South Dakota Housing First-Time Homebuyer Program: A Complete Guide
Buying your first home comes with a lot of questions, and one of the most common is whether you qualify for South Dakota Housing's first-time homebuyer program. It is one of the most valuable resources available to buyers in Sioux Falls, Harrisburg, Tea, and Brandon, but there is a lot of confusion about how it works.
At Fairway Heartland, our loan officers have helped hundreds of first-time buyers navigate this program. Here is a complete breakdown of how it works, which loan programs it pairs with, and what you need to know before you apply. For a full walkthrough, watch loan officers Jeff Buum and Nick Kiesow discuss this topic in detail below.
It Starts with Pre-Approval, Not the Program Itself
A common misconception is that South Dakota Housing is what approves you for a home loan. It is not. The process still starts the same way it does for any buyer: a loan officer takes your information, pulls your credit, reviews your income, and determines what loan program you qualify for. South Dakota Housing is then applied on top of that approval to see how it can benefit you.
In other words, you first qualify for a loan program. Then you find out how South Dakota Housing can improve your terms.
The Four Loan Programs That Pair with South Dakota Housing
South Dakota Housing works alongside four underlying loan types, and each one has its own qualification profile.
Conventional Loans
Conventional loans require a minimum down payment of just 3% of the purchase price. They carry mortgage insurance, which decreases over time and can eventually be removed once you reach 20% equity. Conventional buyers typically have a bit more established credit, with a minimum score around 620, though many borrowers using this program have scores in the 700s with clean credit histories.
FHA Loans
FHA is one of the most popular programs for first-time buyers. It takes a broader view of credit, often working well for borrowers with scores in the 600s who may not have the credit history needed for conventional financing. The minimum down payment is 3.5%, and FHA loans also carry mortgage insurance that stays on the loan as you pay it down, though refinancing later can remove it once your credit and equity improve.
VA Loans
VA loans are available to eligible military veterans and active-duty service members. They offer 100% financing with no down payment required and no mortgage insurance, meaning your payment only consists of principal, interest, property taxes, and homeowners insurance.
USDA Rural Development Loans
USDA loans, also called rural development loans, are based more on property location than credit profile. In South Dakota, eligible areas fall outside the city limits of Sioux Falls, Rapid City, and Aberdeen. For buyers in the Sioux Falls area, that means communities like Harrisburg, Tea, Brandon, and Dell Rapids can qualify. Like VA loans, USDA loans require no down payment.
How South Dakota Housing Assistance Works
Once you qualify for one of the four loan types above, South Dakota Housing offers government and conventional interest rate categories, each with a few options:
No down payment assistance, paired with the base rate
A discount point paid upfront in exchange for a lower rate
3% down payment assistance
5% down payment assistance
Choosing between the down payment assistance levels often comes down to whether you have your own funds available for closing costs and prepaid items like homeowners insurance. If you can cover those costs yourself, or negotiate seller-paid closing costs, the 3% option may make sense. If you do not have extra funds beyond your down payment, the 5% assistance option can get you into a home with little to nothing out of pocket.
Down Payment Assistance Options
South Dakota Housing rates are also typically more competitive than standard market rates, even after factoring in the assistance option you choose.
Income Limits and What Counts as Household Income
South Dakota Housing sets income limits by county, and your household size affects which limit applies. Households are generally categorized as two people or fewer, or three people or more, and anyone who will occupy the home as their permanent residence counts toward that limit.
Importantly, all income sources count, including commission, bonus, overtime, and side income. Leaving out a side hustle or secondary income source will typically surface through bank statements during underwriting, so it is best to disclose everything upfront. It can sometimes be the difference between qualifying and not qualifying for the program.
If you are the sole occupant purchasing the home and do not plan to have others living there permanently, only your income is counted, even if you expect a roommate to move in temporarily down the road.
Using a Non-Occupant Co-Borrower
If your income alone does not stretch far enough for the purchase price you want, South Dakota Housing allows for a non-occupant co-borrower, such as a parent, to be added to the loan. Their credit and income can help you qualify for a higher purchase price, and because they will not live in the home, their income does not count toward the program's income limit. This only works as long as the occupant borrower is comfortable with and can afford the resulting payment.
Gift Funds and What to Do with Them
Gifted funds, such as money from a parent to help with a down payment, are acceptable under South Dakota Housing guidelines as long as they are properly documented. Gift funds can be used toward your down payment, closing costs, or in combination with down payment assistance to further reduce your loan amount and monthly payment.
One tip worth considering: if you receive a larger gift, it may be smart to hold some back rather than putting all of it toward the home. New homeowners often need funds for furniture, appliances, or basic tools like a lawn mower or snow blower after closing.
First-Time Homebuyer Resources
Purchase Price Limits
In addition to income limits, South Dakota Housing sets purchase price limits for both existing homes and new construction. You cannot buy a home priced above that limit and still use the program. In practice, the income limits and purchase price limits tend to work together, since a home priced well above the limit would typically require income beyond what the program allows anyway.
The Repeat Home Buyer Program
South Dakota Housing is not limited to first-time buyers. Its repeat home buyer program is available to those who have owned a home before, particularly helpful if you are selling with less equity than expected and need down payment assistance or a competitive rate on your next purchase.
Grants for Grads: A Limited-Time Opportunity
One of the newest options available is the Grants for Grads program. It offers the base interest rate, the same rate you would get without taking down payment assistance, plus a grant of 5% of your loan amount to use toward your down payment and closing costs. Unlike standard down payment assistance, which is repaid when you sell or refinance, Grants for Grads funds are fully forgiven and never have to be repaid.
To qualify, you must have graduated from a college or technical school within the last 16 months. Programs like this tend to have a limited shelf life, so if you are recently graduated and considering a home purchase, it is worth exploring sooner rather than later.
What Documentation You Will Need
To get started, most buyers should be ready to provide:
Photo ID
Pay stubs covering the last 30 days
Two months of bank statements
Two years of W-2s
Tax returns, if self-employed
Learn More from South Dakota Housing
For official program details, income limits by county, and current purchase price limits, South Dakota Housing's website is the authoritative source for the most up-to-date figures.
The Bottom Line
The South Dakota Housing first-time homebuyer program can make a meaningful difference in what you are able to afford and how much you need out of pocket at closing. The key is working with a loan officer who understands how the program's income limits, purchase price limits, and assistance levels fit together with the underlying loan program that is right for you.
Talk to a Fairway Heartland loan officer, Troy Lage, NMLS #400287, at fairwayheartland.com/contact