When buying your first house, saving up for a down payment can be challenging. With the help of financial assistance programs, this process can be made easier. The MoneyGeek team has outlined various Missouri first-time homebuyer programs to help you enter the housing market.
What Is a First-Time Homebuyer Program & How Can It Help?
Your mortgage down payment will most likely be one of your biggest expenses. So, if you're considering buying your first home, it's a good idea to estimate costs first.
One of the biggest roadblocks to homeownership is securing a down payment on your mortgage. Thankfully, various loan programs are available to assist you in purchasing a home. These include down payment assistance, government-backed loans and state-specific programs for first-time homebuyers.
A federal homebuyer program is open to all citizens and authorized residents of the United States. It is important to note that government-backed loans like VA loans are not accessible to everyone. They only apply to active-duty military, veterans and their families. Meanwhile, Missouri first-time homebuyer programs are exclusive to those who live there.
In Missouri, conventional, USDA, VA and FHA loans are available to homebuyers. Several state-sponsored homeownership programs are only available to residents, including the Community Action Agency of St. Louis County and Cash Assistance Loan.
There are different requirements for each loan program, so it's best to check the details to see if you qualify.
Zero-Down-Payment Loan Programs
For first-time homebuyers, zero-down-payment loans make it possible to buy a house without putting down any money. USDA and VA loans are the only government-backed loans that do not require down payments.
The USDA home loan program is designed for borrowers in rural areas with low to moderate incomes. With this type of loan, the rates are competitive, and no down payment or credit history is required.
Under the USDA, home loans are available through three different programs:
- Section 502 Direct Loan Program: This program provides direct loans to low- and very low-income borrowers.
- Section 502 Guaranteed Rural Housing Loan: The program helps approved lenders provide loans to low- and moderate-income borrowers.
- Section 504 Home Repair program: This program assists homeowners in financing renovations, repairs and upgrades of their homes.
Depending on where you live, you may need to meet income eligibility requirements for a USDA home loan. For example, in Daviess County, Missouri, $54,000 is the direct loan income limit for a family of four.
The U.S. Department of Veterans Affairs offers a VA loan, which assists eligible homebuyers in achieving homeownership. However, military personnel, veterans and their families are the only ones eligible for VA loans. With VA home loans, you don't have to make a down payment on your mortgage.
Homebuyers interested in obtaining a home loan must meet property, credit score and income requirements. VA loans are available if you want to purchase single-family homes, condominiums or build a new home. In addition, you may be able to improve a home you already own.
Among the benefits of VA loans are the following:
- Lower closing costs
- Reasonable rates and terms
- No early prepayment penalty
- No need for private mortgage insurance (PMI)
Getting a VA loan does, however, require a one-time funding fee.
Low-Down-Payment Loan Programs
Low-down-payment loan programs may also be available to help you purchase a home without putting down more than 20%. There are two types of home loans with low down payments: conventional and FHA loans.
Fannie and Freddie (Conventional) Loans
Conventional home loans are the preferred financing option for many first-time homebuyers. Private mortgage lenders, who provide the funding, usually issue these low-interest rates. Unlike government-backed loans, they often have stricter lending requirements.
There are two main categories of conventional loans:
- Conforming loans that follow the guidelines set by Freddie Mac and Fannie Mae.
- Non-conforming loans that exceed the standard loan limits.
Missouri homebuyers can obtain loans with as little as 3% down, but private mortgage insurance is required to protect lenders in the event of default.
A conforming conventional loan requires a credit score of 620, whereas a non-conforming conventional mortgage requires a credit score of 700. At the same time, your debt-to-income ratio must be lower than 45%.
The Federal Housing Administration (FHA) loans are low-down-payment mortgages that private lenders offer. If you have a damaged or incomplete credit history, FHA loans are an excellent option for you.
With FHA loans, the minimum credit score for a down payment of 3.5% is 580. Borrowers with a credit score between 500 and 579 are required to pay a 10% down payment. Your debt-to-income ratio should also be less than 43%. There is also a fixed interest rate on this loan type, with the option of paying back the money in 15 or 30 years.
There are, however, different loan limits depending on your county and state. In Missouri, you can use an FHA loan of up to $420K to purchase a single-family home.
FHA home loans have some disadvantages. They require more paperwork, and not all condominiums are eligible. In addition, FHA mortgages carry multiple costs. For example, borrowers are to pay an upfront fee of 1.75%.
You may want to consider the FHA 203(k) program if you are interested in buying a fixer-upper (a house that needs repair). Homebuyers eligible for this program can finance the purchase of a home and its rehabilitation through a single mortgage.
Your FHA 203(k) loan covers various rehabilitation expenses, including structural alteration, reconstruction, hazard elimination, modernization, plumbing reconditioning and accessibility improvement. As part of this program, the Department of Housing and Urban Development (HUD) requires that properties meet certain energy efficiency and structural requirements.
The lending requirements for FHA 203(k) mortgages are similar to those for FHA loans. If your credit score is between 500 and 579, you must put down a minimum of 10%. For anyone with a score of at least 580, you will have to put down a minimum of 3.5%.
USDA loans - With its low-interest rates and no down payment requirement, this program is ideal for buyers in rural areas.
VA loans - Veterans, active-duty military and military officers' spouses are eligible to apply for VA loans.
Fannie & Freddie loans - There's no need for a large down payment on these loans, but if your down payment is less than 20%, you'll have to get PMI.
FHA loans - Suitable for homebuyers with low credit scores, but mortgage insurance is required.
FHA 203(k) loans - Assist homebuyers who wish to renovate their older homes.
Missouri Homebuyer Programs
For borrowers looking to buy their first home, you may want to consider these Missouri first-time homebuyer programs.
Community Action Agency of St. Louis County
The Community Action Agency of St. Louis County is a member of the national Community Action Agencies (CAAs). In this program, lenders can grant deferred or forgivable loans to buyers with down payments ranging from $3,000 to $5,000.
Missouri Housing Development Commission Cash Assistance Loan
A loan from the Missouri Housing Development Commission is available for up to 4% of the home's purchase price. For five years, there will be progressive forgiveness of the loan until after ten years, when there will be no outstanding debt.
HUD Resources MO
Missouri homebuyers can qualify for HUD's state and regional homeownership assistance programs. Among them are the Delta Area Economic Opportunity Corporation, Missouri Affiliates of Habitat for Humanity and Regional Planning Commissions.
FAQs for First-Time Homebuyer Programs in Missouri
Here are some common questions MoneyGeek answers to help first-time homebuyers in Missouri start their homebuying journey.
- Consumer Financial Protection Bureau. "Conventional loans." Accessed September 2, 2022.
- U.S. Department of Housing and Urban Development. "FHA Mortgage Limits List - FHA Forward." Accessed September 27, 2022.
- U.S. Department of Veterans Affairs. "VA Home Loans." Accessed September 27, 2022.
- U.S. Department of Housing and Urban Development. "Homeownership Assistance: Missouri." Accessed September 27, 2022.