How Does MHDC Down Payment Assistance Work in Missouri?
By Joe Nelson, Retired Air Force, Nelson Home Group Team Leader and Mortgage Loan Originator
MHDC down payment assistance is a second loan equal to 4% of your total first mortgage, attached to a 30-year fixed loan from a Missouri Housing Development Commission certified lender. Nothing is forgiven for the first five years. After five full years it forgives one sixtieth a month until it is gone at year ten. Sell or refinance before then and you repay whatever is left. You pay for the assistance through a first-mortgage rate that runs higher than MHDC’s no-assistance rate, and you cannot refinance out of that rate for a decade without triggering repayment. This is the Missouri half of the series that starts with Which Down Payment Assistance in Kansas City Fits a First-Time Buyer in 2026?, where MHDC sits next to KHRC, Chenoa Fund, Essex, and USDA.
Every Missouri and Kansas program side by side, with the 2026 limits in one table: get the free Kansas City First-Time Home Buyer Guide.
What is the MHDC 4% down payment assistance loan?
The second loan is exactly 4% of the total first loan, including any financed upfront mortgage insurance.
It is a second mortgage, not a grant, and MHDC’s manual is blunt about it:
“Is MHDC’s Down Payment Assistance (DPA) considered a grant? No, these are not grant funds. MHDC’s DPA is a second loan for the amount of the DPA. The second loan is 100% forgivable after 10 years.” (MHDC First Place Loan Program Operations Manual, revised October 5, 2026, p. 40)
The 4% is calculated on your total first loan, not the purchase price, and the manual specifies that the base includes financed mortgage insurance:
“MHDC DPA 2nd loan amount is based upon the TOTAL first loan amount, including Up Front Mortgage Insurance Premium (UFMIP) or Funding Fees.” (First Place Operations Manual, p. 41)
On a $250,000 FHA purchase with the 1.75% upfront premium financed, the first loan is about $245,470 and the assistance is about $9,819. That covers the 3.5% FHA minimum down payment with a little left for closing costs.
What is the difference between MHDC First Place and Next Step?
Both carry the same 4% second loan and the same 10-year clock. First Place is for first-time buyers and qualified veterans at lower income limits. Next Step is for anyone, first-time or repeat, at higher income limits and a higher purchase price cap. The Next Step manual answers the repeat-buyer question directly: “No, the Next Step program is available to both first-time homebuyers and repeat buyers.” (Next Step Loan Program Operations Manual, revised October 5, 2026, p. 34). One catch: the same manual’s program description limits the 4% second loan itself to “qualified first-time homebuyers and qualified Veterans” (p. 4), so a repeat buyer should confirm the assistance piece with a certified lender before counting on it.
| First Place | Next Step | |
|---|---|---|
| Who | First-time buyers under the three-year principal-residence test; qualified veterans and targeted-area buyers qualify under exceptions | First-time and repeat buyers for the mortgage; the manual limits the second loan to first-time buyers and veterans |
| Assistance | 4% of total first loan, forgivable second | Same |
| 2026 income limit, Kansas City metro | $113,400 (1 to 2 persons), $130,410 (3 or more) | $136,080 (1 to 2), $158,760 (3 or more) |
| 2026 purchase price limit | $566,354 (1-family, non-targeted) | $692,211 (1-family) |
| Minimum credit score | 640 (660 for manufactured homes) | 640 (660 for manufactured homes) |
| Debt-to-income | 45% at 640 to 679 on government loans; 50% at 680+ and on conventional | Same tiers |
| Eligible first mortgages | FHA (not 203k), VA, USDA Guaranteed, Fannie Mae HFA Preferred, Freddie Mac HFA Advantage; 30-year term | Same |
Source note: MHDC First Place and Next Step Operations Manuals, revised October 5, 2026; MHDC 2026 limits, income limits effective May 1, 2026 and purchase price limits effective May 6, 2026 under Rev. Proc. 2026-23. Limits are set annually and change.
When is MHDC down payment assistance forgiven?
