Down Payment Assistance Programs
MHDC & Similar Down Payment Programs:
What Borrowers Should Know First
As your mortgage broker, my job is to make sure you understand every side of a loan program – including the drawbacks. Here’s an honest breakdown of the MHDC down payment assistance program before you decide if it’s right for you.
It’s Not “Free Money” – It’s Layered Additional Financing
⚠️ Key Misunderstanding
The program’s core feature is down payment assistance structured as a second lien on your home. It is a forgivable second mortgage – not a grant.
- Forgiveness requires 10 years of continuous occupancy
- Selling or refinancing before that? Partial repayment is required
- Adds second lien complications in servicing and payoff
- Reduces your flexibility to refinance or choose your own sale timing
The “Below Market” Rate Is Often Not Actually the Best Deal
⚠️ Rate Trade-Off
MHDC advertises below-market interest rates, but in practice the picture is more complicated:
- Rates are program-set and bond-driven – not fully market-competitive
- You are effectively paying for the program through a higher interest rate
- Often worse pricing than a conventional loan with seller concessions
✅ Net Effect – Who Benefits from Conventional Instead?
- Higher rate built in
- Second mortgage burden
- 10-year lock-in
- Lower lifetime cost
- No second mortgage
- Full flexibility
For borrowers with a credit score above 680 and enough funds for a 3%+ down payment, a standard conventional loan with a seller credit frequently wins on total cost.
Severe Eligibility Constraints Reduce the Program’s Usefulness
Eligibility Rules
The program is tightly restricted. You must meet all of the following:
- 💰 Income limits – based on household income, not just the borrower’s
- 🏷️ Purchase price limits – caps that may exclude your target homes
- 🙋 First-time homebuyer requirements
- 📚 Mandatory homebuyer education course completion
These layers slow the process down, increasing the chance of missed closing deadlines – which can cost you the home.
The Mobility Penalty – Often Underexplained
⚠️ Often Overlooked
Because the assistance is forgiven gradually over 10 years, your options are restricted during that entire window:
- Selling or refinancing before 10 years triggers repayment
- ⬇️ Discourages refinancing even when rates fall significantly
- 🚚 Penalizes normal life events: job relocation, upsizing for a growing family
Implication: If rates drop in years 2–5 after your purchase, you may be unable to capitalize on those savings without repaying the assistance – potentially erasing all the program’s benefits.
Limited Competitiveness in Real Purchase Scenarios
Offer Strength
In a competitive market, your offer matters – and MHDC financing can work against you:
- Slower approval
- More conditions
- Less predictable
- Faster turnaround
- Cleaner terms
- Higher acceptance rate
Sellers perceive MHDC-financed offers as higher risk of delay or denial. This directly impacts your offer acceptance rate – especially in the St. Louis market.
Not Necessary for Many First-Time Buyers
✅ Good News
This program is designed for households with low income and little to no savings. But in today’s lending environment, many first-time buyers have other options that are simpler and cheaper:
- Conventional loans allow as little as 3% down
- Sellers can contribute closing costs through seller concessions
- Lender credits can offset out-of-pocket costs at closing
Many borrowers who skip MHDC and similar programs end up with less complexity and lower total cost.
💬 The Bottom Line
MHDC programs serve a real purpose for buyers with very limited income and savings – but they are not the right fit for everyone. Before choosing this path, it’s worth running the numbers on a conventional loan with seller concessions. As your mortgage broker, I can compare both scenarios side by side so you can make a confident, informed decision.