Tuesday, November 13, 2012

Buying a home? Consider homebuyer assistance programs

Graham McCaulley, Extension Associate, MU Personal Financial Planning Extension

You’ve examined your monthly budget and determined how much home you can afford. You’ve been house hunting and have an idea of what you’re looking for. You’ve even begun to shop mortgages. All these are necessary steps that most people take before buying a home, but not everyone checks into homebuyer assistance programs. For certain people, such as first-time homebuyers, those with low- to moderate incomes, veterans, or those living in rural areas, these programs can make getting into a home a little less costly.

Overall, the main benefit most homebuyer assistance programs provide for homebuyers are lower down payments, lower interest rates, and lower mortgage insurance costs than some may encounter with traditional mortgages. For example, with traditional financing (e.g., bank or credit union not participating in a homebuyer assistance program) you will usually have to come up with a minimum of 3% of a home’s value for a down payment as well as various closing costs ranging from about 1-4% of a home’s price. Also, if your down payment is less than 20%, you will have to pay for private mortgage insurance (PMI). The PMI premium is paid monthly as part of your mortgage payment and will be more expensive the smaller your down payment is.

The chart below outlines some homebuyer assistance programs that help cut down on the costs associated with buying a home:


Backed By


Who’s Eligible?

Down Payment Requirement



Good Neighbor Next Door Program

US Department of Housing and Urban Development (HUD)

HUD owned homes in revitalization areas may be purchased for only 50% of their appraised value.

Law enforcement officers, teachers (pre-Kindergarten through 12th grade) firefighters/emergency medical technicians.

If you qualify for any FHA-insured mortgage program, your down payment is only $100 and you may finance closing costs.

You must commit to living in the home as your sole residence for 3 years. During this time, you must have a second mortgage and note for the discount (i.e., 50% of the home’s value), although no interest or payments are required.  After 36 months the second mortgage is released.

First Place Homebuyer Program (Missouri)

Missouri Housing Development Commission


Two types of loans offered:

1) Cash Assistance: 3% of house price to use towards down payment or closing costs

2)  Non-Cash Assistance: no cash assistance, but loan offers a lower interest rate (currently 3% on 30-yr fixed loan).

First-time homebuyers and qualifying veterans who meet household income limits and have qualifying credit.

None for cash assistance loan.

Must live in home for 5 years. Cash assistance will be in the form of a 0% interest second mortgage that requires no payments and will be forgiven after 5 years of occupancy.


Rural Development Loans

US Department of Agriculture (USDA)

Low- and moderate-income individuals purchasing homes in rural areas.

100% financing, lower interest rates, and low cost PMI. The USDA offers guaranteed loans (for more moderate-income borrowers) as well as direct loans (for lower-income borrowers).


No down payment requirement. Loan amount can include 100% of purchase price as well as closing costs

Home must be in an eligible rural area, as determined by the USDA. It’s important to note that many areas just outside major metropolitan areas will still qualify as rural. You will have to pay a one-time USDA fee of 3.5% of the loan amount, which can be added to the loan.


Fannie Mae

Available to those who will live in the homes as well as investors (occupiers have the chance to purchase homes before investors).

HomePath mortgages are available on homes owned by Fannie Mae (usually foreclosed homes). These loans offer a low down payment, no lender-requested appraisal and no mortgage insurance


If buying the home as an owner-occupier (i.e., buying before investors are allowed to), you must live in the home as your primary residence for 1 year.

VA Home Loan Program

US Department of Veterans Affairs (VA)

Veterans, active duty personnel, certain reservists and National Guard members, surviving spouses of persons who die on active duty or die as a result of service-connected disabilities, and certain spouses of active duty personnel

100% financing and no PMI required. VA rules also limit the amount you can be charged for closing costs.

No down payment requirement.

You will be charged a VA funding fee that will range from .5 to 3.3%. This fee can be included in your loan amount. If you receive service-connected disability payments each month, you're exempt from the fee. You must live in the home as your primary residence.

FHA 203(b) Mortgage Insurance

Federal Housing Administration (FHA)

Provides mortgage insurance for those purchasing or refinancing a principal residence. The mortgage loan is funded by a lending institution, and the mortgage is insured by the FHA (which is part of HUD) so your lender can offer you a better deal.

Wide availability- You don't have to have a perfect credit score to get an FHA mortgage. In fact, even if you have had credit problems, such as a bankruptcy, it's easier for you to qualify for an FHA loan than a conventional loan.

3.5% of purchase price.

FHA does not provide direct financing nor does it set the interest rates on the mortgages it insures. For more information find an FHA approved lender in your area by going to: http://www.hud.gov/ll/code/llslcrit.html



The above chart is not an exhaustive list of homebuyer assistance programs. Home loan and down payment assistance programs vary by state, as many are sponsored by state/local governments or other organizations. For a list of specific programs by state, visit http://www.hud.gov/buying/localbuying.cfm.

No matter where you are in the home buying process, it’s a good idea to familiarize yourself with common buying and financing procedures as well as to think critically about how much home you can afford. You can find articles on these issues in the housing section of MU HES Extension’s Money Matters website (http://missourifamilies.org/features/financearticles/housing.htm).

For more information on the assistance programs outlined above, including how to apply for the programs, visit the following links:

HUD “Good Neighbor Next Door” Program: http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/sfh/reo/goodn/gnndabot

MHDC “First Place Homebuyer Program: http://www.mhdc.com/homes/firstplaceloans/index.htm

Federal Housing Administration (FHA) Mortgage Insurance:


USDA Rural Development Loans: http://www.rurdev.usda.gov/hsf_sfh.html

VA Loans: http://www.benefits.va.gov/homeloans/lp.asp

Fannie Mae HomePath Mortgage: http://www.homepath.com



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Jillian Johnson said...

Thanks for sharing this! My husband and I are from Jersey and are looking at Charleston SC homes for sale and we're trying to do everything in our power to help save money when buying a home.

Anonymous said...

These are good assistance programs right here. 3 % might not seem that big but if it will be deducted from amounts such as the price of a house? The family or individual will be able to save a lot.

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