First-time homebuyer programs and downpayment assistance in Montana

MBOH’s mortgages feature low interest rates and a number of flexible options designed to meet the varying needs of first-time buyers in Montana. The interest rates vary based on the program and are subject to change.

The board also recognizes that, while many households would be able to afford a monthly mortgage payment, upfront costs can put homeownership out of reach. That’s why the board provides a down payment assistance program to reduce that burden on first-time buyers.

Regular Bond Program

This program offers low interest rates on 30-year mortgages. With the Regular Bond Program, you can buy a single-family home, condo or manufactured home anywhere in Montana.

Working through one of MBOH’s approved lenders, you’ll have to first qualify for an FHA, VA, USDA or Department of Housing and Urban Development (HUD) mortgage.

The program is exclusive to either first-time homebuyers (which includes individuals who haven’t owned a home in the last three years) or anyone purchasing a home in one of the state’s targeted areas. The list of eligible areas can be found in the program’s terms and conditions.

You’ll also have to participate in a homebuyer education program unless your credit score is at least 680 and you meet certain debt-to-income requirements.

Bond Advantage Down Payment Assistance Program

To qualify for the Bond Advantage Down Payment Assistance Program, you must first qualify for the Regular Bond Program.

Once you’ve done that, you’ll be offered a loan of up to 5% of your home’s sales price, up to a maximum of $10,000, to help with your down payment and closing costs. Your down payment loan will have the same fixed rate as your mortgage and a 15-year term.

You’ll also need to have a minimum credit score of 620, take a homebuyer education program and contribute at least $1,000 of your own funds for the transaction.

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MBOH Plus 0% Deferred Down Payment Assistance Program

Like the Bond Advantage Program, you can use the MBOH 0% Deferred Down Payment Assistance Program for your down payment and closing costs. It offers up to 5% of your home’s sale price, to a maximum of $6,500.

While this is a loan, there’s no interest or monthly payments — you simply have to repay the amount when you sell, refinance or pay off your first loan.

To qualify for Deferred Down Payment Assistance, you’ll need to qualify for a Montana Housing 30-year fixed-rate mortgage loan, a minimum credit score of 620, a maximum debt-to-income ratio of 43%, fall within the income limit of $55,000 and contribute at least $1,000 of your own funds. You’ll also be required to take homebuyer education.

Set-aside Programs

This category includes programs approved by MBOH that are offered by nonprofits, local governments and other partner organizations. Most of these programs require you to fall under 80% of your area’s median income to qualify for their reduced rates.

You’ll work through a participating lender to qualify for a Montana Housing loan that will cover most of the purchase price, and a nonprofit will provide you with the rest. The difference can range from $1,500 to $45,000, depending on where you live and what your needs are.

To qualify for one of these programs, you’ll need to qualify for the Regular Bond Program first and attend homebuyer education.

The list of approved Set-aside programs includes:

  • NeighborWorks Montana 2nd Mortgage
  • CAP NWMT Kalispell Community Land Trust
  • Missoula Combined HRDC XI HOME Funds
  • Bozeman District IX HOME Funds
  • Home$tart Program (FHLB)
  • HUD Section-184 Home Loan
  • Sparrow HOmes
  • Dream Makers Matching Grant Funds (for veterans only)
  • City of Billings First Time Homebuyer Program
  • New Construction Lot Refinance Program

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80% Combined Program

The 80% Combined program is an alternative to an FHA-insured loan that eliminates the need for mortgage insurance.

This is a 30-year mortgage for 80% of the value of the home. The other 20% is offered by a partnering nonprofit organization, such as NeighborWorks Montana or one of the Human Resource Development Councils.

This program requires a credit score of at least 640, and the property must meet the FHA’s standards. It’s also reserved for first-time homebuyers, and applicants will have to complete homebuyer education.

Veteran’s Home Loan Program

This program, funded by the Montana Coal Tax Trust Fund, helps eligible veterans purchase their first home. It’s open to Montana residents who are currently serving or have served in the military, whether that’s the federal armed services or the Montana National Guard.

The interest rate on these loans is one percentage point lower than standard market rates. Plus, there’s no income or purchase price limits.

