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VHDA to Launch Homebuyer Tax Credit Plus

The Virginia Housing Development Authority (VHDA) is launching a new program to allow first time homebuyers to use the Federal First Time Homebuyer Tax Credit to finance downpayment and closing costs on a VHDA mortgage. 

   
This loan has a built in second mortgage with zero interest and no payments for the first 12 months. Eligible buyers have the following three payment options:
  
1. Pay off the second mortgage with the Federal First Time Homebuyer Tax Credit.
  
2. Pay off the second mortgage over 29 years - and save the tax credit to pay for future emergencies, make home improvements, or pay off/pay down existing debt.
  
3. Make principal payments on the second mortgage before the repayment period begins; this will reduce the required monthly payments for the remaining 29 years on the second mortgage.
 
The maximum loan amount for the first mortgage is the maximum FHA mortgage, and the maximum loan amount for the second mortgage is up to 5% of the sales price (no cash back). VHDA does not guarantee borrowers' eligibility for the Federal First Time Homebuyer Tax Credit. Borrowers can file an amended tax return after closing, and should consult a tax advisor or the IRS for complete eligibility criteria. Information is available at http://www.irs.gov.  If borrowers are not eligible for the First Time Homebuyer Tax Credit, or the tax refund (if any) is not enough to repay the First Time Homebuyer Tax Credit plus loan, borrowers are still obligated to repay the second mortgage, plus all applicable interest. 
    
For more information call 877-VHDA-123.
  
The release of VHDA's program follows HUD's May 12 announcement that FHA approved lenders are permitted to "monetize" the Federal First Time Homebuyer Tax Credit through short-term bridge loans. HUD's program DOES NOT allow a buyer to use a conventional lender to monetize the tax credit to reach the 3.5% downpayment, although they CAN use it for closing costs and prepaids.  The only way a homebuyer can use the tax credit for downpayment (to reach the FHA 3.5%) is if the buyer uses an FHA-approved non-profit or instrumentality of government.  For more information,read HUD's mortgagee letter: 
 
 

 

TO: ALL APPROVED MORTGAGEES

Using First-Time Homebuyer Tax Credits

The American Recovery and Reinvestment Act of 2009 (Recovery Act) provides for as much as an $8000 tax credit to qualified first-time homebuyers. FHA supports this important initiative to promote homeownership. This mortgagee letter provides:

  1. Basic information on the first-time homebuyer credit obtained from the Internal Revenue Service (IRS) website. Complete information on how the first time homebuyer tax credit works, including the eligibility requirements for the tax credit, the amount of the tax credit that a first-time homebuyer may be eligible to receive, and how a homebuyer may claim the tax credit is available on the IRS website at http://www.irs.gov/newsroom/article/0,,id=204671,00.html?portlet7.
  2. Guidance on how FHA-approved mortgagees and FHA-approved nonprofit organizations as well as Federal, state, and local government agencies or instrumentalities may assist homebuyers that are eligible for the tax credit.

I. About the First-Time Homebuyer Tax Credit

Please check the IRS website to ensure you have up-to-date information. A brief overview of the tax credit from the IRS website and a copy of IRS Form 5405 (including instructions) are attached for reference.

Pursuant to 31 U.S.C. 3727 and 26 U.S.C. 6402, a refund of the first-time homebuyer credit will be made by the IRS only to the taxpayer, not to a third party. In other words, any refund issued in response to a claim for this credit cannot be assigned by a taxpayer to a third party.

II. FHA Tax Credit Guidance

Secondary Financing

Conditions

:
  • The tax credit advance, when combined with the FHA-insured first mortgage may not result in cash back to the borrower.
  • The second lien may not exceed the total amount needed for the down payment, closing costs, and prepaid expenses.
  • Secondary financing may be "soft" (silent) or require a monthly repayment.
  • If payments are required, they must be included within the qualifying ratios and, when combined with the first mortgage, cannot exceed the borrower’s reasonable ability to pay.
  • Payments must be deferred for at least 36 months to
    • not be included in the qualifying ratios.

    Conditions

    :

    Due Diligence

    FHA expects that entities purchasing tax credit assets will employ appropriate due diligence measures including, but not limited to: 3

    1. Require the homebuyer to draft and provide the IRS form 5405 "First-Time Homebuyer Credit."
    2. Contact the borrower’s employer and review pay stubs to confirm there are no outstanding garnishments.
    3. Review the homebuyer’s credit report to ensure there are no unpaid student loans, or other obligations that could be offset against the credit.
    4. Validate that all of the eligibility requirements for the tax credit are fulfilled
    5. Review previous tax returns and IRS tax assessment letters, if any, to determine that the borrower does not have unsettled obligations to the IRS

    III. Monitoring

    In order to track the tax credit monetization activities, FHA will require FHA-approved mortgagees to input into FHA Connection the following data:

    1. Name and EIN of the party who purchased the tax credit,
    2. The amount of the anticipated credit, and
    3. The amount the homebuyer paid for the monetization services.

    The lender must also collect and maintain in the FHA case file the documentation that validates all of the tax credit monetization data submitted via FHA Connection.

    FHA will monitor the purchase of tax credit transactions closely. Charging of excessive fees or costs in the purchase of the tax credit or increasing other fees or charges in the transaction without FHA approval may result in referral to the Mortgagee Review Board, and particularly with respect to entities that are not FHA-approved mortgagees, referral to the Federal Trade Commission, or referral to the appropriate State Attorney General office, as may be applicable.

    If you have any questions regarding this mortgagee letter, please call FHA’s Resource Center at 1-800-CALL-FHA (1-800-225-5342). Persons with hearing or speech impairments may access this number via TDD/TTY by calling 1-877-TDD-2HUD (1-877-833-2483).

    Sincerely,

    Brian D. Montgomery

    Assistant Secretary for Housing-

    Federal Housing Commissioner

     
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