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Training Camp – NIFA 101

Training Camp – NIFA 101. January 26, 2010. Agenda. Program Eligibility Income & Purchase Price Limits Loan Programs Advance Buyer Credit (ABC) Loan Program Allowable Loan Products Affordable Housing Program (AHP) Grant Funds Mortgage Credit Certificates (MCC’s) Recapture Tax.

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Training Camp – NIFA 101

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  1. Training Camp – NIFA 101 January 26, 2010

  2. Agenda • Program Eligibility • Income & Purchase Price Limits • Loan Programs • Advance Buyer Credit (ABC) Loan Program • Allowable Loan Products • Affordable Housing Program (AHP) Grant Funds • Mortgage Credit Certificates (MCC’s) • Recapture Tax

  3. Eligibility • 1st Time Homebuyer • Property must be Owner-Occupied • Maximum Income Limits • Maximum Purchase Price Limits • Existing or New Construction • Single family, qualified condominiums and 2-4 Unit, Owner-Occupied Properties

  4. Definition of First-Time Homebuyer • Each borrower must not have had an ownership interest in a principal residence at any time during the three years preceding the mortgage loan date. • First-time homebuyer status is not required in target areas

  5. Exceptions to First-Time Homebuyer Rule • Loss of previous home by a court action • Divorce • Loss of previous home by natural disaster • Fire, tornado • Involuntary relocation of borrower by their employer to another location of the same employer because of employment reasons • Must relocate to secure employment

  6. Purchase Price Limits • Purchase price is the cost of acquiring the property from the seller as a completed unit • Limits are the same for existing and new construction properties • New Construction is defined as a house that has never been occupied • Property must be used for personal residence • Residence cannot exceed15% of the total area being used for business (e.g., daycare, hair or nail salon, accountant)

  7. Business Usage Affidavit Square foot calculation • Area of residence: 1,200 • Area of surrounding land: 6,300 • Total area of residence and land: 7,500 • Area of residence used in trade or business: 400 • Area of surrounding land used in trade or business: 480 • Total area of residence and land used in a trade or business: 880 • Percentage of residence and land used in a trade or business (line f divided by line c): 11.73% Time usage calculation (h) Average number of hours each week: 40 • Ratio of average number of hours each week divided by totalnumber of hours in a week (168): 23.81% Final business usage percentage • Percentage of residence (line g) multiplied by ratio of hoursworked (line i): 2.79%

  8. Purchase Price Limits • In related party transaction, NIFA purchase price is the greater of the purchase price or appraisal • Income limits in Federally Targeted Areas are higher • 2-4 unit properties • Must be at least 5 years old • Purchase price limits are higher for these properties

  9. Income Limits • Max. household income limits are all sources of income for adults 18 years and older living in the property • Income limits are categorized by family size of 1-2 persons or 3 or More • Maximum income for 1-2 persons is 100% of median income • Maximum income for 3 or more persons is 115% of median income • Income limits in Federally Targeted Areas are higher

  10. Calculating Income • IRS regulations require projecting maximum household income out for the next 12 months. • Income for all adults 18 and over living in the household has to be included in the calculation. • Projected raises, bonuses, overtime, commission and interest on assets over $5,000 must be included. • Income from all full-time and part-time jobs is included. • NIFA projects total household income forward for the next 12 months.

  11. Family Income Worksheet

  12. Family Income Worksheet

  13. Family Income Worksheet

  14. Allowable Mortgage Products • Any NIFA program can currently be used with any government mortgage products • Federal Housing Administration (FHA) • Veterans Administration (VA) • USDA/Rural Development (RD • Interest rates dictated by the NIFA program

  15. NIFA Loan Programs • First Home • First Home Plus • First Home Focused • Advance Buyer Credit (ABC) • Affordable Housing Program (AHP) • Mortgage Credit Certificate (MCC)

  16. First Home Program • Lower interest rate with 1% origination fee and .75% discount point

  17. First Home Plus Program • Par rate - no origination fee or discount points • Introduced in Fall, 2005 • NIFA’s most popular interest rate program

  18. First Home Focused (Targeted) • Lower interest rate • Par rate - no origination fee or discount points • Non first-time homebuyer • Higher income limits • Higher purchase price limits

