South Dakota First-Time Home Buying Assistance Programs & Grants for 2023

South Dakota First-Time Home Buying Guide

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    By Susan Guillory

    (Last Updated – 07/2022)

    The Mount Rushmore State saw a significant spike in home prices from 2021 to 2022. The appeal to both the seasoned and first-time homebuyer in South Dakota may be because the state has the sixth lowest cost of living in the country, but that may change if housing prices continue to rise.

    From May 2021 to May 2022, home prices rose 22%, to a median sale price of $312,700, according to Redfin, a real estate brokerage that tracks trends. Inventory dropped steeply, by 26%.

    You’ll need to have a game plan for buying a home in South Dakota. This home buying guide will show you state and federal payment assistance for the first-time homebuyer in South Dakota.

    Recommended: First Time Homebuyer Guide

    Who Is Considered a First-Time Homebuyer in South Dakota?

    It might surprise you to know that the definition of a first-time homebuyer in South Dakota is someone who hasn’t owned a home over the past three years. You might be a first-time homebuyer without realizing it!

    The U.S. Department of Housing and Urban Development (HUD) defines a first-time homebuyer as such, but includes:

    •  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

    •  Someone who has owned a principal residence not permanently affixed to a permanent foundation

    •  Someone who has only owned a property that wasn’t in compliance with state, local, or model building codes

    Keep in mind that veterans and people buying in targeted areas often qualify for the same state perks as first-time buyers.

    5. South Dakota Housing Programs for First-Time Homebuyers

    If you lack the money for a down payment or aren’t sure how you will afford a mortgage, programs in the state may be able to provide assistance.

    1. South Dakota Housing First-Time Homebuyer Program

    The South Dakota Housing Development Authority has a first-time homebuyer program that provides low-interest, fixed-rate loans.

    To qualify, you must meet household income and purchase price limits .

    2. South Dakota Housing Down Payment Assistance

    The agency also provides down payment and closing cost assistance in the form of a 0% interest, 30-year second mortgage, due upon the sale of the property or satisfaction of the first mortgage.

    Borrowers receive 3% or 5% of the purchase price in assistance.

    3. Grow South Dakota Home Mortgage Lending

    Grow South Dakota also offers home mortgages for new or existing homes in South Dakota. Loans are available for up to $300,000.

    Eligibility criteria are not listed on the website.

    4. Grow South Dakota Down Payment/Closing Cost Assistance

    Grow South Dakota also provides down payment and closing cost assistance with a no-interest deferred loan.

    5. Homes Are Possible Closing Cost Assistance

    Another organization that provides closing cost assistance is Homes Are Possible, Inc. Qualified borrowers can get a $5,000 no-interest, nonforgivable loan to help with a down payment and closing costs.

    To qualify, you must meet household income limits and attend a homebuyer education program.

    How to Apply to South Dakota Programs for First-Time Homebuyers

    As you explore different types of mortgage loans and first-time homebuyer programs, make a list of qualifications and requirements. Then, when you’ve chosen the best first-time homebuyer program, you’ll be prepared to apply.

    For South Dakota Housing Development Authority programs, contact one or more participating lenders .

    To qualify for Grow South Dakota assistance, you will need a fully executed purchase agreement and approval letter from an approved first mortgage lender. Start your application by creating an account .

    Inquire about and apply for Homes Are Possible closing cost assistance here .

    Recommended: Understanding Mortgage Basics

    Federal Programs for First-Time Homebuyers

    Several federal government programs are designed for people who have low credit scores or limited cash for a down payment. Although most of these programs are available to repeat homeowners, like state programs, they can be especially helpful to people who are buying a first home or who haven’t owned a home in several years.

    The 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 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 by area.

    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.

    Fannie Mae HomeReady Mortgages

    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.

    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. Most borrowers pay a one-time funding fee that can be rolled into the mortgage.

    Regional loan centers are closed to the public, but you can email the Department of Veterans Affairs for South Dakota at [email protected] or call 605-352-1160.

    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.

    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.

    Reach the HUD Sioux Falls Field Office at 605-330-4223.

    First-Time Homebuyer Stats for 2022

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

    •  Median home sales price in South Dakota(May 2022, Redfin): $312,700

    •  3% down payment: $9,381

    •  20% down: $62,540

    •  Average credit score in South Dakota (vs. the U.S. average of 714): 733

    Financing Tips for First-Time Homebuyers

    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.

    Finally, here’s a home affordability calculator that can help you determine how much house you might be able to afford.

    The Takeaway

    Income-qualified first-time homebuyers in South Dakota have options to help them pay for a home. Other first-time buyers can explore the wide world of mortgages on their own to find the right fit.

    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.

    View your rate


    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 many 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.

    Is there a first-time homebuyer tax credit in South Dakota?

    Yes. There is a mortgage credit certificate program for first-time homebuyers and those who buy in targeted areas in South Dakota. With it, you can claim a portion of your mortgage interest as a tax credit, up to $2,000.

    The fee to acquire a South Dakota Housing Development Authority tax credit is $750, reduced to $250 if the mortgage certificate is used with the agency’s first-time homebuyer program. Participating lenders may also charge a fee up to $250.

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

    South Dakota Housing advises applicants to ask their lender about its veterans waiver to see if they qualify for the mortgage and down payment programs.

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

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

    A minimum score of 620 will help in getting a mortgage through the South Dakota Housing Development Authority.

    Credit score requirements vary, depending on the assistance program and the lender.

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

    If South Dakotans are anything like the nationwide median, they’re 33.

    Photo credit: iStock/DenisTangneyJr

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