Tax Credit for Down Payment

On May 12, 2009 Cindy posted about the possibility of using the tax credit for down payment on FHA mortgages.  At that time we had shared that “We have to find out if there are any government agencies or non-profits in your area are willing to provide this financing AND if they have funds to do so.”  Since the date of the news, the US Department of Housing and Urban Development (HUD) has recalled this information and subsequently released an updated notice with the following details:

• FHA will permit certain entities to use the current authority to offer tax credit advances in the form of second liens with the following conditions:
  • The tax credit advance can not result in cash back to the customer
  • The second lien can not exceed the total amount for the down payment, closing costs and pre-paids
  • The second may be silent (not requiring a payment) or require a payment
  • If the second requires monthly payments the payments must be included when qualifying for the mortgage
  • Payments must be deferred for a minimum of 36 months to not be included in the qualifications
  • If the tax credit advance has a short term for repayment, it must also provide if the borrow fails to repay by the designated deadline, principal and interest payments begin automatically or the loan converts to a silent second
  • The second may not require a balloon payment within ten years

• FHA will permit FHA approved nonprofit organizations as well as Federal, State and local government agencies may purchase the tax credit with the following conditions:
  • The proceeds from the sale of the tax credit may not exceed the anticipated tax credit due to the homebuyer
  • The borrower must submit a signed certification that the tax credit is not subject to offset due to other indebtedness
  • A copy of the borrower’s tax refund must be obtained and included with the mortgage financing
  • Fees related to the purchase of the tax credit should not exceed 2.5% and must be reduced from the anticipated tax credit
  • The tax credit may not be used as down payment if the purchaser of the tax credit is an interested party (lender, seller, real estate agent, etc)

For the full letter and details you can be found on HUD’s website.

How Does this impact Colorado Housing and Finance Authority (CHFA)?

Plain and simple – it doesn’t.  Here is the eNews provided by CHFA today:

CHFA JumpStart Clarification

There has been much confusion and rumors in the past few weeks regarding the CHFA JumpStart loan program and its compatibility with FHA insurance. This confusion arose when the FHA issued Mortgagee Letter 2009-15 on May 11, 2009, then recalled it on May 12, 2009. 

Friday, May 29th, the FHA issued a new 2009-15 Mortgagee Letter clarifying its guidance on how the Federal First Time Tax Credit may assist eligible borrowers purchase a home. 

The CHFA JumpStart Loan Program complies with the FHA guidelines and is eligible for FHA insurance. 

However, there is a provision in the Mortgagee Letter that allows all FHA-approved mortgagees and FHA-approved non profit organizations, and local government agencies and instrumentalities to purchase the tax credit anticipated by the homeowner. To be clear, CHFA is not purchasing the borrower’s anticipated tax credit. CHFA is providing a second mortgage to be used for downpayment and/or closing cost assistance. CHFA encourages the borrower to use the tax credit to repay the second mortgage while in a zero (0%) percent interest deferral period. If not repaid by June 30, 2010, the CHFA JumpStart second mortgage becomes an 8%, 10 year term loan with required monthly payments. 

Because of this provision, CHFA will not approve any borrowers who have “sold” their tax credit to use the CHFA JumpStart Loan Program. These borrowers will be eligible for the CHFA HomeOpener program. 

If you have any questions about CHFA’s JumpStart or HomeOpener program please contact us.

Other Options

At this time we are unaware of any nonprofit organizations or government agencies providing second liens or tax credit advances.  As we hear anything we will be sure to update you here.

Lending A Hand

Scott Wynn