For a lot of young families in South Dakota, the monthly payment isn't the hardest part of buying a house. It's coming up with the down payment. A new state program aims to take some of that weight off, and it could put more buyers in front of the homes contractors are building.
Gov. Larry Rhoden and South Dakota Housing announced "Give Me Five" on Oct. 13. According to the state's announcement, the program launches Nov. 2 and will provide a down payment equal to 5% of a buyer's first mortgage.
That money comes as a second mortgage with no monthly payments. If the buyer lives in the home as a primary residence for five years, the loan is forgiven.
Who qualifies and how it works
The rules are straightforward. Buyers must meet the income limits of South Dakota Housing's First-Time Homebuyer Program and use the home as their primary residence. They can't have owned a home in the past three years, and the purchase price has to be $410,000 or less.
The state describes the offer as limited-time, and it is available only through participating lenders.
South Dakota Searchlight reported that income limits range from $103,400 to $144,760, depending on the county and the size of the household. The program has been authorized for up to 2,500 loans.
Searchlight also explained where the money comes from. Give Me Five is funded with surplus revenue from the agency's existing First-Time Homebuyer Program, which is financed with tax-exempt bonds. South Dakota Housing is a self-supporting nonprofit created by the state. It has tried incentives before, including a program called Grants for Grads.
"Every South Dakotan should have the opportunity to build a strong future right here in our state, and buying a home is often a big part of that process," Rhoden said in the release. He said the program, along with what he called the largest property tax cut in South Dakota history, will make homeownership more affordable.
Chas Olson, executive director of South Dakota Housing, tied the program directly to today's market. "In today's challenging housing market, first-time homebuyers need every advantage they can get," Olson said.
What the numbers mean on a real house
Put the math on a house a builder might actually list. On a $375,000 home, a 5% down payment is $18,750. That is a lot of money for a young couple renting an apartment and trying to save at the same time.
Searchlight reported that the median list price in South Dakota is about $375,000, up from about $240,000 five years ago. Mortgage rates are above 7%. Those two numbers together explain why so many first-time buyers have been stuck on the sidelines.
The $410,000 price cap matters for builders. It puts many entry-level new homes, townhomes and twin homes inside the program's range, especially in towns where land and site costs haven't climbed as fast as they have in the biggest markets.
The program doesn't lower the price of a home, and it doesn't change interest rates. A buyer still has to qualify for the first mortgage. What it does is remove the single biggest upfront hurdle for buyers who can handle a payment but haven't been able to build up savings.
For contractors, the timing is worth noting. The program opens Nov. 2, heading into the slower winter months. Builders with spec homes or finished inventory under the price cap could see more interest from first-time buyers this winter, rather than waiting until spring.
Because the program runs through participating lenders and is described as limited-time, builders and their sales teams will want to know which local lenders are taking part. Being able to point a buyer to the right loan officer on the first visit can make the difference between a showing and a signed contract.
Why it matters for Contractors
Builders across South Dakota have been saying for years that the buyers are out there, but the down payment keeps them renting. Give Me Five takes direct aim at that problem for up to 2,500 households, on homes priced at $410,000 or less.
If you build entry-level homes, it is worth checking your current and planned inventory against the price cap now. Get to know the participating lenders in your market and make sure your sales staff can explain the basics. Starter homes are hard to make pencil, and a program that brings more qualified first-time buyers to the table is good news for the contractors still willing to build them.