Understanding Missouri’s Homebuying Assistance Programs

With mortgage rates up and Missouri home still rising, you may be wondering if purchasing your first home—or moving out of your current home into a new one—will be affordable any time soon. While high interest rates and home prices might seem to put homeownership out of reach, there are many programs available for Missouri residents to help lower monthly payments, minimize your down payment and closing costs, and reduce the credit and income hurdles involved with buying a home. 

In this post we’ll cover many of the first-time homebuyer mortgage and down payment assistance programs available to you in Missouri, as well as national programs including FHA loans and USDA loans, that open the doors for homeownership to thousands of individuals and families each year.

Federal Housing Administration (FHA) Programs

FHA Home Loans are offered by your local bank in Missouri and backed by the U.S. Department of Housing and Urban Development (HUD). They are often used by first-time home buyers because they require low down payments (as little as 3.5%) and more flexible credit qualifications, but are available to anyone who meets their guidelines. Some general requirements specific to FHA loans include:

• Credit score of over 500. For scores of 500-580, you’ll need to put 10% down. For scores over 580, you are only required to put 3.5% down
• Debt-to-income (DTI) ratio at or below 43%. However, with other compensating factors your DTI can go as high as 57%. You can use a monthly payment calculator to help you determine your DTI.
• Mortgage Insurance Premium (MIP) fees. These fees include an upfront fee of 1.75% paid at closing, as well as an annual fee equal to .50% to .75% of your total loan amount, incorporated into your monthly payments.
• Property restrictions. The house, which can be a single family home, duplex, townhome, condo, or manufactured home, must be used for your primary residence. It also must be in good, habitable condition: “safe, secure, and structurally sound”.

Types of FHA loans include:

Fixed-rate FHA Loans: the most common type of FHA loan, this loan offers a fixed-rate payment for the standard 15- and 30-year terms. The government backs the loans and the lenders set their own interest rates.

Adjustable-rate FHA Mortgages (ARM): FHA ARMs come with varied interest rates over their lifetime, but start with a period of 3, 5, or 7 years of fixed, low interest rates. Once this initial period ends, rates will fluctuate annually based on current market rates. These loans are ideal for those who need lower payments in the short term but will be able to afford larger payments in future years.

FHA Energy Efficient Mortgage (EEM): Additionally, the FHA offers their EEM loan program to both prospective home buyers and existing homeowners to implement energy-efficient upgrades to their homes. These upgrades can be a great long-term investment with significant returns on your investment from energy cost savings.

U.S. Department of Agriculture (USDA) Rural Development Loans

For individuals living in rural or low-population areas—like much of Missouri—USDA home loans can offer uniquely affordable financing options. With flexible credit requirements and an option of no down payment, USDA loans can put homes within reach of many rural residents who may not otherwise qualify for a home loan. Loans are offered both directly through the USDA, as well as by your bank in partnership with the USDA and can be used to buy, build, or refinance a single-family home in designated rural areas.

USDA home loan options include:

Single Family Housing Direct Loans

Also known as the Section 502 Direct Loan Program, these loans are designed for very low- and low-income prospective homebuyers, and are applied for directly to the USDA. Direct loans offer 33 or 38 year terms, drawing out your payment period to reduce monthly payments. Properties must be smaller than 2,000 square feet, and interest rates are set by the USDA. To see if you qualify for this program, you can look up your eligibility here: Single Family Housing Eligibility Assessment.

Single Family Guaranteed Loans

Also known as the Section 503 Guaranteed Loan Program, these loans are financed by your local bank (like BTC Bank), but guaranteed by the USDA, allowing for a 0% down payment while minimizing risk for the lender. Rates are similar to those for conventional loans, and set by the lender, and these loans follow standard 15 or 30 year terms. These loans are designed for both low- and moderate-income households, and income caps are higher (currently $103,500 for a family of up to four in most areas of Missouri). To see if you qualify for this program, you can look up your eligibility here: SFH Section 502 GLP Eligibility Check Worksheet.

