South Dakota First Time Home Buyer Program: 5 Useful Things You Should Know

Wealthy Living published this great post on the South Dakota first time home buyer program. We have permission to republish the article here.

South Dakota’s median home price is lower than the national average. But in 2021 and 2022, they increased rapidly. Fortunately, South Dakota offers valuable programs, such as special mortgages, down payment assistance, and tax advantages, to aid first-time home buyers.

Several initiatives are available from the South Dakota Housing Development Authority (SDHDA) to help first-time homebuyers have easier access to housing. This non-profit organization partners with local lenders to provide fixed-rate mortgage loans at affordable interest rates. These initiatives offer assistance with down payments and mortgages, support for building and renovating, and much more.

Five Things to Know about the First-Time Home Buyer Program

First-time homebuyers in South Dakota who do not meet the qualifications for a conventional mortgage still have other options for buying a home.

SDHDA and local non-profit organizations have many homebuyer programs that help first-time buyers during the home-buying process. Here are five things related to the programs that buyers must know.

1. South Dakota First-Time Home Buyer Loan Programs

First–time buyers in South Dakota can get a conventional loan with a low-interest rate and a 20% down payment. Additionally, buyers do not have to pay for private mortgage insurance (PMI). The same applies to buyers across the country.

South Dakota homebuyers can often purchase a new home with a 3% or even 0% down payment using one of these low-down-payment mortgage options:

Conventional 97: From Freddie Mac or Fannie Mae. It requires a 3% deposit and a minimum credit score of 620. After a few years, buyers can stop paying mortgage insurance.

FHA Loan: Backed by the Federal Housing Administration. A minimum credit score of 580 and a 3.5% down payment are required. Unless buyers refinance to a different type of mortgage, move, or pay off the loan, they are responsible for the mortgage insurance premium (MIP).

VA loan: Only available for military personnel and veterans. Zero down payment, and depending on the lender, a minimum credit score of 620. After closing, there are no further mortgage insurance premiums.

USDA Loans: Available to buyers in certain rural areas who have low to moderate incomes. Zero down payment. The credit score requirement differs by lender but is usually 640.

SDHDA Loan: Buyers can pair this loan with a second mortgage that pays for most closing costs and down payment requirements (3% or 5% of the principal mortgage amount). Additionally, buyers are eligible for a mortgage tax credit certificate.

Buyers must purchase a primary residence to qualify for government lending programs such as the FHA, VA, and USDA home loans; thus, they cannot use these loans to purchase a second house, vacation home, or investment property.

2. South Dakota First Time Home Buyer Program

The South Dakota Housing Development Authority (SDHDA) offers special mortgages to all first-time buyers across the state. These provide a mortgage credit certificate and the option of competitive interest rates or down payment help (MCC).

The following are eligibility requirements for SHDHA mortgage programs:

The buyer does not own a home or has not in the past three years.
The buyer’s household income falls below the local threshold limits.
The home price is within local purchase price limits
Buyers choose a lender from a specific list of participating lenders.
Buyers qualify for the mortgage based on credit score, income, existing debts, etc.

The SDHDA has an online first-time home buyer calculator that can assist buyers in determining if they are likely to be eligible, but the only way to be certain if a buyer qualifies is to apply by getting in touch with an SDHDA Participating Lender.

The Authority shares the most recent mortgage rates available online. To determine how competitive they are, compare them to wider mortgage rates. But when comparing, buyers should consider the worth of the MCC and any down payment aid.

3. South Dakota First-Time Home Buyer Grants

The SDHDA’s down payment assistance appears to be very generous. Buyers can borrow either 3% or 5% of the mortgage loan total to cover the closing costs and down payment, providing they meet the criteria.

This assistance takes the form of a silent second mortgage, which means no monthly payment is required and 0% interest. When buyers refinance or sell the house, they must repay the borrowed money. Buyers must check whether repayment of the loan is required if they move out yet retain ownership.

The down payment assistance by SHDHA is an excellent deal. However, buyers must pay a higher mortgage rate on the primary home loan if they take advantage of it.

4. SDHDA Tax Credit

The state of South Dakota offers prospective tax benefits for first-time homebuyers (mortgage credit certificate (MCC)) in addition to the absence of a statewide personal income tax. An MCC allows buyers to claim a portion of the mortgage interest as a dollar-for-dollar tax credit, reducing their overall tax burden.

If the home buyers in South Dakota are purchasing homes that are less than $340,000, they will be eligible for a list of the tax credits, dependent on the size of the mortgage. The credits range from 30% to 50%, with a yearly cap of $2,000:

$100,00 – $120,000: A tax credit of 50% of the mortgage interest
$120,001 – $150,000: A tax credit of 50% of the mortgage interest
$150k: A tax credit of 50% of the mortgage interest

Obtaining this tax benefit does come with a cost. The MCC program comes with a standard fee of $750; however, if the buyer takes advantage of the SDHDA’s First-Time Homebuyer Program, the fee will be $250.

But irrespective of how much buyers pay upfront over 30 years, this credit can result in significant savings.

5. Key Documents

Buyers will be required to submit certain documents while making a mortgage application. Having them ready streamlines the application procedure.

Buyers must provide the following documents:

Banking account balances (savings, checking, retirement & other investment accounts)
Pay stubs (from the past two months)
Social Security number
Tax information (from the past two years)

Depending on the lender, additional documents can be required.

To start, check the eligibility using the first-time homebuyer calculator. The loan application procedure can then be initiated by getting in touch with one of the many banks, mortgage lenders, or credit unions that are members of the agency.

Always compare the options to obtain the best deal that meets the needs because interest rates and conditions won’t be the same across all institutions.