Tom's Guide to Financing Assistance for First Time Home Buyers
Or: Cash Help For San Diego Real Estate Homebuyers
The Problem:
The widening gap between what a buyer of San Diego real estate can afford and what the home costs. This hurts the entire market as we lose the bottom rung on the ladder to homeownership. In this brief paper, I hope to outline several local and state programs which can assist our young adults in their pursuit of the "American Dream" of homeownership.
The Solutions:
There are two major ways in which first time homebuyers in San Diego can be helped in the purchase of their first home... either through mortgage credits which enable buyers who are short on income but not downpayment, qualify for a loan. The second way is through downpayment assistance when just the opposite is the issue: income is not a problem but the buyer is short on downpayment funds.
Short on Income? Let's discuss Mortgage Credit Certificates (MCCs).
Basic Program Notes:
Mortgage Credit Certificates (MCC) Tax Credits help folks short on income to qualify when downpayment is NOT the issue but income is. Helps buyers qualify for financing.
MCC is a federal income tax credit program. It increases the loan amount you qualify for and it also increases your take home pay. The MCC entitles you to take a federal income tax credit of 20% of the annual interest you pay on your home mortgage. Thus, because the MCC reduces your federal income tax burden and increases your net earnings, it is a great help in qualifying you for a mortgage. Plus, the MCC is registered with the IRS and it continues to decrease your federal income taxes each year as long as you live in your home. Example: Income = $6,250/month. Loan amount = $350,000. Interest Rate = 6.5%.
Determine 1st year interest payment. $350,000 X .065 = $22,750
80% of the interest paid is figured as an itemized deduction and 20% becomes a tax credit on federal taxes. On state taxes, 100% is deducted. Any unused federal credit on one year may be rolled over for up to three years.
Program began as a result of the 1986 Tax Act. Michigan was the first state to implement the program and then California followed. CA issues more MCCs that the rest of the entire nation combined.
Millions of dollars are available for low income buyers in local assistance programs.
Applications for a purchase inside the city of San Diego are processed through the San Diego Housing Commission.
Applications for a purchase within the County of San Diego but outside the corporate limits of the City of San Diego are processed through Affordable Housing Application, Inc. (www.ahahousing.com): 619-469-0270.
Not a loan, no subordination on the part of the buyer.
Generally for good, solid buyers who are approximately $300/month short on income to qualify.
Eligibility:
Income does not exceed max amount. While amounts change on a regular basis, max income for 1 or 2 persons is approximately $82,800. For 3 persons, the max is approx $96,600.
Purchase price does not exceed the max amount. Again, these amounts change but, the max purchase price for a resale home is between $503,700 (non-targeted census tract) and $615,700 (targeted census tract).Purchase of new homes have a slightly smaller max purchase amount. Note: Certain census tracts receive special designation and applicants who purchase in these areas do not have to be first time homebuyers and the income and purchase price limits are higher. Generally, targeted tracts are those wherein 70% of the inhabitants make less than 80% of the median income.
Buyers cannot have been a homeowner within the previous 36 months.
Pay a non-refundable MCC application fee of .002 X loan amount. For example: $300,000 total loaned (1st and/or 2nd trust deed) X .002 = $600.00 fee.
Purchase a single family detached home, condo, or townhome within the program´s boundaries.
Both the lender and the mortgage broker must be approved. For a list of participating lenders see the pertinent web site.
Minimum fixed loan for at least 3 years.
Owner occupancy loans only; no investors. Can have a non-occupant co-borrower.
If you sell your home within 9 years, you may have to pay a "recapture tax". Several conditions can exempt you from this tax (e.g., death, divorce, family income has not increased substantially, etc.). The Congress figures that if an MCC holder´s income increases substantially and a gain was made on the sale of the home, a modest tax might enable the MCC Program to stay funded indefinitely.
If you move, you stop taking the credit.
Get pre-qualified through a lender enrolled in the MCC program in advance.
The lender applies to the program on behalf of the buyer while the home is in escrow.
FHA, VA and conventional loans are OK. No CalHFA or Cal-Vet loans. 100% financing is also OK as well as 2nd trust deeds. No: "stated income", neg am, ARMs which change within 3 years, or interest only loans for less than 5 years loans.
Eligibility is a "slice of time" during escrow only. It continues as long as the MCC holder continues to live in the home.