In addition to loans to purchase single-family homes, the USDA also offers Single Family Housing Repair Loans & Grants and Multifamily Housing Direct Loans for affordable rental housing for low-income, elderly, or disabled individuals and families in eligible rural areas. For more information about USDA home loans in Missouri, check out the Missouri Rural Development website.

Missouri Statewide Programs

In addition to the above federal loan programs, there are many state-funded programs to help Missouri residents meet their homeownership goals. The Missouri Housing Development Commission (MDHC) offers three such mortgage assistance programs for prospective home buyers in Missouri, including:

First Place Loan Program

This is one of several low-income home buying programs available to residents of Missouri, and aims to make homebuying affordable to limited-income first-time homebuyers and US veterans by either helping with their down payments and closing costs or lowering their monthly payments. To be eligible, you must be a first-time homebuyer or a veteran (veterans do not need to be first-time homebuyers) and have a minimum credit score of 640. There are two types of loans within this loan program:

• Cash Assistance Loan: With this loan, eligible participants can receive assistance on down payment and closing costs in the form of a second mortgage—an additional loan on top of your mortgage used to cover these costs. Participants may receive a second mortgage of 4% of the loan amount that is completely forgivable if the participant remains in the home for 10 years.
• Noncash Assistance Loan: This loan provides eligible participants with lowered interest rates, which can result in lower monthly payments as well as less interest paid over the life of the loan. Participants in this program will need to be able to pay their own closing costs and provide their own down payment.

Next Step Program

This program also assists homebuyers with down payments, closing costs, and monthly payments, and is designed to help those who are above the First Place Loan Program income limits. These applicants need not be first time homebuyers. Participants of this program also receive a second mortgage of 4% of the loan amount, forgivable after 10 years. This program can also be combined with the Mortgage Credit Certificate (MCC) Program below.

Mortgage Credit Certificate (MCC)

This program provides tax relief to income eligible first-time home buyers or participants of the Next Step Program, allowing prospective home buyers a better opportunity to obtain mortgage financing. It provides participants a non-refundable tax credit of 25% of the annual mortgage interest payment.

Additionally, Missouri also provides education and assistance to help guide prospective homeowners navigate the homebuying process. For further local assistance, you can check out this list of Missouri state and city contacts for those seeking expertise in your own county. Looking for homebuyer education opportunities? Missouri’s homeowner education programs can provide you with opportunities to learn the ins and outs of homeownership, whether you are looking to buy your first house or already own your home.

Missouri County-Wide Programs

Lastly, there are a number of county- and city-wide programs that offer local first-time home buyer and low-income homebuyer grants to help individuals with modest means find their path to homeownership.  Visit your city or county website for detailed information regarding grants and assistance programs in your area:

• Columbia, MO Homeownership Assistance Program: This opportunity provides funds to eligible prospective first-time homebuyers in the city of Columbia, MO for down payments and other closing costs of $5,000-$10,000. This is a forgivable loan at 0% interest.
• Joplin, MO Harry S. Truman Community Development Co. Home Buyer Program: This program provides low- and middle-income individuals in Joplin, MO up to $5,000 for a down payment/closing costs.
• Lee’s Summit, MO Community Development Block Grant (CDBG) Program: This program assists low- to moderate-income individuals looking to acquire property. The purpose of this grant is to improve low- and moderate-income communities by providing subsidization for first time homebuyers, those seeking relocation, demolition, or rehabilitation on residential and non-residential structures.
• City of St. Charles First Time Home Buyer Program: Offers down payment assistance of up to $5,000 for qualified low- and moderate-income homebuyers at 0% interest.

For more regional homeowner assistance opportunities, visit HUD’s Homeownership Assistance: Missouri page.

Dreaming of buying a home? BTC Bank can help you get there.

At BTC Bank, we strive to provide homebuyers with the tools they need to purchase their new home—whether they are first-time homebuyers and current homeowners. From offering a variety of home loans to meet your unique needs to assistance and advice from experienced local lenders during the application process, we can help you navigate the home purchase process, saving you time, stress, and money.