Note: In the original version of this article, published on August 29, 2023, we incorrectly stated that Kansas has limited funds available. The program is continually funded and has no ‘sunset’ date.
By Charity Ohlund
In last week’s post, I went over some of the pros and cons of mortgage down payment assistance programs. While getting ‘free’ money sounds enticing, a harsh reality remains that few things in life are truly free. You may end up paying a higher interest rate or be subject to repayment terms if you sell or refinance your property. On the other hand, if you take the time to truly understand your options and work with an experienced mortgage professional, you may find that down payment assistance is a viable option for your unique situation.
Today, I’ll cover the three down payment assistance (DPA) programs available through Fountain Mortgage.
1. Missouri Housing Development Commission (MHDC)
- The Missouri Housing Development Commission (MHDC) is a state agency that aims to provide affordable housing opportunities for residents in Missouri. One of the ways they do this is through down payment assistance programs, which help eligible homebuyers with the upfront costs of purchasing a home.
- MHDC’s “First Place” program provides down payment assistance for qualified first-time homebuyers and Veterans. Two types of funds are available, depending on the borrower’s needs. One offers a secondary loan for up to 4 percent of the total loan amount for down payment and closing costs. The other is a non-cash assistance loan that offers lower interest rates, typically .25 to .50 percent below market rates. This program has income and purchase price limits that are dependent upon the number of people in the family and the location of the home.
- MHDC’s “Next Step” program provides first-time and repeat homebuyers who fall outside the “First Place” income limits the option to receive down payment assistance for homes in targeted areas, where 70 percent of all households earn less than 80 percent of the statewide median income. These areas may be found in both urban and rural communities. The assistance is in the form of a secondary loan for up to 4 percent of the total loan amount for down payment and closing costs.
Requirements:
- Minimum credit score of 640.
- Debt-to-income ratio of 45% or less.
- Debt-to-income ratio of 50% or less for FHA (with minimum credit score of 680).
- A first-time homebuyer is defined as someone who has not owned a home or had an ownership interest in a primary residence for the past three years.
- Primary residence only (no second homes or investment properties).
- The down payment assistance will be forgiven if the borrower stays in the home and maintains the original loan for 10 years. If you sell or refinance before year five, you must repay the entire amount. After year five, the second mortgage will begin diminishing by 1/60 every month until year 10, when it will be completely forgiven.
- Borrowers must contact a CERTIFIED LENDER to apply for the loan. Fountain Mortgage is a Certified Lender with MHDC.
2. KansasDPA
On the Kansas side of the state line, homebuyers can utilize this state-wide program to obtain a grant to help cover down payment and closing costs. Unlike the MDHC program, KansasDPA does not require repayment. The grant amount is based on a percentage of the total loan amount and is adjusted based on income levels.
Requirements:
- Minimum credit score of 640.
- Primary residence only.
- Maximum household income for Leavenworth, Wyandotte, Johnson, Linn, and Miami counties is $143,500.
- Borrowers must contact a CERTIFIED LENDER to apply for the loan. Fountain Mortgage is a Certified Lender with KansasDPA.
3. 1% Down with Home Equity Boost
This third and final option is not backed by any government entity but through private mortgage lenders like Fountain Mortgage.
Here’s how it works:
The loan is a 30-year, fixed rate, conventional loan. The borrower puts 1 percent down. The lender contributes 2 percent toward the down payment, giving the borrower 3 percent equity at closing. This loan is available with no monthly mortgage insurance.
This loan is for single-family homes only (no condos, townhomes, etc.), and the borrower may receive a maximum of $5,000 from the lender to be used toward the down payment only. The 1 percent down payment may come from gift money from family members.
Requirements:
- Minimum credit score of 700.
- You must meet other qualifications for a conventional loan, including debt-to-income ratios below 43%.
- You must occupy the home as your primary residence.
- Maximum total household income must be less than 80 percent of the area medium income limit.
- An online homebuyer course is required for borrowers who haven’t owned a home in the last 3 years.
As you can see, there are several options for buyers to explore. Saving up for a down payment is the biggest obstacle that most first-time homebuyers cite when asked what’s stopping them from making a home purchase. It’s important to talk with a Certified Lender to explore all your options, as each family’s situation is unique. Down payment assistance (along with zero-down payment options for VA and USDA loans) can be a valuable tool to get you into your new home faster. Reach out to our team today for a free consultation!
This weekly Sponsored Column is written by Fountain Mortgage. Located in Prairie Village, Fountain Mortgage is dedicated to educating, and thus empowering, clients to make the best financial decision possible for their situation.
Contact Fountain today.
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