Are you searching for your first home? It’s a great time to buy, and your monthly costs are often less with a home purchase than an apartment rental. While most people think you need a 20% down payment, that’s not always the case. It’s possible to buy a home with little money down. Make homeownership a reality rather than just a dream, with the ultimate Kansas City down payment assistance guide. It includes programs that lower the upfront costs for home buyers help in Missouri and Kansas.
Do you need a 20% down payment?
When you rent, it’s like throwing money out the window every month rather than investing that money in property that you own. Many renters wait to buy until they have a 20-percent down payment. That’s because most people think that’s a golden rule of real estate. However, it’s a myth!
You don’t need that much money down to purchase a home. You have options, so don’t let a down payment keep you on the real estate sidelines.
In fact, waiting to buy a home until you have enough money for a down payment may cost you money! You don’t know what the real estate market is going to do, as home prices go up and down. If you wait, home prices and interest rates may skyrocket requiring even more money down.
In fact, there’s no better time to buy than now. We’re expecting an interest rate hike in 2018 which will increase the cost of homeownership.
In Kansas City, there are many programs on the Missouri and Kansas side that lower down payments and closing costs. This downpayment assistance guide details the ins and outs of the programs including eligibility and qualifications. There may be income restrictions and even neighborhood restrictions with some programs.
There are also special programs, and qualification exceptions, for veterans.
You don’t always have to be a first-time homebuyer to qualify!
Of course, find a real estate agent who is familiar with these programs. They’re a huge advocate for you, and you don’t pay agent fees as a buyer! Let me know if I can help as program rules change often.
Watch this video for all the down payment myths, and ways to overcome them.
Private mortgage insurance
First, down payment programs are popular because they not only require less money upfront, but they save you money every month, for the first few years of the loan.
If you get a standard loan, without a down payment program, you’ll pay private mortgage insurance (PMI) if you don’t have 20% to put down on your home. It’s an insurance policy for the bank in case you don’t make your payments. The extra fee fuels the 20% down myth.
You pay the fee until you have 20% equity in your home. That can happen because you paid down the principal or your home value increased.
Down payment assistance programs are attractive because they often help you avoid PMI payments.
USDA no down payment loan
The first down payment assistance program sounds like a mouthful but hang in there with me. The USDA (Department of Agriculture) Rural Development Guaranteed Loan Program offers a loan with no money down. While it’s through the USDA, the house doesn’t have to be on farmland to qualify.
Although you don’t pay PMI, there are some fees associated with the program. The upfront fee is 1% of the loan amount, and the annual fee is 0.35% of the average scheduled unpaid principal balance for the life of the loan.
Like all down payment assistance programs, there are guidelines to qualify. These include the following:
- income-eligibilityFHA Loan
- make the home your primary residence
- Use an approved lender
- Address must be in an eligible area
- be a U.S. Citizen, U.S. non-citizen national or Qualified Alien
- have the legal capacity to incur the loan obligation
The income eligibility varies by city and state and helps low and moderate-income home buyers.
If you have lender questions, ask your Realtor or call the Guaranteed Loan Specialist in your state. In Missouri, call 660-584-8732 or email ra.grhlenderquestions.mo.usda.gov. In Kansas, call 785-628-3081 or email Kansas-GRH@ks.usda.gov.
Perhaps the most familiar down payment assistance program is an FHA Loan. It offers low down payments, low closing costs, and easy credit qualifications.
The Federal Housing Administration (FHA) insures the loan, so lenders offer you a better deal. Even though private lenders offer FHA loans, the down payment is as low as 3.5% of your home’s purchase price.
The low-interest rate and credit score qualifications make this an attractive loan for some homebuyers, including first-time homebuyers. You qualify for the 3.5% interest rate if your credit score is 580 or higher. If it’s between 500 and 580, you’ll pay 10%.
There are fees associated with an FHA loan since the qualifications are lower than a conventional loan. If you have good credit and a down payment of 10-15%, the Consumer Financial Protection Agency points out that an FHA loan is typically more expensive than a conventional one. FHA loans are cheapest for borrowers with a smaller down payment and lower credit score.
Talk with your Realtor® and lender about the best options for your financial situation.
Download FREE First-Time Homebuyer Guide
HomeReady Fannie Mae
If you have limited savings for a down payment, the Fannie Mae HomeReady Mortgage offers an even lower down payment than an FHA loan. You qualify for a 3% down payment compared to 3.5 with an FHA loan.
You need a credit score of 620 or better with low to moderate income. So, what are the income limits? They vary based on the home’s location, but you can look them up on Fannie Mae’s interactive map.
With this program, you don’t have to be a first-time homebuyer. Plus, the private mortgage insurance is cancellable.
Like every other down payment assistance program, there are specific program guidelines. For example, at least one borrower on the loan must take an online homeownership education program.
Missouri home loan programs
The Missouri Housing Development Commission offers three options to offset the costs of homeownership:
- First Place Loan Program
- Mortgage Credit Certification
- Next Step Program
Some of these programs are geared toward first-time homebuyers, although you can qualify if you’ve previously owned a home. The First Place Loan defines a first-time homebuyer as someone who hasn’t owned a home or had an ownership interest in one for three years.
Plus, veterans qualify for “First Place” and “Mortgage Credit Certificate” loan programs whether they’re a first-time homebuyer or not.