After five full years, one sixtieth each month, and fully after ten years. The manual:
“The second loan will be forgiven if the borrower stays in the home and maintains the original loan for ten (10) years. After year five, the second mortgage will begin diminishing by 1/60 every month until year 10 when it will be completely forgiven.” (First Place Operations Manual, p. 4)
| Completed years when you sell or refinance | Unforgiven assistance you repay |
|---|---|
| Fewer than 5 | 100% of the assistance |
| 6 | About 80% |
| 7 | About 60% |
| 8 | About 40% |
| 9 | About 20% |
| 10 or more | Nothing |
Source note: anniversary balances derived from the 1/60-per-month schedule in the First Place manual; between anniversaries the balance drops monthly. Ask the servicer for the exact payoff on your note.
The 4% is the easy part. The 10 years is the decision.
Can you refinance with MHDC down payment assistance?
MHDC forgives nothing in years one through five, and the second loan may not be subordinated to a new first mortgage.
Not without repaying the unforgiven balance. The forgiveness condition is that you “maintain the original loan,” and the repayment section says so in plain words:
“If the borrower decides to sell the home or refinance during the 10-year period covered by the second note, they will be responsible for repaying all or a portion of the DPA.” and “MHDC DPA 2nd loans may not be subordinated.” (First Place Operations Manual, p. 36, Section 5)
“May not be subordinated” means the second loan will not step aside for a new first mortgage. If rates fall in year three and you want to refinance, the price of admission is the full 4% back. Anyone planning to refinance when rates drop should treat that as a rule-out, not a footnote.
What interest rate do you get with MHDC assistance?
Higher than MHDC’s rate without assistance, and MHDC says so in the manual:
“Qualified first-time homebuyers and qualified Veterans may opt for a Non-Down Payment Assistance Loan to save even more money by lowering their initial interest rates. Typically, these loans are .25% to .50% below the rates offered with DPA.” (First Place Operations Manual, p. 4)
Real numbers, then a real caveat. On MHDC’s rate sheet effective September 24, 2026, First Place government loans priced at 6.750% with assistance and 6.375% without. Next Step government loans priced at 8.000% with assistance and 7.250% without, a wider gap than the “typically” language suggests. The Freddie Mac national average that same day was 7.03%.
Those figures are dated, they are not a quote or an offer, and MHDC’s sheet carries the sentence “MHDC interest rates are subject to change without prior notice.” By the sheet effective September 30 the same First Place rates had already moved to 7.375% with assistance and 7.000% without, which is the point: rates move, and this example uses the September 24 sheet. Your rate depends on your credit score, loan type, and full application, and most borrowers land above published averages once pricing adjustments are applied. Freddie Mac’s survey is a conventional-loan average, so it is context, not a like-for-like quote against MHDC’s government-loan rates. What the dated numbers show is the shape of the trade: in our experience MHDC does not reprice every morning the way the open market does, so in a rising-rate month the assisted First Place rate can sit under the national average even while it sits above MHDC’s own no-assistance rate. Look up today’s sheet, then have a certified lender run your file both ways.
What is a targeted area, and why does it matter?
A targeted area is a census tract where MHDC drops the first-time buyer rule and raises the limits:
“Borrowers do not need to be first-time homebuyers; Purchase Price limitations are increased; Income limits are increased; Loans in these areas generally receive priority for the lowest interest rates” (First Place Operations Manual, p. 34)
In the Kansas City metro, every targeted tract on MHDC’s list (updated January 8, 2024) sits in Jackson County. Your lender checks the address against the list. Targeted-area government loans priced at 5.875% with assistance on the September 24, 2026 sheet, the lowest assisted rate MHDC published that day. Same caveats: subject to change, not a quote or a lock, and your pricing depends on the product, your credit, and your full application.
What else should a Missouri buyer know before signing?
