Montana First-Time Home Buying Assistance Programs & Grants for 2023

Montana First-Time Home Buying Guide

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    By Susan Guillory

    (Last Updated – 07/2022)

    If you’re looking for wide-open spaces and untamed beauty, Montana has plenty to offer. You won’t feel crowded here—the population density is low. And the lifestyle is quieter, slower, and more peaceful than it is in many other places.

    The biggest challenge for the first-time homebuyer in Montana may be finding a house to purchase: The market in the state has slowed considerably in the past year. In the first quarter of 2022, 35% fewer homes sold than in the first three months of the previous year, and inventory was down 37.7%. With so little inventory, the average time it took to sell a home in 2022 dropped to 68 days, down from 85 days in 2021.

    The average price of a home in Montana is $815,938, but the good news is that home prices in the state rose just 3.1% year over year. If you’re a first-time home buyer in Montana, there may be deals to be had. This home buying guide will show you how to save money.

    Who Is Considered a First-Time Homebuyer in Montana?

    The definition of a may vary, depending on the lender or program you’re working with. Some may stipulate that in order to be considered a first-time home buyer in Montana, you must have never owned a home; others may adhere to the U.S. Department of Housing and Urban Development (HUD) guidelines for first-time home buyers, which include:

    •  Someone who has not owned a home in the last three years

    •  A single parent who has only owned a home with a partner while married

    •  A displaced homemaker who has only owned a home with a spouse

    Be sure to check all program and loan requirements carefully.

    Recommended: First Time Home Buyer Guide and Information

    3 Montana Programs for First-Time Homebuyers

    There are several state-based programs that offer low-interest mortgage loans and assistance with closing costs and down payments. Many are income-based, so the first-time homebuyer in Montana may need to meet income limits and other criteria to qualify. Here are the facts you need to know about each program.

    1. Montana Housing: Bond Advantage Down Payment Assistance Program

    If you’re looking for financial assistance to help cover your down payment as a first-time home buyer, the Montana Housing: Bond Advantage Down Payment Assistance Program may be able to help. You must first be eligible for a Regular Bond Program Loan, which is available for up to 5% of the sale price, with a maximum of $12,500. This is a 15-year amortizing loan with low monthly payments.

    You must also have a Montana Housing 30-year first mortgage to qualify, as well as a credit score of at least 620. You will be required to take a Homebuyer Education class to learn mortgage basics, and provide at least $1,000 cash investment in the purchase.

    2. Montana Housing: MBOH Plus 0% Deferred Down Payment Assistance Program

    This program offers a 0% interest deferred loan that can be used for down payment and closing costs. You can receive up to 5% of the sales price, up to $10,000. The loan is due when you transfer or sell the property or refinance or pay off your first loan.

    To qualify, you need a Montana Housing 30-year first mortgage, a credit score of at least 620, and a debt-to-income ratio that’s no more than 43%. There is a household income limit—$65,000 for 1 to 2 people, and $75,000 for 3 or more.

    You must provide at least $1,000 in cash investment toward the purchase and take a Homebuyer Education class.

    3. Montana Housing: Regular Bond Program

    This program provides lower-income first-time home buyers in Montana with a 30-year, low-interest loan. You must qualify for an FHA, VA, RD, or HUD-184 first mortgage loan to be eligible. Additionally, you must meet income and purchase price limits. Learn more about how to apply here .

    Recommended: This home affordability calculator can help you figure out what you can spend on a house.

    How to Apply to Montana Programs for First-Time Homebuyers

    For most of these assistance programs, you’ll need to start by finding a lender that participates . They can review your information to let you know if you qualify.

    In addition, as a first-time home buyer in Montana, it can make sense to learn about other ways to lower your mortgage payment.

    Federal Programs for First-Time Homebuyers

    There are several federal programs designed for people who have low credit scores or limited cash for a down payment. They can be especially helpful to people who are buying a first home or who haven’t owned a home in several years.

    These mortgages are generally for single-family homes, two- to four-unit properties that will be owner occupied, approved condos, townhomes, planned unit developments, and some manufactured homes.

    Federal Housing Administration (FHA) Loans

    The FHA, which is part of the U.S. Department of Housing and Urban Development (HUD), insures mortgages for borrowers with lower credit scores. Homebuyers choose from a list of approved lenders that participate in the program. Loans have competitive interest rates and require a down payment of 3.5% of the purchase price for borrowers with FICO® credit scores of 580 or higher. Those with scores as low as 500 must put at least 10% down.

