Down payment requirements and closing costs can make homeownership challenging for first-time buyers. However, even low-income individuals can get help covering down payment costs with assistance programs.
MoneyGeek broke down programs available to first-time home buyers in Montana.
What Is a First-Time Homebuyer Program & How Can It Help?
Most mortgage lenders require homebuyers to pay a down payment upfront. The down payment amount is typically a percentage of the cost of the home you want to buy. Larger down payments typically attract lower interest rates. However, if you don’t have the funds for a 20% down payment, you can still pursue homeownership by taking advantage of first-time homebuyer programs in Montana.
Homebuyers in Montana can get assistance through the Montana Housing Bond Advantage Program, which helps with down payment and closing costs. Other options include conventional, FHA, VA and USDA home loans.
The best assistance program for you will depend on your finances, background and specific goals. Always weigh and compare your options before choosing the right program for your needs.
Zero-Down-Payment Loan Programs
A zero-down-payment program is a home loan that does not require an upfront payment. The two main types of zero-down-payment home loans are USDA and VA loans.
USDA home loans offer low- to moderate-income home buyers in rural areas access to loans that do not require a down payment. These loans can be used to purchase homes in eligible areas or finance home repairs or improvements. However, you must meet income requirements, and the property you are purchasing must meet specific criteria to qualify for a USDA loan.
If the property is smaller than 2,000 square feet and in a rural area with a population of less than 35,000, you can choose from these types of USDA loans:
- Single-Family Housing Direct Home Loans: for very low- to low-income borrowers
- Section 502 Guaranteed Rural Housing Loan: for low- to moderate-income borrowers
- Section 504 Home Repair Program: for home repairs and renovations.
All USDA mortgages have fixed rates.
VA home loans are zero-down-payment loans available to veterans, active duty military members or their families. This type of home loan is guaranteed by the U.S. Department of Veterans Affairs (VA) and offered by private lenders.
Borrowers must have a Certificate of Eligibility (COE) from the Department of Veterans Affairs to qualify for a VA home loan. This certificate is issued based on eligibility factors like the length of service and duty status. The lender may also have specific income and credit requirements.
VA home loans have lower interest rates than conventional home loans. These loans are also available for home refinancing, construction or as a mortgage for a secondary or rental property.
Low-Down-Payment Loan Programs
Low-down-payment home loans are available to Montana home buyers who cannot meet the 20% down payment requirement. If you are a homebuyer in Montana who needs a home loan with a low down payment, you can choose from FHA and conventional home loans.
Fannie and Freddie (Conventional) Loans
Montana first-time homebuyer programs include conventional loans, which are available to home buyers who do not have a 20% downpayment. Conventional loans are not backed by the government, so borrowers who don’t meet the requirements for government-backed mortgages can consider this type of home loan.
Private mortgage lenders offer conventional loans, so requirements vary depending on the lender. In most cases, since these are low-down-payment loans, you can qualify for a conventional loan with a 3% down payment. However, some lenders may require higher down payments of up to 10%. Income and credit requirements may also vary depending on the lender.
You can choose a conforming conventional loan, which must adhere to Freddie Mac or Fannie Mae guidelines. Alternatively, you can opt for a non-conforming conventional mortgage, which follows guidelines set by the lender and is typically more difficult to get.
FHA loans are another low-down-payment option. These loans are government-backed under the Federal Housing Administration guidelines. They’re offered by FHA-approved private lenders and can vary in limits They're offered by FHA-approved private lenders and can vary in limits depending on your location.
The key advantages of FHA home loans are the relatively low interest rates, low down payment requirement and flexible minimum eligibility requirements. For instance, even borrowers with an average credit score of 500 can qualify for an FHA loan, although they may be required to pay a higher down payment of 10%.
Borrowers must also have a debt-to-income ratio lower than 56.9%. If you are approved for an FHA loan, you will need to purchase FHA mortgage insurance which protects the lender in case you default.
FHA 203(k) home loans are government-backed mortgages that combine a regular mortgage with a construction loan. An FHA 203(k) home loan is a good option if you want to purchase an older home and renovate or upgrade it. The Federal Housing Administration secures these types of loans.
Home buyers can qualify for an FHA 203(k) home loan with a credit score of between 500 and 579 but need a 10% down payment. The minimum down payment required for home buyers whose credit score is higher than 580 is 3.5%.
Keep in mind that to qualify for an FHA 203(k) home loan, the cost of the rehabilitation must be at least $5,000, and property's value should be within the FHA mortgage limits for your location.
Zero-down-payment loans: Don’t require a down payment.
USDA loans: Available to home buyers in eligible rural areas and don’t require a down payment.
VA loans: Zero-down home loans available to eligible veterans, active duty military and their families; they have low interest rates and do not require Private Mortgage Insurance (PMI).
Low-down-payment loans: Mortgages with down payments as low as 3.5%.
Fannie & Freddie loans: Conventional loans offered by private mortgage lenders; they can conform to Fannie & Freddie guidelines or be non-conforming.
FHA loans: Government-backed mortgages with a low down payment of 3.5% to 10%.
FHA 203(k) loans: Combine a standard mortgage with a construction loan and are ideal for buyers who want to buy and renovate an old property.
Montana Homebuyer Programs
The cost of down payments can be prohibitive, especially for first-time homebuyers. In addition to federal assistance programs, Montana offers first-time homebuyers several state-specific programs.
Bond Advantage Down Payment Assistance Program
Montana Housing offers a Bond Advantage Down Payment Assistance Program to borrowers who need assistance with downpayment and closing costs. To qualify, borrowers must have a minimum credit score of 620 and provide a minimum cash investment of $1,000 towards the purchase.
MBOH Plus 0% Deferred Down Payment Assistance Program
This assistance program offers up to 5% of the home sale price, up to $15,000. To qualify, borrowers with two-person families should have an income of less than $65,000, and borrowers with families of three or more people need an income of less than $75,000.
80% Combined Program
If you are eligible for Montana Housing financing, you can qualify for the 80% Combined Program, an assistance program that is an alternative to an FHA loan. This loan is offered by partner non-profit organizations like NeighborWorks Montana.
FAQs for First-Time Homebuyer Programs in Montana
MoneyGeek answered questions about Montana’s first-time homebuyer programs to help you make the right choice for your needs.
- Federal Housing Finance Agency. "Fannie Mae and Freddie Mac." Accessed September 26, 2022.
- Housing.mt.gov. "Terms and Conditions of the Bond Advantage Down Payment Assistance Program." Accessed September 26, 2022.
- Housing.mt.gov. "Terms and Conditions of the MBOH 0% Deferred Down Payment Assistance Program." Accessed September 26, 2022.
- HUD.gov. "203(k) Rehab Mortgage Insurance." Accessed September 25, 2022.
- HUD.gov. "FHA Mortgage Limits." Accessed September 25, 2022.
- HUD.gov. "Homeownership Assistance: Montana." Accessed September 27, 2022.
- Montana.gov. "80% Combined Program." Accessed September 26, 2022.
- Montana.gov. "Down Payment Assistance Programs." Accessed September 26, 2022.
- Montana Neighbor Works. "Creating Housing Opportunities Across Montana." Accessed September 26, 2022.
- USDA. "Rural Development Single Family Housing Direct Loan Program." Accessed September 25, 2022.
- USDA. "Buy, Build or Repair a Home." Accessed September 26, 2022.
- U.S. Department of Veterans Affairs. "Eligibility Requirements for VA Home Loan Programs." Accessed September 25, 2022.