- First-time Missouri home buyers can access below-market interest rate loans with optional cash assistance for down payments and closing costs.
- Cash assistance is available up to 4% of the purchase price of the home, up to a maximum of $10,400.
- Buyers can also reduce their taxes by up to $2,000 yearly, depending on their mortgage size, via the Mortgage Credit Certificate (MCC) program.
If not, you’re not alone! Many Missouri homebuyers haven’t even heard of these programs, which are largely sponsored by state and local governments. But taking advantage of them can make homeownership much, much more affordable. Here’s what you need to know:
Where to Go for Information
When you’re considering buying your first home, it can be a challenge just to learn the basics. Fortunately, there are a number of assistance programs available for potential and new homeowners to give you the reliable information you need. In Missouri, the best place to go is Missouri Housing Development Commission (MHDC), which also runs many of the assistance programs we’ll be exploring.
It is well worth your time to get familiar with the resources available from the MHDC – especially if you plan to take advantage of either their First Place or Next Step loan programs. (More on that shortly.)
Missouri’s First Place Loan Program
The MHDC’s First Place loan program is specifically geared towards helping first-time homebuyers. The program uses an existing pool of money that lenders can tap into to provide loans at lower-than-market interest rates to first-time buyers and veterans.
Here are some key details of the First Place program:
- It offers the option of either A) down payment and closing cost assistance, or B) a lower interest rate on the underlying loan package.
- It’s available to first-time buyers and qualified veterans.
- Loans through the program are 30-year, fixed-rate mortgages. Interest rates, loan limits, and closing costs are defined by the MHDC.
First Place Loan Eligibility Requirements
The First Place loan can be a great option for first-time buyers, provided they meet the other requirements for the program. Let’s take a closer look at what those eligibility requirements are.
Eligibility Requirements for Borrowers:
- You must be a first-time buyer, qualified veteran, or purchase your home in a Targeted Area. “First-time buyer” is defined as anyone who hasn’t owned a primary interest in a residence within the last three years. A qualified veteran is anyone who has served in the US armed forces on active duty. Qualified veterans must apply for the loan within 25 years of leaving the service.
- You need to meet the credit score requirements for the underlying loan package you’re applying for. This program does not lower credit requirements for a home loan.
- You must have an annual household income lower than the income limits determined by the MHDC.
- You must occupy the home within 60 days of closing.
Eligibility Requirements for the Home:
- Homes can be a single-family detached home, half-duplex, semi-detached home, condominium, or townhome. Permanently affixed manufactured homes are also eligible. Duplexes are eligible provided the units are at least 5 years old and one unit is occupied by the owner.
- Homes must not be located within the 100-year flood plain.
Purchase Price Limits
Nailing down a purchase price limit for the First Place loan program can be a bit tricky. There are two pathways within the loan program: Non-Cash Assistance and Cash-Assistance Loans (CAL), both of which we’ll explore shortly. The total purchase price limits vary depending on which program you are in, as well as if you are in a targeted or non-targeted area.
To make things simple, we’ll review purchase price limits for each of the two loan paths (cash assistance and non-cash assistance), in both targeted and non-targeted areas.
Purchase Price Limits for Non-Cash Assistance Loans
For homes in Targeted areas, purchase price limits are as follows:
- $346,315 for single-family homes.
- $443,445 for duplexes.
For homes in non-Targeted areas, purchase price limits are as follows:
- $283,348 for single-family homes.
- $362,818 for duplexes.
Purchase Price Limits for Cash-Assistance Loans
For homes in Targeted areas, purchase price limits for CAL borrowers are as follows:
- $360,067 for single-family homes.
- $461,046 for duplexes.
For homes in non-Targeted areas, purchase price limits for CAL borrowers are as follows:
- $294,600 for single-family homes.
- $377,219 for duplexes.
Cash-Assistance vs. Non-Cash Assistance
Missouri’s First Place loan package is a bit different than those offered in many other states because it offers potential borrowers two pathways. One pathway gives you the option of a Cash-Assistance Loan, while the other provides a lower interest rate.
Here are some quick facts about the Cash-Assistance Loan option:
- The cash-assistance can be used for both down payment and closing costs.