    Gift money for the down payment is allowed from certain donors and will be documented in a gift letter for the mortgage.

    FHA loans always require mortgage insurance: a 1.75% upfront fee and annual premiums for the life of the loan, unless you make a down payment of at least 10%, which allows the removal of mortgage insurance after 11 years. You can learn more about FHA loans in general and FHA lending limits in Montana by county on the HUD website .

    Freddie Mac Home Possible Mortgages

    Very low- and low-income borrowers may make a 3% down payment on a Home Possible® mortgage. These loans allow various sources for down payments, including co-borrowers, family gifts, employer assistance, secondary financing, and sweat equity.

    The Home Possible mortgage is for buyers who have a credit score of at least 660.

    Once you pay 20% of your loan, the Home Possible mortgage insurance will be canceled, which will lower your mortgage payments.

    Learn more here .

    Fannie Mae HomeReady Mortgages

    Fannie Mae, or formally, the Federal National Mortgage Association, is a publicly traded government-sponsored enterprise that dates back to the Great Depression.

    Fannie Mae HomeReady® Mortgages allow down payments as low as 3% for low-income borrowers. Applicants generally need a credit score of at least 620; pricing may be better for credit scores of 680 and above. Like the Freddie Mac program, HomeReady loans allow flexibility for down payment financing, such as gifts and grants.

    For income limits, a comparison to an FHA loan, and other information, go to this Fannie Mae site .

    Fannie Mae Standard 97 LTV Loan

    The conventional 97 LTV loan is for first-time homebuyers of any income level who have a credit score of at least 620 and meet debt-to-income criteria. The 97% loan-to-value mortgage requires 3% down. Borrowers can get down payment and closing cost assistance from third-party sources.

    Unlike an FHA loan, the 97 LTV loan has no upfront mortgage insurance fee and does have cancellable mortgage insurance. The loan is for just one-unit single-family homes, co-ops, condos, and planned unit developments.

    Department of Veterans Affairs (VA) Loans

    Active-duty members of the military, veterans, and eligible family members may apply for loans backed by the Department of Veterans Affairs. VA loans, to buy, build, or improve homes, have lower interest rates than most other mortgages and don’t require a down payment. For most applicants, there is a one-time funding fee that can be rolled into the mortgage.

    Regional loan centers are closed to the public, but you can contact the Department of Veterans Affairs for Montana at (406) 324-3742, [email protected].

    Native American Veteran Direct Loans (NADLs)

    Eligible Native American veterans and their spouses may use these no-down-payment loans to buy, improve, or build a home on federal trust land. Unlike VA loans listed above, the Department of Veterans Affairs is the mortgage lender on NADLs. The VA requires no mortgage insurance, but it does charge a funding fee.

    Regional loan centers are closed to the public, but you can contact the Department of Veterans Affairs for Montana at (406) 324-3742, [email protected]. For information specific to the Native American Direct Loan, contact [email protected].

    U.S. Department of Agriculture (USDA) Loans

    No down payment is required on these loans to moderate-income borrowers that are guaranteed by the USDA in specified rural areas. Borrowers pay an upfront guarantee fee and an annual fee that serves as mortgage insurance.

    The USDA also directly issues loans to low- and very low-income people. For loan basics and income and property eligibility, head to this USDA site .

    HUD Good Neighbor Next Door Program

    This program helps police officers, firefighters, emergency medical technicians, and teachers qualify for mortgages in the areas they serve. Borrowers can receive 50% off a home in what HUD calls a “revitalization area.” They must live in the home for at least three years. For more information, call (406) 449-5050.

    First-Time Homebuyer Stats for 2022

    •  First-time homebuyers nationwide: 34% of all buyers

    •  Median age of first-time homebuyers in U.S. 33

    •  Average down payment in Montana (20%): $88,980

    •  Average home price in Montana:$444,900

    •  Average credit score of home buyer in Montana: 730

    Financing Tips for First-Time Homebuyers

    Now that you’ve learned about a few of the types of mortgage loans you might qualify as a first time home buyer in Montana, it’s time to learn how to choose mortgage term loans that fit your needs.

