First-Time Homebuyer Programs in South Dakota

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Updated: December 9, 2024

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The down payment on a new home often poses the biggest hurdle for first-time homebuyers. In South Dakota, where the average home value is $307,799, a down payment of $61,560 is required to avoid private mortgage insurance.

Fortunately, first-time homebuyer programs in South Dakota can help you achieve homeownership. There are also mortgages that allow first-time homebuyers to put less down on a home, though these usually have income requirements and require mortgage insurance. MoneyGeek explores several state-specific and government-backed first-time homebuyer programs for people from different financial backgrounds.

South Dakota First-Time Homebuyer Programs

South Dakota offers grants and loans to assist first-time homebuyers with both down payment and closing costs. We have compiled the first-time homebuyer programs the South Dakota Housing Development Authority (SDHDA) offers to help you find the best option for your particular needs and situation.

SDHDA First-Time Homebuyer Program

The First-Time Homebuyer Program by SD Housing provides affordable loans and mortgage options for first-time buyers with competitive rates and down payment assistance. The program covers both existing and new construction homes and various loan types, including FHA, VA, USDA and conventional. It also permits co-signers and offers a maximum purchase price cap to help ensure affordability.

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ELIGIBILITY REQUIREMENTS

To qualify for the SDHDA First-Time Homebuyer Program, you must meet specific eligibility requirements:

  • Be a first-time homebuyer
  • Meet the maximum purchase price limit of $385,000
  • Minimum 3% down payment, depending on mortgage insurance type
  • Use the home as a primary residence
  • Complete homebuyer education if using a conventional mortgage

SDHDA Tax Credit (MCC)

The Tax Credit program by SD Housing offers first-time homebuyers a Mortgage Credit Certificate (MCC) to help reduce federal income tax obligations. It provides a dollar-for-dollar tax reduction on a percentage of annual mortgage interest, which helps increase disposable income. The remaining interest qualifies for the standard mortgage interest deduction, further benefiting the borrower.

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ELIGIBILITY REQUIREMENTS

To qualify for the SDHDA Tax Credit, you must meet specific eligibility requirements:

  • Must be a first-time homebuyer or not have owned a home in the last three years
  • Purchase price limit of $385,000, or $460,000 in federally designated areas
  • Income must be within prescribed limits

South Dakota First-Time Homebuyer Programs by City

Aside from statewide first-time homebuyer programs in South Dakota, city-specific programs are available to help you pursue homeownership in a city of your choosing. Check out the table below for some of the cities in South Dakota that provide first-time homebuyer programs for potential residents.

City
First-Time Homebuyer Program

Sioux Falls

Through the Public Safety Down Payment Assistance program, police officers, firefighters and other public safety employees can receive up to $20,000 or 20% of the purchase price, whichever is less, in down payment or closing cost assistance. The assistance comes in the form of a forgivable loan that requires no monthly payments as long as the buyer owns and occupies the property. Payments are only due upon conveyance or sale of the property, voluntary or involuntary relinquishment of the property, discontinuance of occupancy, termination of employment in the public safety fields or termination of the agreement for noncompliance.

Zero-Down-Payment Loan Programs in South Dakota

Zero-down-payment loan programs in South Dakota allow you to purchase a home without putting money down. USDA and VA loans are two government-backed options that have no down payment.

USDA Loans

USDA loans help individuals in rural areas become homeowners. These loans are issued by the U.S. Department of Agriculture through its Rural Development Guaranteed Housing Loan program. This initiative aims to improve the quality of life and economic vitality in rural America.

USDA loans require no down payment, making homeownership more accessible to those who may not have substantial savings. Additionally, these loans come with competitive interest rates and reduced mortgage insurance costs, which can result in significant savings over the life of the loan. The program supports low to moderate-income households in purchasing a safe and affordable home.

To qualify for a USDA loan, certain conditions must be met. The property must be 2,000 square feet or smaller and located in a USDA-eligible rural area with fewer than 35,000 people. Additionally, applicants must meet specific income limits, which vary based on location. For instance, in Bennett County, SD, the income limit for a four-person household is $71,900, while in Brookings County, SD, it is $85,200. These limits ensure that the program supports those who truly need financial assistance in purchasing a home.

VA Loans

VA loans are specialized mortgage products the U.S. Department of Veterans Affairs provides. These loans assist veterans, active-duty service members and certain members of the National Guard and Reserves in purchasing homes.

VA loans offer several financial advantages, including a no-down payment requirement, which can make homeownership more accessible. These loans do not require private mortgage insurance (PMI), reducing overall costs. Borrowers often benefit from lower interest rates compared to conventional loans. In South Dakota, the APR for a 15-year fixed-rate VA loan is 5.86%, and 6.06% for a 30-year fixed-rate VA loan as of December 2024.

