First-Time Homebuyer Programs in South Dakota

Owning a house is every person’s dream, but it's a difficult goal to achieve. With a first-time homebuyer program, the financial weight of purchasing a home becomes lighter. MoneyGeek explores the possibilities of first-time home ownership with zero-down-payment, low-down-payment and South Dakota homebuyer loan programs.

As you dream of owning a home, it’s crucial that you also consider the expenses you’ll have to pay. The first and biggest expense upfront is the down payment.

The down payment is a portion of your home’s purchase price that you need to pay upfront upon closing your home loan. It affects how much you will need to pay monthly, and it can influence your lifestyle and financial plans. Generally, putting down more money for the down payment results in lower monthly fees and interest (and vice versa).

A 20% down payment is an ideal option with various benefits. However, for some, this can be challenging. To simplify the process, homebuyer assistance programs can provide you with plans that fit your budget.

There are several payment programs, from zero-down-payment via USDA and VA loans to low-down-payment programs via conventional, FHA and FHA 203(k) loans. South Dakota also offers various loan programs for first-time homebuyers and even repeat homebuyers.

It can be overwhelming to choose a program from a sea of lenders, but the best homebuyer program is one that fits your financial needs, background and goals.

Zero-down-payment programs can allow you to purchase a home without spending a single dollar on a down payment. USDA and VA loans are two of the most popular zero-down-payment programs available.

A USDA home loan is an excellent mortgage choice for individuals who live in eligible rural areas and have a less-than-ideal credit score.

There are three main programs available:

• Section 502 Direct Loan: This program provides low- and very-low-income applicants with direct loans.
• Section 502 Guaranteed Rural Housing Loan: This program enables private lenders to offer loans to borrowers who would otherwise be unable to secure financing.
• Section 504 Home Repair: This program provides financial support for low-income homeowners to make needed repairs, improvements and modernization to their homes.

To qualify for a program, South Dakota first-time homebuyers must meet the income requirement, and they must also live in the house as their primary residence. As for the property, it must be 2,000 square feet or less and within a rural area with a population of less than 35,000.

A VA loan is best for members of the military, veterans and spouses thereof who are looking to purchase or refinance their home. The mortgage is issued by private lenders but guaranteed by the U.S. Department of Veterans Affairs (VA). What this means is that the rates and types of loan programs can vary from one lender to another.

An outstanding feature of this loan type is its flexible programs that enable homebuyers or owners to own a primary and secondary residence or construct or renovate their house or reverse mortgages. Like the USDA home loan, VA loans don’t require a down payment, have low credit score requirements and have lower interest rates than conventional loans.

Another advantage of VA loans is that private mortgage insurance (PMI) is not required, and the loans are assumable should you want to gift or sell a property.

Low-down-payment loan programs provide homebuyers with a way to buy a home with less than a 20% down payment. Conventional loans and FHA loans can lessen this big financial hurdle for first-time homebuyers.

Conventional loans from either Fannie Mae (Federal National Mortgage Association) or Freddie Mac (Federal Home Loan Mortgage Corporation) are accessible loans from private lenders. These conforming conventional loans allow you to purchase a house even if you have unpaid taxes or student loans. Failing to fulfill federal obligations is a common deal-breaker for government-backed loans.

Down payments for conventional loans can range from the standard 20% to as low as 3%. Despite the possibility of a 20% down payment, conventional loans have an edge compared to federal loans.

Keep in mind that you will need to purchase private mortgage insurance (PMI) if you put down less than 20% with these loans. This is to protect the lender in case you default.

You can also access non-conforming loans that go over the loan limits and require at least a 700 minimum credit score to qualify.

FHA loans are a type of low-down-payment mortgage that is provided by private lenders. They are insured by and adhere to Federal Housing Administration (FHA) rules and regulations. FHA loans are a great choice for people with poor or insufficient credit histories.

Compared to other loan programs available to first-time homebuyers, the minimum requirements of FHA loans are lenient. The minimum credit score is 580 to put a 3.5% down payment. However, if your score is between 500 and 579, you can put down 10% instead.

In the case of applicants with a history of bankruptcy or poor credit history, documents that prove extenuating circumstances that led to the situation are of tremendous assistance. Re-establishing a good payment history is another factor that can improve your application and increase your odds of getting approved for this type of loan.

Perfect for fixer-uppers, the FHA 203(k) loan program is a merger between a construction loan and a mortgage. This makes purchasing a house and fixing it up easier since it combines all the expenses you will have into one loan. Plus, it requires less paperwork.

There are two types of FHA 203(k) loans: standard and streamlined or limited. Standard 203(k) loans are mostly used for extensive reconstruction or installation of handicap accessibility or plumbing, or even energy conservation improvements. On the other hand, streamlined or limited 203(k) loans are used for repairs or purchases of major appliances like gas ranges or dishwashers.

You typically need a credit score of 500 to 580 and a 3.5% to 10% down payment to qualify for an FHA 203(k) loan. Like other federal loans, loans under the FHA 203(k) program can only be utilized to purchase primary residences.

If the federal loan programs aren’t right for your budget and needs, you can look for a South Dakota first-time homebuyer program tailored to the state's residents and location.

The South Dakota Housing Development Authority (SDHDA) offers 3% or 5% down payment assistance to manage your mortgage. It also includes a second mortgage at 0% interest rate, due-on-sale or satisfaction and no additional fees.

For aspiring homebuyers living without a home for the last three years, the First-Time Homebuyer Program of the SDHDA could be the ideal program. It provides a maximum of $340,000 at a low-interest rate.

GROW South Dakota is a non-profit organization that provides home mortgage loans, USDA 502 direct loans and down payment/closing cost assistance.

Homes are Possible, Inc. offers two types of assistance, including housing down payment/closing cost assistance and home repair funding.

You can also get assistance with buying a home for the first time using HUD resources in South Carolina, including Habitat for Humanity, grants, housing agencies and more.

Investing a ton of money in a home can make you feel anxious. First-time homebuyers can ease some of their worries by reading through MoneyGeek's frequently asked questions.