    In addition to federal and state government-sponsored lending programs, there are other financial strategies that may help you become a homeowner. Some examples:

    •  Traditional IRA withdrawals. The IRS allows qualifying first-time homebuyers a one-time, penalty-free withdrawal of up to $10,000 from their IRA if the money is used to buy, build, or rebuild a home. The IRS considers anyone who has not owned a primary residence in the past three years a first-time homebuyer. You will still owe income tax on the IRA withdrawal. If you’re married and your spouse has an IRA, they may also make a penalty-free withdrawal of $10,000 to purchase a home. The downside, of course, is that large withdrawals may jeopardize your retirement savings.

    •  Roth IRA withdrawals. Because Roth IRA contributions are made with after-tax money, the IRS allows tax- and penalty-free withdrawals of contributions for any reason as long as you’ve held the account for five years. You may also withdraw up to $10,000 in earnings from your Roth IRA without paying taxes or penalties if you are a qualifying first-time homebuyer and you have had the account for five years. With accounts held for less than five years, homebuyers will pay income tax on earnings withdrawn.

    •  401(k) loans. If your employer allows borrowing from the 401(k) plan that it sponsors, you may consider taking a loan against the 401(k) account to help finance your home purchase. With most plans, you can borrow up to 50% of your 401(k) balance, up to $50,000, without incurring taxes or penalties. You pay interest on the loan, which is paid into your 401(k) account. You usually have to pay back the loan within five years, but if you’re using the money to buy a house, you may have up to 15 years to repay.

    •  State and local down payment assistance programs. Usually offered at the regional or county level, these programs provide flexible second mortgages for first-time buyers looking into how to afford a down payment.

    •  The mortgage credit certificate program. First-time homeowners and those who buy in targeted areas can claim a portion of their mortgage interest as a tax credit, up to $2,000. Any additional interest paid can still be used as an itemized deduction. To qualify for the credit, you must be a first-time homebuyer, live in the home, and meet income and purchase price requirements, which vary by state. If you refinance, the credit disappears, and if you sell the house before nine years, you may have to pay some of the tax credit back. There are fees associated with applying for and receiving the mortgage credit certificate that vary by state. Often the savings from the lifetime of the credit can outweigh these fees.

    •  Your employer. Your employer may offer access to lower-cost lenders and real estate agents in your area, as well as home buying education courses.

    •  Your lender. Always ask your lender about any first-time homebuyer grant or down payment assistance programs available from government, nonprofit, and community organizations in your area.

    The Takeaway

    If you’re a qualified first-time home buyer in Montana, there are several state programs that offer assistance with a mortgage, down payment, and closing costs in today’s challenging market. There are also federal and conventional loans that can help you purchase your home. Be sure to explore all your options.

    Make your dream of being a homeowner come true with SoFi’s competitive mortgage rates and down payments as low as 3% for qualifying first-time homebuyers.

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    Should I take first-time homebuyer classes?

    Yes! Good information is key to a successful home-buying experience for anyone, but especially for newcomers, who can easily be overwhelmed by the jargon, technicalities, and magnitude of applying for a mortgage and purchasing a home. First-time homebuyer classes can help. Indeed they are required for some government-sponsored loan programs.

    Do first-time homebuyers with bad credit qualify for homeownership assistance?

    Often they do. Many government and nonprofit homeowner assistance programs are available to people with low credit scores. And often, interest rates and other loan pricing are competitive with those of loans available to borrowers with higher credit scores. That said, almost any lending program has credit qualifications. That’s why it’s important to take all possible steps to improve your credit standing before you go house hunting.

    Is there a first-time homebuyer tax credit in Montana?

    Yes. The U.S. Department of Veterans Affairs offers home loans to servicemembers, veterans, and eligible surviving spouses.

    Is there a first-time veteran homebuyer assistance program in Montana?

    Yes. The U.S. Department of Veterans Affairs offers home loans to service members, veterans, and eligible surviving spouses.

    What credit score do I need for first-time homebuyer assistance in Montana?

    Credit score requirements vary, depending on the homebuyer assistance program. For example, the programs offered through Montana Housing require a credit score of at least 620.

    What is the average age of first-time homebuyers in Montana?

    In the U.S., the median age of first-time homebuyers is 33.

    Photo credit: iStock/PhilAugustavo

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