  19. Lancaster County Target Map

  20. Sarpy County Target Map

  21. Douglas County Target Map

  22. ABC Loan Program • Some first-time buyers do not have the resources to cover down payment and closing costs (FHA requires a 3.5% down payment) • ABC is designed to advance a portion of the federal tax credit at closing to be used as down payment and closing cost assistance • Buyer must contribute a minimum investment • Use the refund of the federal tax credit to payoff the second mortgage loan after closing

  23. Federal Homebuyer Tax Credit • In November 2009, the government extended the $8,000 First-Time Homebuyer Tax Credit • Expanded the guidelines to include long-term residents being eligible for a $6,500 credit to purchase a home (for ABC loans, must purchase in a target area) • Purchase agreements must be executed by April 30, 2010 and loans must close byJune 30, 2010.

  24. ABC Program Components • NIFA provides a fixed-rate first mortgage loan • NIFA provides a second mortgage loan to be used for a portion of down payment and/or closing cost assistance • Buyer must have a minimum investment of $1,000 • All borrowers on the loan must complete a homebuyer education class prior to closing • Buyer must claim the federal tax credit on either their 2009 federal tax return or amend their 2009 return if the loan closing occurs after filing • If the second mortgage loan is paid in full within 180 days of closing, NIFA will send the borrower an incentive check in the amount of $500

  25. Second Mortgage Loan • Borrower executes a second promissory note and second deed of trust • Second loan bears an interest rate equal to the first loan rate plus 2% • Term of the second is 10 years • Borrower makes payments on second loan immediately after closing (not deferred) • Second payment must be included in loan underwriting debt ratios • Maximum second amount is the lesser of 10% of purchase price or 85% of the expected tax credit (not to exceed $6,800) • If the second loan is paid in full within 180 days of closing, the borrower will receive an incentive check from NIFA in the amount of $500

  26. Non-Satisfaction of ABC Second Mortgage Loan • If buyer elects to not pay the second mortgage loan in full within 180 days of closing, the borrower will not receive the $500 refund from NIFA. • Buyer will continue to make monthly payments on both the first and second mortgage loans • Interest will accrue for the remaining term of the loan (2% higher than the first loan rate) • NIFA will not subordinate our second deed of trust

  27. ABC Second Calculation Example

  28. Buyer Minimum Investment • All ABC loans must have a minimum buyer investment of $1,000 • Sources eligible for the minimum investment include: 1) application deposit, 2) earnest deposit, 3) loan costs paid outside of closing (must be shown on HUD-1 statement) and 4) gift funds • Buyer can only receive cash back at closing if more than $1,000 is invested upfront • Prorated taxes must be used to lower the first or second mortgage amounts

  29. Homebuyer Education • NIFA will require all borrowers on the loan to complete a homebuyer education class prior to closing • We strongly encourage borrowers to attend a REACH approved class that is available through a network of non-profits • List of non-profits is available at www.housingdevelopers.org or by calling the REACH office at (888) 879-3403 • NIFA will allow borrowers to complete an internet based class using one of our mortgage insurance company partner’s web site (Genworth, MGIC or RMIC) • Borrower(s) must provide a completion certificate at (or before) loan closing

  30. Filing of 2009 Federal Tax Return • Buyer will be required to claim the tax credit on their 2009 federal tax return or to amend their 2009 return if closing occurs after filing • To claim the federal tax credit, IRS Form 5405 must be included with the return • Buyer must also include a copy of their settlement statement with the tax return and Form 5405 • Buyer is responsible for filing their return in a timely manner in order to receive the refund within 180 days of closing

  31. Administrative Fee • In addition to other allowable closing costs, lenders will collect an administrative fee of $175 for each loan • Fee can be paid by either the buyer or seller • US Bank Home Mortgage (NIFA’s Master Servicer) will retain the fee for the set-up of the second mortgage, collection of monthly payments, payoff quotes and mortgage releases **Refer to the Allowable Closing Costs & Fees chart (revised 06/09)

  32. Affordable Housing Program (AHP) Grant Funds

  33. Affordable Housing Program (AHP) Grant Funds • In September 2008, NIFA announced funding for down payment and closing cost assistance is available through the Affordable Housing Program • NIFA received approval from the Federal Home Loan Bank to allow two options with utilizing the grant funds:1) Lender reserves the loan using any of NIFA’s loan programs or2) Lender provides the funding for first mortgage loan • These two options should give the buyer the best opportunity for using the grant funds with the lowest interest rate possible

