5 Things You Should Know About the South Dakota First Time Home Buyer Program

This helpful article on South Dakota first time home buyer program was originally published on Tim Thomas/Timothy Thomas Limited. We received permission to republish it here.

What You Should Know About the South Dakota First-Time Home Buyer Programs

According to the U.S. Census Bureau, the average national sales price was $546,800 in July 2022, with the average sales price in South Dakota being $292,488 showcasing the lower than average sales price in South Dakota. 

For homebuyers, this lag in pricing is beneficial, suggesting it is an excellent time to purchase a home in South Dakota.

In addition to the lower price, South Dakota offers valuable programs to aid first-time home buyers in the purchase of their first home. 

The South Dakota Housing Development Authority’s (SDHDA) goal is to help first-time homebuyers have easier access to housing and make the home-buying process seamless.

The SDHDA is a nonprofit organization that provides fixed-rate mortgage loans with affordable interest rates. Their initiatives provide down payment assistance, renovation and remodeling support, and much more. 

This post will discuss the South Dakota first-time home buyer program and valuable information that home buyers should know, such as the criteria to qualify for assistance. 

South Dakota First Time Home Buyer Program

If you want to buy your first home in South Dakota and do not meet the conventional requirements of most loan approvals, the first-time home buyer program is available to offer assistance.

They provide first-time home buyer loans, grants, and even tax credits to ease the burden of getting approved for a mortgage. To qualify for aid, buyers must meet the following criteria: 

  • Must be a first-time homeowner or have not owned a home in the past three years
  • Must have an income at or below prescribed South Dakota Housing Income Limits.
  • The home purchase price must be $340,000 or less.
  • Must choose a lender from a list of participating lenders.
  • Must qualify for the mortgage based on credit score, income, debts, etc.

For more in-depth eligibility screening, buyers can check out the SDHDA eligibility checker. 

Here are a few of the South Dakota first-time home buyer assistance programs: 

Mortgage Loan Assistance 

First–time buyers in South Dakota can apply for a conventional loan with low-interest, fixed-rate loans.

The first-time homebuyer program makes it to where applicants can purchase a new home with a 0-3% down payment using one of these most popular low down payment mortgage options:

Conventional loan: A conventional loan is a loan that is not insured or backed by the federal government. Banks and credit unions usually facilitate these loans.

In South Dakota, conventional loans require a 3 – 20% down payment and a minimum FICO credit score of 620. These loans can be used to purchase condos, 1-4 bedroom family homes, secondary or vacation homes, and investment properties. 

Federal Housing Administration (FHA) Loan: These loans offer lower down payment and credit score requirements and are backed by the FHA.

This loan required a minimum credit score of 580 and a 3.5% down payment. In South Dakota, FHA loans have a cap of $420,680 for a single-family home purchase. 

VA Loans: VA loans are only available for military personnel and veterans who meet specific service requirements. There is zero down payment required, and depending on the lender, a minimum FICO credit score of 620 is standard. 

USDA Loans: USDA loans are available to buyers in select rural areas of South Dakota who have low to moderate incomes and are purchasing a primary residence.

There is a zero down payment required for USDA loans. The USDA does not have a credit score requirement, but most lenders require at least a 640. 

Jumbo Loans: Jumbo loans are either FHA or conventional loans used to purchase homes with high values.

They typically have higher interest rates and higher down payments requirements, up to 20% down. They have higher and stricter FICO credit score requirements than other loans.

FHA, VA, and USDA home loans have strict requirements and only approve buyers looking to purchase primary residences.

The SDHDA showcases current mortgage rates to help buyers determine how competitive they are and to compare them between lenders and loan types. 

Down Payment Assistance:

The SDHDA’s down payment assistance helps first-time home buyers struggling to come up with closing costs or the down payment for their mortgage loan.

This program provides the buyer up to 3% of the mortgage loan total in the form of a second mortgage. The loan is interest-free and has no monthly payment until the buyers refinance, sell the home, or pay the first mortgage off. 

South Dakota Governor’s program:

SDHDA developed this program to help low-income South Dakota residents be able to afford a home.

If you qualify, the South Dakota Governor’s program will build applicants a home for a reasonable rate (starting at $48,700 for a 2-bedroom single-family home).

This program is not exclusive to first-time home buyers, but applicants must meet specific income requirements. 

SDHDA Tax Credit:

The state of South Dakota offers tax credits and benefits for first-time homebuyers through a mortgage credit certificate (MCC), reducing the federal income tax you pay.

An MCC allows buyers to claim a portion of the mortgage interest as a dollar-for-dollar tax credit, reducing their overall tax burden.

Buyers will qualify for the SDHDA Tax credit if: 

  • They are purchasing their first home or have not owned a home in the last three years.
  • The home sales price does not exceed the purchase price limit of $340,000, or if the home is located in a targeted area, $413,000.
  • They have an income at or below the prescribed South Dakota Housing Income Limits.

The MCC program has a fee of $750, but if the buyer uses the SDHDA’s First-Time Homebuyer Program, the fee will be reduced to $250. Additionally, lenders may charge a fee of up to $250. 

Required Documents

When applying for a mortgage, lenders require buyers to submit documents during the application process. Having them ready streamlines the application procedure.

Lenders may require the following documents:

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

Depending on the lender and loan type, additional documents may be required.

To start with these South Dakota first-time homebuyer programs, check the eligibility using the first-time eligibility calculator. To initiate the application process, contact one of the banks, mortgage lenders, or credit unions participating in the programs. 

Always compare the options to obtain the best deal and interest rate that meets your needs, and examine conditions across participating institutions.

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