- The Washington Times - Friday, July 24, 2009

While the federal government’s tax credit for first-time homebuyers has attracted plenty of attention, potential buyers also should be aware that they may be eligible for financial incentives and assistance through state and local government programs.

Designed to encourage homeownership, some of these programs may be restricted by income or by the value of the home to be purchased, but many homebuyers will find that the extra closing cost assistance or a low-interest mortgage may be just the extra boost they need to move from renters to owners.

“The D.C. Bond Program is not restricted by income and normally offers a nonrepayable grant for 3 percent of the home value to first-time homebuyers purchasing property in the District,” says Kelvin Carvana, a banking executive with MetLife Home Loans in the District. “Right now the D.C. Bond program has been given additional funding for a temporary program so that homebuyers can qualify for a $10,000 loan, deferred for five years, with a 5.25 percent interest rate. The catch is that buyers need to purchase a home priced under $417,000 and they need to close on that property before Aug. 15.”

Mr. Carvana says there has been some discussion that this program will be extended, but no formal announcement has been made. The D.C. government also has a first-time homebuyers tax credit, similar to the federal government’s program.

“The maximum tax credit is $5,000 and is available to anyone who has not owned a residence in the previous three years when they buy a home in the District,” says Mr. Carvana.

This tax credit phases out for annual incomes more than $90,000 for singles and more than $130,000 for married couples.

The District’s Department of Housing and Community Development offers the Home Purchase Assistance Program (HPAP), which is restricted to low- and moderate-income households with good credit who are first-time homebuyers in the District.

Buyers also need to be the head of the household, and applications are prioritized for low-income, elderly and disabled D.C. residents; other D.C. residents; non-D.C. residents who have been employed for at least one year in the city; and nonresidents who have lived in the District for three years as an adult.

“The maximum loan amount this year is $40,000 for the HPAP program, which is an interest-free loan deferred for five years and then amortized over 40 years,” says Mr. Carvana. “This is a second trust loan that buyers can use for their down payment. If someone borrows the full $40,000 then, starting in year six, their monthly payments for that loan will be $83. Borrowers are also eligible for closing cost assistance up to $4,000.”

Mr. Carvana gave an example of first-time D.C. homebuyer he recently helped obtain more than $65,000 in loans and tax credits. A lender had already qualified the borrower for a $190,000 mortgage. This buyer, with an income of $32,000 and good credit, was also able to qualify for a $40,000 HPAP deferred loan, a $10,000 D.C. Bond deferred loan, a tax abatement credit of $2,310 at the closing, and both the federal and D.C. first-time buyers tax credits totaling $13,000.

Outside the District, state and local governments also offer first-time homebuyer programs. In Maryland, the Department of Housing and Community Development (DHCD) offers low-interest, fixed-rate mortgages for first-time homebuyers through the Maryland Mortgage Program. These loans are limited by income and purchase price by locations throughout the state, with caps on household income and on homes up to $525,091 (depending on the location).

“First-time homebuyer programs in Maryland are targeted to low- and moderate-income families so they are all subject to income and acquisition cost limitations,” says Andy DeVilbiss, communications manager for DHCD. “However, first-time homebuyers are able to have the transfer tax waived at settlement regardless of their income.”

Maryland’s down payment and closing cost assistance programs, accessible to everyone who qualifies for a Maryland Mortgage Program loan, can be stacked with programs such as the House Keys 4 Employees (HK4E) program that provides down payment assistance for government employees and others working for participating employers.

“The Down Payment and Settlement Expense Loan Program (DSELP) is a zero-percent deferred loan that does not have to be paid back until the home is sold, the mortgage is paid in full or the mortgage is refinanced,” says Mr. DeVilbiss. “This loan is restricted to homes that cost less than $200,000 and the maximum amount of the loan is $2,500. Borrowers can pay all their down payment and closing costs with this loan.”

Borrowers through the Maryland Mortgage Program can also apply for a grant of 2 or 3 percent of the mortgage amount to be used toward a down payment and closing cost assistance. This grant does not have to be repaid, although borrowers will pay a slightly higher interest rate for their mortgage.

The DHCD matches up to $5,000 toward down payment and closing cost assistance given by employers to borrowers through the HK4E program in the form of a deferred, zero-percent interest loan that does not need to be repaid until the home is sold or the mortgage paid off or refinanced.

“The biggest barrier to homeownership is always saving enough for a down payment and closing costs,” says Mr. DeVilbiss. “These programs can be combined so that some borrowers will be able to get up to $10,000 in assistance, which helps them become homeowners.”

In addition to participating in state programs, some buyers may also be eligible for county homebuyer programs. In Prince George’s County, the American Dream Downpayment Initiative (ADDI) provides down payment and closing cost assistance of $1,000 to $5,000 to first-time homebuyers who are participating in the County’s Rental Assistance Program. The buyers must have a minimum gross income of $26,000, qualify for a mortgage, and contribute a minimum of $1,000 toward the purchase of the home.

In Montgomery County, the Department of Housing and Community Affairs’ Moderately Priced Dwelling Unit (MPDU) offers affordably priced town homes and condominiums (both new and resale) to first-time homebuyers with moderate household incomes. First-time buyers are considered those who have not owned a home in the past five years. The minimum household income is $35,000, while the maximum eligible income for this program ranges from $50,500 to $77,500 (depending on the number of people in the household).