- The total amount of assistance won’t exceed 4% of the purchase price of a home. So, if the sale price of the home is $260,000, the cash-assistance loan will not exceed $10,400.
- Cash-assistance is a loan. The loan is taken out as a second mortgage at the same time as the first.
- The cash-assistance loan is forgivable after 10 years in the home. Specifically, for each month after the 5th year that you are in the residence, 1/60th of the loan amount will be forgiven. That will continue for the next 60 months (5 years), at which point the total amount of the cash-assistance loan has been forgiven.
The Cash-Assistance Loan option can be a great way to reduce the amount of liquid cash you need to become a homeowner. However, if you already have enough money saved to cover the down payment and closing costs of the purchase, the non-cash assistance option will most likely save you more money in the long run.
As a first time Missouri home buyer, the non-cash assistance option allows you to reduce your interest rate by .25 – .5 % compared to the Cash-Assistance option. This can represent significant savings over time. How significant? Let’s look at an example:
- For a loan amount of $300,000 at 5% interest, you would pay a total of $579,767.35 over the life of the loan. Of that amount, $279,767.35 would be in interest.
- In contrast, for the same loan amount at 4.5% interest, you would pay a total of $547,220.13 over the life of the loan. Of that amount, $247,220.13 would be in interest.
Between those two loan options, that’s a difference of $32,547.22 in interest. With the lower interest rate, your monthly payment will also be around $90.00 lower on a $300,000 principal.
Mortgage Credit Certificate
As we just saw, lowering your interest rate can be a very effective way to make homeownership more affordable for first-time buyers. Another way to make it more affordable is through the use of a Mortgage Credit Certificate (MCC).
What is a Mortgage Credit Certificate?
An MCC gives you a break on your annual taxes. The more interest you pay on your mortgage, the larger that tax benefit is.
How much of a tax credit is offered under MHDC’s MCC program?
A standalone MCC holder can receive a tax credit for up to 25% of the mortgage interest they have paid throughout the year, up to a maximum of $2,000. Applicants under the Next-Step CAL program may receive a 35% credit, while MCC holders in the Next Step Non CAL program can receive up to a 45% credit. The maximum yearly credit does not change.
What happens if you don’t have a tax liability or if your tax credit is greater than your tax liability?
If your MCC tax credit exceeds your tax liability for the year, you can carry over the credit into the following year. Credit from a previous year can be carried over for a maximum of three years.
Who is eligible to receive an MCC?
First-time homebuyers and select veterans are eligible to receive an MCC. Purchasers must also meet the income limit and purchase price limit requirements, which vary between Targeted and non-targeted areas.
Missouri’s Next Step Program
Missouri’s Next Step Loan program can be a great option for those first-time buyers whose income is too high to be eligible for the First Place program.
Here are some key features from the Next Step Loan Program:
- Available as a 30-year, fixed-rate mortgage (FHA, VA, RD, or conventional loan)
- Optional down payment is and closing cost assistance is available up to 4% of the loan amount, in the form of a second mortgage that is forgivable after 10 years.
- Offers higher household income and purchase price limits than other programs.
- Comes with an optional Mortgage Credit Certificate.
Like the First Place program, the Next Step Loan program requires the borrower to meet the minimum credit score requirements for the underlying loan package. However, the program offers more flexible income and purchase price requirements. This makes it ideal for higher-earning first-time buyers in Missouri who can still take advantage of the lower interest rates, MCC option, and Cash-Assistance Loan through the program.
Missouri has several fantastic programs geared to help first-time homebuyers in 2020 achieve the dream of homeownership. The First Step program is specifically built for first-time buyers and veterans, and offers access to a Mortgage Credit Certificate, fixed-rate mortgages at below-market interest rates, and optional Cash-Assistance Loans that are forgivable after 10 years.
The Next Step program is available for both repeat and first-time homebuyers, and offers many of the same benefits as the First Step loan program while being geared towards higher-earning Missouri households. Buyers in both the First Step and Next Step programs are eligible for a Mortgage Credit Certificate, which is used to reduce your taxes and make homeownership more affordable.
Unlike many other states, Missouri doesn’t have a homebuyer education requirement for potential homeowners. However, it is highly recommended that first-time buyers take the time to educate themselves on the process. There are lots of great educational resources out there that can make the process less stressful and help you find the right loan package for you!