MHDC Program Gives Down Payment Money to Foreclosure Buyers

by Karen Goodman on June 14, 2009

Earlier this year, the federal government created an $8000 first time buyer tax credit in an attempt to stabilize the housing market. However, since the money is provided to taxpayers through a tax credit after closing, many eligible buyers have struggled to come up with the money for the down payment and closing costs that are needed on closing day.

The Missouri Housing Development Commission (MHDC) was the first agency in the country to offer a program that gave buyers a way to get the funds on closing day to be used for the down payment.

Now, MHDC is leading the way to help stabilize neighborhoods by providing up to 20% of the purchase price (up to $14,999) to pay for the down payment and closing costs for eligible buyers that purchase Missouri foreclosures.

UPDATE 9/8/09: Sorry, but the funds are all gone for this program, and the state won’t be providing additional funds. At this point, your only option for assistance is the $8000 first time buyer tax credit, but that program is expiring soon. If you want to take advantage of this program, you should plan to write a contract NO LATER THAN 10-15-09 so you can be assured that you close before the 11-30-09 deadline.

MHDC Down Payment Assistance Program:

In contrast to the federal government $8000 tax credit which is only for first time buyers (defined as anyone that has not owned a primary residence in 3 years), the MHDC program can be used by both first time buyers and repeat buyers.

MHDC is offering a new product to help stabilize and rebuild the neighborhoods of Missouri hard hit by the housing downturn. The commission received $4.2 million from the Neighborhood Stabilization Program (NSP), which was part of the Housing and Economic Recovery Act of 2008. These funds are intended to be used for down payment and closing cost assistance for qualified buyers purchasing foreclosed property that will be used as the owner’s principal residence.

Qualified buyers may receive up to 20% of the purchase price (up to $14,999) to use for down payment and closing costs.

Buyer must use MHDC First Place Loan program for first mortgage.

NSP funds provided through a second mortgage with an interest rate of 0%, which is forgiven after five years of occupancy.

First-time and repeat buyers are eligible.

Purchase price must be discounted a minimum of 5% from the current appraised value. The appraisal must be completed within 60 days of the offer made for the property (we have been advised that an initial offer can be made, subject to the completion of the appraisal within 60 days of a final offer). NSP Appraisal Guidelines

Borrower must receive eight hours of homeownership counseling from a HUD-certified counselor.

Borrower income limit is 120% of area median income, see Income Limits.

If the owner rented the property to tenants, no tenants may have lived at the property within the previous 12 months.

The only drawback that I see for buyers is the requirement that they use a MHDC mortgage since the rates are slightly higher than rates available through conventional or FHA loans.

Even with a slightly higher interest rate, the program is a great deal.

Buyers can get almost $15,000 of free down payment money (buyers need to keep the home for 5 years or they will need to pay back the money). Combine that with the $8000 for first time buyers, and this program should have a big impact on stabilizing neighborhoods that offer affordable homes to low to moderate income homeowners.

Find St. Louis Foreclosures:

To see MLS listed foreclosures in the St. Louis area, use my Home Search and select the foreclosure tab.

Keep in mind that there may be more foreclosures available than come up on the public MLS search, since foreclosures are identified based on a field that is selected when the home was entered into the MLS by the listing agent. If you would like me to set up a comprehensive search aimed at identifying all potential foreclosures, simply contact me to discuss your needs.

Final Thoughts:

Most foreclosures need a lot of work.

Foreclosure buyers need to be prepared to spend some money fixing up their new home. For first time buyers, the $8000 tax credit should be able to pay for quite a few repairs.

Buyers also need to act fast. Time is running out.

MHDC funds are limited, and the $8000 federal first time buyer tax credit expires on December 1, 2009.