The Mortgage Credit Certificate Program

The Mortgage Credit Certificate (MCC) Program reduces the amount of federal income tax first-time homebuyers are required to pay.

With an MCC, you’ll get a credit for 20% of the mortgage interest you pay every year (up to $2,000).

The requirements to get an MCC are the same as the requirements to get an MBOH loan — however, Montana Housing’s loans cannot be combined with this program.

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Who qualifies for first-time homebuyer programs in Montana?

The Montana Board of Housing doesn’t grant loans directly. Instead, you’ll work with one of the board’s approved lenders to apply. That lender will also serve as your resource for any questions or issues that pop up throughout the process.

You’ll need to meet a few requirements to qualify for assistance. Because the board’s programs are designed to help low- to moderate-income residents of Montana find affordable housing, it sets both income and purchase price limits that apply for all household members over the age of 18.

Some programs for first-time homebuyers will also require you to take a homebuyer education program.

More: Get a free credit score and credit monitoring from Credit Sesame.

Nationwide first-time homebuyer programs

The most common way to become a homeowner is to get a “conventional” mortgage in the private market.

Generally, you’d need a credit score of at least 620 to attract a lender. Applicants often need to be able to put down at least 5% of the home’s cost — though ideally, you’d have a 20% down payment so you don’t have to pay for private mortgage insurance.

More: Use these savings accounts to build up your down payment.

If that sounds a bit steep, you should know the federal government offers a number of nonconventional loans that may be better for first-time buyers.

FHA loans

The Federal Housing Administration (FHA) is a division of the Department of Housing and Urban Development. The government introduced FHA loans in 1934 in response to the needs of the housing market. At the time, homeownership was inaccessible to many Americans, and only four out of 10 households owned their homes. Since its inception, the FHA has insured more than 46 million mortgages.

The terms of an FHA mortgage are less strict than those of conventional mortgages. The average credit score you’ll need is 580, but if you have enough for a significant down payment, your score could be as low as 500. The minimum down payment for an FHA loan is 3.5%, but putting down less than 10% will mean you’ll pay a mortgage insurance premium (MIP) along with your monthly payments.

While these loans are more accessible and have made it possible for more Americans to live the dream of home ownership, the associated fees can add up.

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VA loans

In 1944, Congress passed an act to increase benefits to eligible veterans. At the top of the list of priorities for veterans at the time was a loan guarantee program. And so now, the U.S. Department of Veterans Affairs (VA) is authorized to guarantee or insure home, farm and business loans made to veterans by lending institutions.

These loans are available to active service members, veterans and some surviving military spouses. They don’t require a down payment or mortgage insurance, but borrowers do pay a funding fee.

USDA loans

USDA loans are mortgages for rural and suburban homeowners. They’re guaranteed by the United States Department of Agriculture and require no down payment and no private mortgage insurance.

You will have to pay an upfront guarantee fee of 1% of the loan amount and an annual fee of 0.35%, but these costs are generally more affordable than paying for mortgage insurance.

There are income limits to qualify, so you won’t be able to take out a USDA loan if your household earns too much. The current income limits in most parts of the U.S. are $86,850 for one- to four-member households and $114,650 for five- to eight-member households, but the thresholds may be higher if you live in a county with a steeper-than-average cost of living.

You can check your eligibility through the USDA’s website.

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What next?

Now that you know all about the national and state programs available to you, there are still a few things you can do to prepare before you apply for a mortgage.

First, look at your credit score: Do you meet the requirements for loans and support? If you don’t already have your score handy, you can check it for free through Credit Sesame.

Is your score not going to cut it? A little help from Self credit repair can bring your score up and get you application-ready.

Next, make sure you’ve gathered all the documents you’ll need to demonstrate your income and assets.

After that, you can think about getting pre-approved for a mortgage so you can get house hunting.

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About the Author

Sigrid Forberg

Sigrid Forberg

Reporter

Sigrid is a reporter with MoneyWise. Before joining the team, she worked for a B2B publication in the hardware and home improvement industry and ran an internal employee magazine for the federal government. As a graduate of the Carleton University Journalism program, she takes pride in telling informative, engaging and compelling stories.

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