With expansive plains, bustling river towns and below-average mortgage rates, we don’t blame you for wanting to plant your own roots in Missouri. The purchase of buying your first home can be intimidating, though. The federal and Missouri state governments have created first-time homebuyer programs to help deal with these unique financial situations. There are options for every type of borrower, but each one makes homeownership more accessible and affordable. The SmartAsset financial advisor matching tool provides you access to financial advisors that can aid you in navigating this new terrain.
Federal First-Time Homebuyer Programs
Your first option is to look at federal loan programs that can provide either a downpayment or give you access to affordable interest rates. These programs often have lower eligibility requirements than traditional mortgages. There are six federal programs that are worth exploring.
FHA Loans
| Pros | – Low down payment – Available to borrowers with low credit scores |
| Cons | – Lower credit scores may necessitate higher down payments |
| Eligibility | – Credit score of 500 or above (10% down payment) – Down payment of at least 3.5% (580+ credit score) – Debt-to-income ratio <43% |
| Best For | – Anyone without perfect credit history or sufficient savings for a down payment |
The FHA loan program is one of the most popular first-time homebuyer programs in Missouri. Backed by the Federal Housing Administration (FHA), FHA loans are distributed by local, third-party lenders throughout the state. They come with lower interest rates, but the biggest benefit is a low down payment requirement.
Rather than the standard 20%, borrowers only need to provide 3.5% of the home’s value at closing. Better yet, FHA loan requirements are inclusive so almost anyone can qualify. You need a FICO® credit score of 580 to receive the down payment perk in its full glory, but you can still qualify so long as your score is at least 500.
VA Loans
| Pros | – No down payment – No private mortgage insurance – Usually comes with reduced closing costs |
| Cons | – VA funding fee – Long application process |
| Eligibility | – Credit score of 620 or above – Military members and veterans, their spouses, and other beneficiaries |
| Best For | – Veterans without adequate income or savings to afford a down payment |
Members of the military fight for the American Dream every day. To show the country’s appreciation, the Department of Veterans Affairs developed VA loans. The VA insures them and external lenders distribute these loans.
The 3.5% down payment of FHA loans may sound good, but what about 0%? Since many retired military professionals struggle to scrape together a down payment, the VA doesn’t require one. Plus, since they back part of your risk, VA borrowers also do not have to get private mortgage insurance (PMI). VA loans usually come with low closing costs too, leaving even more money in your wallet.
To qualify for these impressive perks, veterans need to contribute 1.25% to 2.4% of their home’s value into the VA fund, depending on the size of their down payment (should they choose to make one at all). In order to prove that you’re a worthy and reliable borrower, you’ll need a credit score of at least 620.
USDA Loans
| Pros | – No down payment – Available to borrowers with low credit scores |
| Cons | – Not available to anyone that can get a conventional mortgage – Only available in select areas |
| Eligibility | – Earn an adjusted household income that’s 115% of the local median income – Home in an eligible area |
| Best For | – Low- and mid-income buyers willing to live in a rural part of the state |
The United States Department of Agriculture (USDA) sponsors “Section 502 Single Family Housing Guaranteed Loan Program.” Also known as USDA mortgages, these loans attract new homebuyers to rural or, at the very least, semi-rural communities throughout Missouri. So long as you have a decent credit history, they completely eliminate the need for a down payment.
In addition to a decent credit score, your household income must be within 115% of the local median income. You also have to prove that you are unable to secure a conventional mortgage. That way, the USDA can ensure that only buyers that need the support get it. You may still be eligible even if your credit score is a bit low. You’ll just have to pay a 10% down payment.
Good Neighbor Next Door Program
| Pros | – 50% flat discount on home price |
| Cons | – Only available in select areas |
| Eligibility | – Remain in the home for at least three years – Police officers, firefighters, emergency medical technicians, or pre-K through 12th-grade teachers |
| Best For | – Public servants without enough income or savings to afford a home |
Housing and Urban Development‘s (HUD) Good Neighbor Next Door Program rewards police officers, firefighters, emergency medical technicians and teachers with a 50% reduction on the listing price of their home. It’s really more of a discount than a loan.
To qualify, the home must be in a HUD-designated “revitalization” area. In addition to having a certain job and buying a home in a certain area, you must also agree to live in the home for at least three years after the purchase. You can sell the home and retain any equity and profit once the three years are up.
Fannie Mae/Freddie Mac
| Pros | – Low down payment – Available to borrowers with poor (and no) credit history – Cancellable private mortgage insurance – Multiple loan types available |
| Cons | – Higher rates than other federal programs |
| Eligibility | – Earn within local income requirements |
| Best For | – Buyers that need a low down payment but don’t qualify for other federal programs. |
The previous federal first-time homebuyer programs are a partnership between a federal organization and a third-party lender. Freddie Mac and Fannie Mae, on the other hand, are government-sponsored mortgage providers. They are similar entities but offer different programs with different benefits.