The program is not a financing program, but rather a program that allows first-time buyers to buy a home at an affordable price under a shared equity system. Participants must be able to qualify for a mortgage of $120,000 or more, make a down payment, pay closing costs and afford the mortgage payments.

The Virginia Housing Development Authority (VHDA) recently introduced their Homebuyer Tax Credit Plus program, which allows qualified first-time homebuyers to tie a second mortgage to their VHDA mortgage to finance down payment and closing costs. The second loan has zero interest and zero payments for the first 12 months, and then borrowers can pay off the loan with their federal first-time homebuyers tax credit, pay off the loan over 29 years and keep their tax credit money for paying off other debt or building an emergency fund, or make principal payments before the repayment period begins in order to reduce the monthly payments for the remaining 29 years.

“This loan is similar to the FHA-plus loan we have had in place since 1994, but we wanted to do something to give first-time buyers another reason to look at the benefits of the federal first-time buyers tax credit,” says Michele Watson, director of homeownership programs at VHDA. “There’s no burden on the buyers for the first 12 months for this loan, and then they can decide how they want to pay it back after that year. The loan has an interest rate that is the same as the first mortgage, which is very unusual for a second trust loan. Usually those loans carry a much higher rate. So even if the buyers decide to pay it off over the 29 years, their payments will be low.”

Ms. Watson says buyers can borrow up to 5 percent of the sales price, or as much as $10,000 on a $200,000 home. If they borrow this much and receive the $8,000 tax credit, they can use that money to pay off most of the debt and make payments on just $2,000 for 29 years.

The Homebuyer Tax Credit plus program requires a closing date no later than Nov. 30 since it is tied to the federal tax credit. In addition, borrowers must meet the income and sales price limitations of all VHDA borrowers.

In the Washington area, the maximum sales price for a home is $408,100 and household income must be less than $86,900 for households with one or two members and $100,000 for households with three or more members. In addition, buyers must have debt-to-income ratios that comply with FHA guidelines of 31 percent housing payments to income and 43 percent debt to income.

Some Virginia homeowners may also qualify for down payment and closing cost assistance through the Department of Housing and Community Development’s HOME Partnership Investment Fund (HOME). First-time buyers who meet the income eligibility can receive up to 10 percent of the purchase price for the down payment and up to $2,500 to pay for closing costs. HOME funds can be combined with VHDA funds.

“The HOME program targets lower income households than the VHDA programs and is limited to those with 80 percent or less of the area median income,” says Ms. Watson. “The beauty of this program is that if you meet the income guidelines, the down payment assistance becomes a grant that does not to be repaid after 15 years. Of course, if the owners sell the property before 15 years, they will have to pay a federal recapture tax on the assistance.”

Virginia also offers the Virginia Individual Development Accounts (VIDA) program, which can help potential buyers learn about budgeting and saving money to buy a home. VIDA matches $2 to every $1 saved in a VIDA savings account, up to $4,000 per participant with a maximum of two participants per household. The program is limited to households with incomes $21,660 to $44,100 (depending on household size), and to citizens or legal aliens who are employed full or part-time and able to save $25 or more per month.

In addition to state programs, first-time buyers may be eligible for county programs. In Arlington County, first-time homebuyers may qualify for a Sponsoring Partnerships and Revitalizing Communities (SPARC) below-market rate mortgage for low- and moderate-income buyers. The first-time buyers must be purchasing a home in Arlington County priced under $408,100 and have an income under $86,900 for a household of one or two people and under $100,000 for a household with three or more members.

Arlington County residents may also qualify for the Moderate Income Purchase Assistance Program (MIPAP), a second trust mortgage up to 25 percent of the purchase price if they are first-time buyers with an income under $57,550 for a one-person household to $108,500 for a five-person household. Borrowers must be purchasing a home priced under $362,790 with a maximum loan amount of $90,700 and must contribute a minimum of 1 percent of the purchase price from their own funds. The MIPAP loan is a 30-year deferred-payment loan, with payment expected when the home is refinanced or sold, along with a proportionate share of the net appreciation of the property.

Arlington County also has a notification list for “affordable properties” for the sale of Affordable Dwelling Units (ADUs), which are limited to the same income requirements as the MIPAP program.

Fairfax County residents may be able to qualify for a first-time homebuyers program geared to moderate-income families. Buyers must not have owned a home for the previous three years, have at least $25,000 in income and less than $50,350 for one-person households and up to $94,900 for households with eight or more members. The program is limited to borrowers with conditional lender approval and to homes priced from $78,000 to $170,000.

Preferences are given to households with members who live or work in Fairfax County, have at least one child younger than 18, and have participated in the homeownership program. Buyers may be eligible for below-market rate mortgages, down payment and closing cost assistance.

While investigating these state and local first-time homebuyer programs, potential buyers should keep in mind that the federal first-time homebuyers tax credit expires Dec. 1, meaning that buyers need to go to settlement on their home before that date.

The process from making an offer to reaching settlement can take anywhere from 30 to 45 days to several months, so buyers interested in taking advantage of this credit need to get prequalified for a loan and start shopping now.

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