Three things to check before you sign: no Mortgage Credit Certificate with First Place, possible federal recapture tax, and the certified-lender clock. First, the Mortgage Credit Certificate: the manual states “First Place loans may not be used in conjunction with Mortgage Credit Certificates” (p. 4). MHDC’s site still carries an MCC page that mentions pairing one with Next Step, but that page is not linked from its homebuyer programs menu, so ask your lender for the current program document before you plan around it. Second, on a bond-financed First Place loan, federal recapture tax can apply if you sell within nine years at a profit while your income has risen above the recapture chart; its maximum is the lesser of 6.25% of the highest loan balance or half the gain, and the statutory calculation can reduce it; the manual notes that “Refinancing or prepayment of a loan without a disposition of the residence will not, in itself, trigger the recapture tax.” (p. 38). Third, MHDC does not underwrite or take applications. Its First Place FAQ says “Loan applications are only accepted by Certified Lenders,” and once your rate is locked the manual gives the lender 60 days to close the loan and submit the compliance package (p. 31).
Who is the right buyer for MHDC assistance?
First Place requires a 640 credit score; lenders can set a higher floor.
The buyer with steady income and good credit who has no savings for a down payment and plans to stay put. Rebecca, whose story is on my first-time buyer guide page, fit that exactly: contract at $165,000, MHDC assistance, $7,600 in seller-paid closing costs, and part of her $1,600 earnest money back at closing. The wrong buyer is the one who expects to sell or refinance inside five years. Know the payoff before you sign, not when you sell. For a second real example, read a Maysville first-home story with Missouri assistance.
Frequently Asked Questions
Is the MHDC down payment assistance a grant?
No. MHDC’s First Place manual answers this question directly: “No, these are not grant funds. MHDC’s DPA is a second loan for the amount of the DPA.” The second loan is forgiven only if you keep the house and the original first mortgage for ten years, with forgiveness beginning after year five at one sixtieth per month.
How much is MHDC down payment assistance?
Exactly 4% of your total first loan amount, including any financed upfront mortgage insurance premium or funding fee. On a $250,000 FHA purchase with the upfront premium financed, that is roughly $9,800. It applies to down payment and closing costs on First Place loans and, per the Next Step manual, on Next Step loans for qualified first-time buyers and veterans.
What are the MHDC income limits for Kansas City in 2026?
First Place: $113,400 for a one- or two-person household and $130,410 for three or more in the Kansas City metro counties. Next Step and targeted areas: $136,080 and $158,760. The 2026 purchase price limits are $566,354 for a one-family home in non-targeted areas and $692,211 in targeted areas and under Next Step.
What credit score do you need for an MHDC loan?
A minimum FICO of 640 on most First Place loans, and 660 for manufactured homes. Lenders can set stricter minimums. Debt-to-income is capped at 45% for government loans at scores of 640 to 679 and 50% at 680 and above, and 50% on the conventional HFA products.
Can you use MHDC down payment assistance with a VA or USDA loan?
Yes. MHDC’s eligible first mortgages are FHA (excluding 203k), VA, USDA Rural Development guaranteed, Fannie Mae HFA Preferred, and Freddie Mac HFA Advantage, all on a 30-year term. Whether pairing makes sense is a separate question, since VA and USDA already allow zero down and the MHDC second still carries the 10-year repayment clock.
Does MHDC offer a Mortgage Credit Certificate?
Not with First Place. The manual states that First Place loans “may not be used in conjunction with Mortgage Credit Certificates.” MHDC’s website still carries a Mortgage Credit Certificate page that mentions pairing one with Next Step, but the page is not linked from its homebuyer programs menu as of October 2026. If a lender or blog tells you an MHDC MCC is available, ask them for the current program document.
Ready to Talk?
If you are buying on the Missouri side, we will run your file with and without MHDC assistance so you can see the real trade before you commit to it.
Call or text: (816) 680-6624
KW KC North Office: (816) 452-4200
Email: [email protected]
Web: https://nelsonhomegroupkc.com/
Joe Nelson, NMLS #2547018. LeaderOne Financial Corp, NMLS #12007. Equal Housing Lender.