Fannie Mae’s first-time homebuyer program is known as a HomeReady® loan. To qualify, you must also earn an income at or near the U.S. median, have a minimum credit score of 620 and pay a 3% down payment. You do need private mortgage insurance at the time of purchase. But you can cancel it once you’ve accrued 20% equity in your new home.
Freddie Mac offers the Home Possible 97% LTV with a required minimum down payment of 3%. With a Home Possible loan, you can choose both the length (15 or 30 years) and terms (5/5, 5/1, 7/1 or 10/1 adjustable rate) of the loan. You also get the cancelable private mortgage insurance benefit described above. Perhaps best of all, you won’t need any credit to qualify.
NADL
| Pros | – No down payment – No private mortgage insurance – Reduced, fixed rate – Available to borrowers with low credit scores – Usually comes with reduced closing costs |
| Cons | – Only available in select areas |
| Eligibility | – Home in an eligible territory – Military members or veterans of Native American descent, their spouses, or other beneficiaries |
| Best For | – Native American veterans that don’t lack the income or savings to make a down payment |
The VA also sponsors Native American Direct Loans (NADL), which provide Native American veterans and their families the tools they need to buy a home. As with VA loans, Native American veterans won’t have to make any down payment. They also won’t have to take out any private mortgage insurance or pay typical closing costs.
What sets NADLs apart is the reduced, set interest rate. To make things even better, you do not need a strong credit history to qualify. Keep in mind that the home must be located on allotted lands, Alaska Native corporations, Pacific Island territories or federally-recognized trusts.
Missouri First-Time Homebuyer Programs
The Missouri Housing Development Commission (MHDC) helps Show-Me State buyers purchase their first home. All MHDC mortgages are 30-year, fixed-rate loans with below-market interest rates. In some cases, there are credit score requirements and income and purchase price limits.
MHDC First Place Loan Program
| Pros | – Reduced interest rates – Multiple loan types available – Potential to combine with down payment assistance |
| Cons | – Must meet lender and FHA, VA, USDA, or Fannie Mae requirements |
| Eligibility | – Income and purchase price limits dependent on household size and home location |
| Best For | – Low- and mid-income buyers that need to secure lower interest rates on federal mortgage programs |
The First Place program grants first-time homebuyers lower interest rates for FHA, VA, USDA, or Fannie Mae conventional loans. As with all MHDC loans, the mortgages are for 30 years. The rate will remain the same for the entire life of the loan. That makes it easy to set a long-term budget and financial goals.
The biggest hurdle to qualification is purchase price and income limits. Single-unit homes cost less than $331,423. The first price applies to homes in target areas and the second price is for homes anywhere else. Zillow lists the median household price in Missouri at about $161,000. As such, it shouldn’t be too hard to find one that fits the mold.
MHDC Cash Assistance Loan
| Pros | – Up to 4% of the original loan amount – Forgivable after ten years |
| Cons | – Must meet lender and FHA, VA, USDA, or Fannie Mae requirements |
| Eligibility | – Income and purchase price limits dependent on household size and home location |
| Best For | – Low- and mid-income buyers that need help with down payment and closing costs |
Cash Assistance loans are available to First Place. The program provides eligible buyers with a grant worth up to 4% of the original loan amount for down payment and closing costs. Income and purchase price limits apply. And you’ll still have to meet FHA, VA, USDA or Fannie Mae conventional loan requirements to qualify.
Cash assistance is awarded as a second mortgage. Don’t stress, though. You won’t have to make any monthly payments. Plus, it will be forgiven after 10 years if the home remains your primary residence and you stay current on your original loan.
MHDC Mortgage Credit Certificate Program
| Pros | – Reduced federal tax bill – Lasts the entire lifetime of the loan until repayment, refinancing, or sale |
| Cons | – Must pay issuance fee |
| Eligibility | – MHDC borrower – Income limits dependent on household size and home location |
| Best For | – Buyers taking advantage of MHDC loans that want to save on their annual tax bill |
In addition to loan and down payment assistance programs, the Missouri Housing Development Commission provides eligible homebuyers with a Mortgage Credit Certificate (MCC). That can help them save even more. Through this program, buyers receive an annual federal tax reduction of 25% of the total amount of mortgage interest with a maximum of $2,000 a year.
You can claim the credit every year for the life of the loan so long as the home remains your primary residence. Any buyer using an MHDC program or lender to purchase their first home is eligible. You must pay an insurance fee of 1% of the loan amount, but this is a small obstacle to achieving serious long-term savings.
Tips for Getting a Mortgage
- Getting a mortgage is a big financial decision, no matter what program you use. You may want to consider working with a financial advisor to make sure your finances are prepared. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- Research the lenders, rates and down payment requirements for each mortgage and homebuyer program. Then pick the right one for you. Remember that upfront costs go beyond a down payment. Factor moving and closing costs into that month’s budget as well. Along the same lines, keep in mind that homeowners insurance, property taxes, and maintenance costs are all ongoing expenses in addition to monthly mortgage payments.
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