Can be used in combination with the Downpayment and Closing Cost Assistance (DCCA) loan.
The Reissued MCC Program (RMCC) allows an MCC holder to refinance and then apply to have the tax credit transferred to the new loan. There are no limits as to the number of times you can do this.
Short on Downpayment? Let's discuss Downpayment Assistance
Basic Program Notes:
Downpayment Assistance comes by a myriad of names such as:
Gap Financing
Homebuyer Assistance
Silent Seconds
Sleeping Seconds
Forgivable Seconds
Deferred Payment
Soft Seconds
Subsidized Second Mortgages
Shared Equity Loans
Shared Appreciation Loans
Shared Appreciation Loans
Downpayment/Closing Cost Assistance
HOP, HAP, SHOP, or DAP
Numerous local programs are available and each city provides their own "touches". Thus, there is some but not a lot of uniformity in how each city or jurisdiction administers their specific program.
There are however, approximately twelve common features of Downpayment Assistance Programs
Every program is very subject to constant change3;especially funding availability.
Minimum cash from homebuyer into the transaction. Example: The County's requirement is 1% of purchase price; EI Cajon requires 2%.
Maximum income requirements. Most programs are low income ? 80% of the Median Area Income (MAI) but EI Cajon and Poway have moderate income programs also, which go up to 115% of MAI.
Maximum purchase price or loan amount.
Owner-occupancy requirement and penalties .Loans will become due and payable immediately if it is discovered that a borrower has moved out of the property. Enforcement of this is called "Occupancy Monitoring."
Buyer education requirements. You must complete a class.
Triggering events-sale, refinance, moving out, default or foreclosure.
Crucial importance of program geographic boundaries. Never assume you know the jurisdiction of a property-check this out thoroughly. Valuable time can be wasted putting together an application to the wrong jurisdiction.
Tax returns to prove first-time home buyer status. Again, just like MCCs - 3 years 1040's with no mortgage interest deductions.
Lender enrollment in program. See lender lists on pertinent web sites.
Occupancy requirement of property prior to offer. Many programs require that the property be either vacant or occupied by only the seller at time of application due to possible liability for relocation benefits to evicted tenants.
Pay-back is usually unconventional. Three types of pay-back include: a) Low interest rate (e.g., possibly only need to qualify for the 1st trust deed; simple interest; stay in the home for 10 years and then no interest due3;only pay the principal, etc.) with deferred balloon payment; b) Shared Equity in which the equity is shared between the seller and the city, with the amount to the city decreasing the longer the recipient stays in the home; and c) Shared Appreciation where the equity share that goes to the city always equals the proportional share that they invested to begin with.
A brief synopsis of one program run by the County of San Diego: "Downpayment & Closing Cost Assistance (DCCA) Program. Again, this is merely an example of one popular and widely administered program. Check the Resource List at the back of this brief for contact info for individual communities.
A loan of up to $80,000 from the County of San Diego to help first time homebuyers raise cash for their downpayment and/or closing costs. The loan is secured by a note and deed of trust and requires one balloon payment of principal plus 3% simple interest (accrued). The payback is deferred (no monthly payments) until the 1st mortgage is paid off (due to sale or refi) or the homeowner moves from the property.
Income Limits: Family of one: $38,650 Family of two: $44,150 Family of three: $49,700 Family of four: $55,200
Maximum Purchase Price: $422,750
Homes may be new or resale, single family detached, units or condos
Home must be within the jurisdictional boundaries of the authority
Must be buyer´s principal residence
Buyer must contribute a minimum of 1% from own funds
Buyer cannot have owned a home withn the preceeding 3 years
Buyer must complete a homebuying class
No: neg am; stated income; ARMs with rate change within the 1st three years; or Interest Only with rate change within the 1st five years.
Have approved lender pre-qualify for the program, find a home and make offer. Once in escrow, the lender completes program paperwork.
San Diego Jurisdiction Resource List for Downpayment Assistance
First Time Home Buyer Program. (Low income) Sharon Crockett
619-258-4100 x-130
Vista
Downpayment Program on hold pending future funding
760-639-6191
County Unincorporated
DCCA Program. Administration of this program will transfer from aha housing to the County of San Diego as of July 1, 2005. Contact information at County is unknown at this time.