  34. Guidelines for AHP Grant Funds • $3,000 maximum grant amount per unit • 150 total target-marketed units may receive grant funds • Borrowers must be first-time homebuyers • Total household income cannot exceed 50% of the average median income (AMI) based on NIFA’s MRB Program limits • Eligible properties include single family units, 2-4 units and eligible condominiums

  35. Affordable Housing Program (AHP) Grant Funds • All properties must be owner-occupied • Borrower minimum contribution of $500 • Maximum front-end debt ratio of 33% (housing expense ratio) • All borrowers must complete a REACH homebuyer education class prior to submission of the pre-closing package • No matter what option is used, NIFA must do a full compliance review to comply with the AHP program guidelines

  36. Targeted Guidelines for AHP Grant Funds • Rural areas: A total of 120 units (loans) • Urban Areas: A total of 30 units (loans) in Douglas, Lancaster and Sarpy Counties • Rehabilitation: All of the Urban area units (loans) must receive a minimum of $500 worth of qualifying renovation/rehabilitation

  37. Targeted Guidelines for AHP Grant Funds • Three or More Bedrooms: a total of 75 units (loans) must be made for properties with 3 or more bedrooms • Special Needs: A total of 45 units (loans) must be made to elderly borrowers at the age of 55 or older or to borrowers that have a mental or physical disability

  38. Mortgage Credit Certificates (MCC’S)

  39. What is a MCC… • Nonrefundable, federal tax credit that provides financial assistance to qualified buyers • Homeowner holding MCC receives an annual federal tax credit equal to percentage of interest paid on loan (20%) • Dollar-for-dollar reduction of federal tax liability • Amount of MCC tax credit reduces amount of interest deduction claimed on tax return

  40. MCC Borrower Eligibility Rules… • Generally, MCC rules same as MRB program requirements • Must be a first-time buyer except for target area purchases • NIFA maximum income and purchase price limits apply • Must be owner-occupied • Recapture tax requirement

  41. MCC Tax Rules… • NIFA has established a credit rate of 20% for the program • Maximum federal tax credit is $2,000 annual • Tax credit can be carried forward by borrower for up to 3 years • Mortgage interest reduction is reduced by amount of tax credit • Cannot obtain MCC and mortgage loan financed by NIFA’s MRB program • Originating lender provides financing on the first mortgage loan and sets the rate

  42. MCC Example

  43. Recapture Tax

  44. Recapture Tax • NIFA obtains the funds for mortgage programs from the sale of tax-exempt Mortgage Revenue Bonds (MRB) • Effective January 1, 1991, the IRS stipulated that all loans closed with proceeds from MRB’s may be subject to a recapture tax • Based on income, family size and net gain realized on the sale of the home

  45. Recapture Tax • Federal income tax may be due when home is sold • All 3 of these events must occur: • Home is sold within first nine years and • Homeowner realizes a gain on the sale (as defined by the IRS) and • Homeowner’s income has increased and exceeds the limits established by the IRS • NOT collected at time of sale but when taxes are prepared for the year the sale occurred

  46. Recapture Tax • Some are more likely to pay a Recapture Tax than others: • Those who are employed in a high-growth income potential position • Those who were close to the maximum income limit at time of closing • Those in a high inflation environment • Those who were single at time of purchase and are married at time of sale

  47. Recapture Tax • Recapture Tax will not be owed if: • The home is transferred to a spouse, or former spouse, in connection with a divorce • The home is destroyed by a casualty and it is repaired or replaced on the original site within 2 years • The home is disposed of as a result of the homeowner’s death

  48. Recapture Tax • IRS Form 8828 must be completed & filed with the Federal Tax Return the for year the home is sold. • Homeowners should refer to their final recapture tax disclosure notice (Form D) signed at closing. • If a copy is needed, they should contact their servicing lender

  49. Form D Example Income Tables by Geographic Area LINCOLN MSA (Lancaster County)

  50. Recapture Tax Reimbursement • New reimbursement policy effective for MRB loans closed 6-1-04 or later • NIFA will reimburse the recapture tax to any qualified homeowner affected • Borrower responsible for submitting reimbursement request to NIFA by the required date of July 15th.

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