$8,000 tax credit enhanced by VHDA loan program

VHDA loan program enhances $8,000 tax credit for first-time home buyers

Recently, several housing finance agencies in other states created special short-term second loans by “monetizing” the new $8,000 first-time home buyer federal tax credit to assist home buyers needing down payment and closing-cost assistance.

The Virginia Housing Development Authority looked at the idea of “monetizing” the new homeownership tax credit, but decided a program it already has in place – the FHA PLUS program – provides better value for borrowers without the hassles.

FHA PLUS is a program designed to assist qualified borrowers who need down-payment and closing-cost assistance. A second mortgage (the PLUS) is added to an FHA first-mortgage loan. Because VHDA is quasi-governmental, it was grandfathered under the recent FHA regulation changes and allowed to continue offering down-payment and closing-cost assistance. The program is one of the few available that allows borrowers to exceed a 100 percent LTV.

The program offers several benefits to borrowers. First, it’s flexible because FHA PLUS is based on 5 percent of the sales price. Using VHDA’s average sales price of $160,000, a home buyer could borrow up to $8,000 for down payment and closing costs, the same amount available through the new tax credit. But while the tax credit is limited to $8,000, VHDA customers could borrow more than that amount for higher sales prices. For example, someone purchasing a home in a higher-cost area for $250,000 could borrow up to $12,500 using FHA PLUS.

The $8,000 federal tax credit can then be used to fund home improvements, furniture and so on. Home buyers also have the option of using their $8,000 tax credit to pay off or pay down their FHA PLUS second mortgage next year, with no prepayment penalty. By using this new government benefit to reduce their debt, borrowers will have the opportunity to put themselves in a stronger financial position.

FHA PLUS also offers the same term for both loans – 30 years – which allows for smaller monthly payments and the interest can be deducted. By contrast, the new down-payment assistance programs in other states have terms as low as 10 years, thereby doubling the monthly payments for the second loan.

It’s important to note VHDA, as with all state housing finance agencies, has maximum income limits on its loan programs. These income limits vary from those required by the new tax credit, sometimes substantially. Therefore, some borrowers may be eligible for the new tax credit but ineligible for VHDA’s FHA PLUS program.

VHDA’s income limits can ve found at www.vhda.com

For more information about VHDA’s FHA Plus program, visit www.vhda.com or call (877) 843-2123. VAB

From the May 2009 issue of “Virginia Builder” magazine.