Are you living in Missouri and thinking about buying a home? Curious about ways to save on your down payment? You’re in luck! Missouri offers various programs tailored to help you purchase a home with minimal down payment requirements. We’ll explore federal programs and state-specific initiatives.
Helpful Terms to Know
Seller concessions involve the seller covering some or all of the buyer’s closing costs and prepaids. This arrangement can help ease the buyer’s immediate financial burden and make it easier for them to make an offer on a property.
Closing costs are the expenses associated with securing a mortgage. These expenses may include items like underwriting fees, appraisal costs, charges for credit reports, and fees for title services. Closing costs are typically settled at the closing of the property purchase and can be the responsibility of either the buyer or the seller.
Prepaids are upfront payments necessary to finalize a property purchase. Examples of prepaids include prepayment for a year of homeowners insurance, setting up an escrow account for taxes, and prepayment for insurance coverage.
Cost Breakdown Example:
Purchase price: $250,000
Estimated closing costs and prepaids: $6,000
Down payment amount due at closing: $7,500
Total funds due at closing: $13,500
Cost Breakdown with Seller Concessions:
Loan amount after 3% down: $242,500
Total cash due at closing (prepaids/down payment): $13,500
Less seller concessions: – $6,000
Total funds due at closing: $7,500
Many customers use their checking/savings, 401k, retirement accounts, income tax refund, gift funds from a friend or relative, or down payment assistance – which we will go more in-depth on below – to cover the $7,500 cash required due at closing.
How Seller Concessions Work:
As you can see above, seller concessions can significantly assist buyers in reducing the cash required at closing. In the given scenario, the seller agrees to cover a portion or the entirety of the $6,000 for the buyer’s closing costs and prepaids. In this example, the seller agrees to accept a lower amount in order to cover the buyer’s closing costs.
Federal Loan Programs
There are government-supported home loan programs available to assist prospective homebuyers in purchasing a property with minimal or no down payment. In this article, we will focus on two primary options: VA loans and USDA loans. Each of these loan programs employs distinct strategies to facilitate zero-down home purchases.
Homeownership Assistance for Veterans
The U.S. Department of Veterans Affairs (VA) plays a crucial role in assisting Veterans, surviving spouses, and active service members in achieving homeownership. VA home loan programs offer the opportunity to finance the entire purchase price of a home at a fixed interest rate. Moreover, by incorporating seller concessions into the real estate purchase offer, buyers can minimize or eliminate the need for upfront cash at closing. Notably, Homestead Financial Mortgage proudly offers waived lender fees for Veterans.
Eligible Veterans of the U.S. Armed Forces can access VA home loan programs, provided they have an honorable discharge status and possess an acceptable Certificate of Eligibility (COE). Homestead Financial Mortgage is an approved VA lender committed to serving Veterans. For a detailed understanding of the prerequisites for VA loan pre-approval, explore the requirements here.
Leveraging seller concessions to cover closing costs and prepayments is essential to achieve a nearly zero-down payment scenario.
United States Department of Agriculture (USDA) Mortgage Program
The United States Department of Agriculture (USDA) offers a notable mortgage program, despite its name, which is not limited to agricultural purposes. Instead, it serves as a sponsored mortgage program for individuals looking to reside in eligible rural areas while meeting specific income criteria.
Similar to VA loans, USDA loans enable 100% financing of the purchase price. However, what distinguishes USDA loans is their ability to include closing costs within the mortgage.
Prospective USDA buyers aiming for minimal or no down payment can utilize seller concessions or include closing costs and prepayments in the mortgage.
USDA mortgages have geographical and income limitations, primarily accessible in rural areas with certain regions near more densely populated areas also qualifying. It’s recommended to conduct research to identify USDA-eligible areas near you.
State-Sponsored Programs Missouri Housing Development Commission (MHDC)
MHDC has affordable housing options which allow the buyer to buy their home with as little as $500 out of pocket. They are subject to certain conditions and have an income ceiling. They offer their programs through participating mortgage bankers. You can read more about MHDC offerings here.
First Place Loan Program
This program provides below-market interest rates for first-time homebuyers and qualified Veterans in Missouri. Two types of funds are available based on the borrower’s needs.
Cash Assistance loans provide 4% of the total loan amount for first-time homebuyers to pay the down payment and closing costs. Down payment assistance comes in the form of a 100% forgivable second loan.
Non-Cash Assistance loans offer lower rates, usually .25 percent to .50 percent below cash assistance rates. These are best for buyers who have adequate funds to pay their own down payment and closing costs.
Next Step Program
This program is for first-time buyers and repeat homebuyers who fall outside the First Place income limits. This is a great option for potential homebuyers with limited savings.
Next Step provides 4% of the loan amount for down payment and closing costs. Down payment assistance comes in the form of an interest-free second loan that is 100% forgivable.
Mortgage Credit Certificate (MCC)
MCCs give first-time homebuyers valuable savings over the life of their loan by receiving a percentage of the mortgage interest back on federal income taxes each year. MCCs can be used by themselves or with down payment and closing cost assistance when paired with the Next Step Program. Borrowers can also skip the down payment assistance and maximize their savings by pairing an MCC with a Next Step loan for lower rates, lower monthly payments, and cash back of up to $2,000 each year!
Each of these programs follow these requirements:
- FHA, VA, USDA, or Conventional Loans
- Up to 50% debt-to-income ratio
- Minimum credit score of 640
- Owner-occupied primary residences
- Single-family homes, duplexes, townhomes, and more!
- Must meet income and purchase price limits.
How do I find out if I qualify?
To determine your eligibility for Missouri down payment assistance, aim to achieve a credit score of 640 or higher, explore USDA loan areas, and seek out a reputable lender experienced in these programs. Purchasing a home is a significant financial decision, perhaps one of the most significant in your life. Navigating down payment programs and taxes can be complex, but our knowledgeable Homestead loan officers in Missouri are here to guide you. Our team will ensure you understand all your choices and address any inquiries you have as you embark on your home-buying journey.