Read the program guidelines carefully as they vary.
Missouri First Place Loan Program
The First Place Loan Program offers affordable interest rates and additional incentives to first-time homebuyers and qualified veterans. There are cash and non-cash assistance programs.
Cash assistance loans
Cash assistance loans reduce closing costs or the down payment. How does this work? You get a forgivable second mortgage of 4% of the loan amount. You use that money for the down payment and closing costs. The bank forgives the loan if you live in the home for ten years. After year five, the second mortgage diminishes by 1/60 every month, and then the bank forgives it in year 10.
There are purchase price and income limits with this program. Single-family homes up to $248,098 qualify. If you purchase in a targeted area, look at houses up to $303,231. You also don’t have to be a first-time homebuyer if you buy in a targeted area, which is a neighborhood designated as economically distressed or where 70% or more of the families have an income that’s 80% 0r less of the state’s median income.
If you’re looking for a home in those price ranges, you also need to meet income limits. However, they’re more generous than you might expect, allowing more Kansas City first time homebuyers to qualify for this program. They’re $74,800 for 1-2 people purchasing a home in a non-targeted area or $89,760 for 1-2 people buying a home in a targeted area.
Like other programs, you need to use a certified lender.
Non-cash Assistance Loans
If you don’t need down payment help or assistance paying down closing costs, you may qualify for a lower interest rate with a non-cash assistance loan. That allows you to pay less each month for your mortgage.
You qualify for this loan if you purchase a single family home up to $248,098 in a non-targeted area or $303,231 in a targeted area.
In Kansas City, you can earn up to $74,800 for 1-2 people buying a home in a non-targeted area. In a targeted area, the limit is $89,760 for 1-2 people.
Start your home search today!
Lower your federal income tax
Secondly, the Mortgage Credit Certificate (MCC) in Missouri is a non-refundable tax credit. Therefore, you pay less federal income tax. It’s 25% of the total amount of mortgage interest you pay each year.
This is an income-specific program for first-time homebuyers. Plus, you must use a certified lender through the Missouri Housing Development Corporation.
Finally, the Next Step program helps all buyers who need down payment assistance. It’s ideal for a buyer who isn’t purchasing their first home, first-time buyers who don’t meet the income limits for the First Place Program, and buyers looking to buy a house in an “opportunity area.”
Next Step offers a slightly lower interest rate and other incentives if you move to what is known as an “Opportunity Area.” These include census tracts where less than 5% of the people live in poverty, 70% or more have some college education, and incomes are higher than 120% of the area median.
With several types of loans available through the Missouri Housing Development Commission, speak with your Realtor® or approved lender for specific program details.
VA Home Loan
First of all, thank you to all the veterans for serving our country. We appreciate your sacrifice and service.
VA home loans are an excellent option for veterans, active-duty service members, and certain members of the National Guard and Reserves. These loans offer no down payment, with no PMI (private mortgage insurance).
To qualify, you need good credit, sufficient income, and a certificate of eligibility.
Lee’s Summit First-Time Homebuyer Program
From time to time, cities offer first-time homebuyer programs and grants. The Lee’s Summit First Time Homebuyer Program provides grants up to $3,000 for low-to-moderate first-time homebuyers. You can use the money for closing costs.
There are income qualifications. For a family of 4, the adjusted gross income must be $59,850 or less. The home must be in Lee’s Summit.
With this program, funding is limited. The city awards grants on a first-come-first-served basis. A Lee’s Summit Realtor® can help you determine if this program is best for you.
Kansas First-Time Homebuyer Program
Like Missouri, the state of Kansas offers a first-time homebuyer program to offset closing costs and a down payment. You get a forgivable loan to reduce these fees. In addition to the income restrictions, there are also location limitations, especially for Kansas City area residents. Lawrence, Kansas City, and Johnson County homes do not qualify for this program.
Johnson County Homebuyer Assistance
If you’re buying a home in Johnson County, Kansas, and work there, look into Johnson County’s Homebuyer Assistance Program. It offers down payment and closing cost assistance for low-to-moderate income residents who’ve worked in Johnson County for two consecutive years. Homebuyers get a deferred loan with a value up to $10,000. The bank forgives the loan after living in the home for five years.
For a family of 4, the income qualification is $59,850 or less. For a single person, it’s $41,900.
In this program, plan accordingly because it takes up to 3 months to complete this program.
You also need to take a homebuyer education course.
Good Neighbor Next Door
Finally, if you’re a law enforcement officer, teacher (pre-K through 12th grade), firefighter, or EMT, you qualify for up to 50% off the price of a home! Since there’s such a deep discount, there are specific requirements. Still, it’s worth considering if you don’t mind where you live.
HUD’s Good Neighbor Next Door Home Sales Program, offers the 50% discount if you live in the home for 36 months. The program lists homes for sale in areas they’re trying to improve and offers them for sale at deep discounts.
Here’s how it works. You have to buy the home through the program. Additionally, you sign a second mortgage note for the discount you receive. While it’s another loan, you never pay interest on it or any payments if you live there for three years.
Kansas City down payment help
Since there are lots of nuances with every down payment assistance program, work with a trusted real estate agent. It’s important because the rules change often. I work with my buyers to take the stress out of the home buying process. I can help you find a way to put less than 20% down on your first home!