdle to qualification are purchase price and income limits. Single unit homes cost less than $331,423 or $271,164 and dual unit homes must cost less than $424,329 or $347,178. The first price applies to homes in target areas and the second price is for homes anywhere else. Zillow lists the median household price in Missouri at $180,000, so it shouldn’t be too hard to find one that fits the mold.

Next Step Pros – Reduced interest rates
– Multiple loan types available
– Relaxed income and purchase limits
– Opportunity to move to high-income areas for less
– Potential to combine with down payment assistance and federal tax credit Cons – Must meet lender and FHA, VA, USDA, or Fannie Mae requirements Eligibility – Income and purchase price limits dependent on household size and home location Best For – Low- and mid-income buyers that need to secure lower interest rates but don’t qualify for the First Place program

The Next Step program is very similar to First Place, but it is available for home buyers that earn too much or buy homes too expensive to qualify for First Place. Next Step does have income and purchase price limits, but they are higher than the First Place limits. For example, the statewide single unit limit  is $331,423. The program is also available to non-first time home buyers.

In order to make housing more affordable in high-income areas, Next Step also offers qualified buyers reduced interest rates if they move into “Opportunity Areas.” Opportunity Areas are determined by census findings as those with low poverty levels and high access to quality education.

Cash Assistance Loan Pros – Up to 4% of the original loan amount
– Forgivable after ten years Cons – Must meet lender and FHA, VA, USDA, or Fannie Mae requirements Eligibility – Income and purchase price limits dependent on household size and home location Best For – Low- and mid-income buyers that need help with down payment and closing costs

Cash Assistance loans are available to First Place and Next Step borrowers. The program provides eligible buyers with a grant worth up to 4% of the original loan amount for down payment and closing costs. Income and purchase price limits apply and you’ll still have to meet FHA, VA, USDA, or Fannie Mae conventional loan requirements to qualify.

Cash assistance is awarded as a second mortgage. Don’t stress, though. You won’t have to make any monthly payments. Plus, it will be forgiven after 10 years if the home remains your primary residence and you stay current on your original loan.

MHDC Mortgage Credit Certificate Program Pros – Reduced federal tax bill
– Lasts the entire lifetime of the loan until repayment, refinancing, or sale Cons – Must pay issuance fee Eligibility – MHDC borrower
– Income limits dependent on household size and home location Best For – Buyers taking advantage of MHDC loans that want to save on their annual tax bill

In addition to loan and down payment assistance programs, the Missouri Housing Development Commission provides eligible home buyers with a Mortgage Credit Certificate (MCC) to help save even more. Through this program, buyers receive an annual federal tax reduction of 25-45% of the total amount of mortgage interest with a maximum of $2,000 a year.

You can claim the credit every year for the life of the loan so long as the home remains your primary residence. That means it could save you thousands of dollars over time. Any buyer using an MHDC program or lender to purchase their first home is eligible. You must pay a fee of 1% of the loan amount, but this is a small obstacle to achieve serious long-term savings.

Tips to Incorporate Your New Mortgage Into Your Financial Life

Missouri first-time home buyer programs
  • Research the lenders, rates, and down payment requirements for each mortgage and home buyer program before you pick the one for you. Remember that upfront costs go beyond a down payment. Factor moving and closing costs into that month’s budget as well. Along the same lines, keep in mind that homeowners insurance, property taxes, and maintenance costs are all ongoing expenses in addition to monthly mortgage payments.
  • Get advice from a professional financial advisor. The SmartAsset advisor matching tool can set you up with as many as three certified advisors in your area that can help you keep every aspect of your financial life in check.

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