Eligibility for VA loans depends on several factors, including length of service, duty status and character of service. Applicants must also meet income limits based on their location and obtain a valid Certificate of Eligibility (COE) to qualify.

Low-Down-Payment Loan Programs in South Dakota

First-time homebuyers in South Dakota can take advantage of low-down-payment loan programs that allow them to finance their home with a down payment of 3.5% or less. These programs include conventional, FHA and FHA 203(k) loans.

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    Conventional Loans

    Conventional loans are a popular choice for homebuyers. Depending on the lender, they offer a mortgage option with as little as a 3% down payment. These loans fall into two categories: conforming, which adheres to Freddie Mac or Fannie Mae guidelines, and non-conforming, which exceeds conforming limits. It's important to note that a down payment of 20% or less will require private mortgage insurance. Eligibility requirements include a minimum credit score of 620 and a debt-to-income ratio of 43% or lower.

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    FHA Loans

    FHA loans follow Federal Housing Administration policies and are a viable option for many homebuyers. In South Dakota, the mortgage limit for a single-family home is $766,550, and for a two-family property, it's $981,500. These loans require a minimum credit score of 500 and a 3.5% down payment. If you put down less than 20%, private mortgage insurance is mandatory.

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    FHA 203(k)

    FHA 203(k) loans combine the cost of renovations into the mortgage rather than being solely a loan for renovations. There are two main types of these loans. You can obtain this mortgage with a 3.5% down payment. Eligibility requires a credit score between 500 and 580 and a front-end debt-to-income ratio of 31% or less. This program isn't limited to first-time homebuyers, but you cannot have two FHA loans simultaneously.

FHA vs. Conventional Loan: Which Is Right for You?

FHA loans and conventional loans are often compared as they are the two most common types of mortgages. FHA loans require at least a 3.5% down payment, while conventional loans may require as low as 3% for first-time homebuyers. Conventional loans typically have stricter credit score and debt-to-income ratio requirements than FHA loans.

As of December 2024, the current APR for a 15-year fixed-rate conforming loan in South Dakota is 5.85%. In comparison, the APR for a 15-year fixed-rate FHA loan is 8.12%. APRs on FHA loans can be higher because there tend to be more fees and extra costs associated with borrowing money on government-backed loans.

You can use our FHA vs. conventional loan calculator below to compare FHA and conventional mortgage programs and determine the best option for you.

FHA vs. Conventional Loan Calculator

Compare FHA and conventional mortgage programs to better understand your loan opportunities in South Dakota.

Basic Details

Some basic details about the property and loan
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Calculation Results
Financial AnalysisFHAConventionalDifference
Monthly Payment (First Year)FHA$0Conventional$0Difference$0
Upfront Costs FHA$0Conventional$0Difference$0
Total 30-Year CostFHA$0Conventional$0Difference$0
Total 5-Year CostFHA$0Conventional$0Difference$0
Monthly Mortgage Insurance (First Year)FHA$0Conventional$0Difference$0
Down PaymentFHA$0Conventional$0Difference$0
Calculator results are rounded to the nearest whole dollar.
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RECOMMENDED CREDIT SCORES FOR FIRST-TIME HOMEBUYERS

Qualifying for first-time homebuyer programs often involves meeting minimum credit score requirements, which can vary depending on the loan program. Conventional loans typically require a credit score of 620, while government-backed loans like FHA loans may only need a minimum credit score of 500. Understanding these requirements is crucial for potential homebuyers as it helps them assess their eligibility.

According to Experian, the average credit score in South Dakota during the third quarter of 2023 was 734. This suggests that many residents can qualify for both conventional and FHA loans, given that their average credit score exceeds the minimum requirements for these programs.

FAQ: First-Time Homebuyer Programs in South Dakota

We answered some frequently asked questions about first-time homebuyer programs in South Dakota to help you determine the best option for you and get closer to homeownership.

Does South Dakota have first-time homebuyer programs?

What qualifies me as a first-time homebuyer in South Dakota?

Can you buy a house in South Dakota with no down payment?

Who can help me with my down payment on a house in South Dakota?

Additional Resources for First-Time Homebuyers in South Dakota

Explore additional MoneyGeek resources for first-time homebuyers in South Dakota to help you with the homebuying process.

About Zachary Romeo, CBCA

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Zachary Romeo is a certified Commercial Banking and Credit Analyst (CBCA), and the Head of Loans and Banking at MoneyGeek. Previously, he led production teams for some of the largest online informational resources in higher education, with over 13 years of experience in editorial production.

Romeo has a bachelor's degree in biological engineering from Cornell University. He geeks out on minimizing personal debt and helping others do the same through people-first content.

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