Training Camp – NIFA 101

Training Camp – NIFA 101January 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

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

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

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

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)

Business Usage Affidavit

Square foot calculation

(a) Area of residence: 1,200

(b) Area of surrounding land: 6,300

(c) Total area of residence and land: 7,500

(d) Area of residence used in trade or business: 400

(e) Area of surrounding land used in trade or business: 480

(f) Total area of residence and land used in a trade or business: 880

(g) 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

(i) Ratio of average number of hours each week divided by totalnumber of hours in a week (168): 23.81%

Final business usage percentage

(j) Percentage of residence (line g) multiplied by ratio of hoursworked (line i): 2.79%

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

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

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.

Family Income Worksheet

INCOME SOURCESSALARY/ INCOME

HOURS RAISE REC'V

TIME WORKED

MONTHLY INCOME TOTAL ANNUAL INCOME/COMMENTS

BORROWER NAME: Sara Adams

HOURLY 0.00 40.00 0.00

WEEKLY 0.00 0.00

BI-WEEKLY 0.00 0.00

BI-MONTHLY 0.00 0.00

MONTHLY 0.00 0.00

HOURLY /PART-TIME 0.00 15.50 0.00

ANNUAL 0.00 0.00

ANNUAL TO DATE 41,910.00 13.00 3,223.85 Includes regular pay plus shift differentials for

OVER TIME 0.00 5.00 0.00 2009 YTD ($38,824.00) and YTD 2010 ($3086.00)

OVER TIME YTD 0.00 7.00 0.00

BONUS/COMMISSION/TIPS 0.00 5.00 0.00

CHILD SUPPORT 0.00 0.00

DIVIDENDS, INTEREST, ROYALTIES, TRUSTS. ACTUAL OR IMPUTED INCOME FROM LIQUID FAMILY ASSETS. 0.00 0.00 [$1,724 + $2,350 + $4,074]

NET RENTAL INCOME 0.00 0.00

PENSION,SOCIAL SECURITY BENEFITS 0.00 0.00

VA COMPENSATION 0.00 0.00

UNEMPLOYMENT 0.00 12.00 0.00

PUBLIC ASSISTANCE 0.00 0.00

PROJECTED RAISE (HOURLY) 0.00 40.00 11.75 0.00

PROJECTED RAISE (ANNUALLY) 0.00 9.00 0.00

OTHER 0.00 1.00 0.00

TOTAL MONTHLY INCOME 3,223.85 38,686.15


CO-BORROWER OR NON-PURCHASING SPOUSE NAME: Trevor Adams

HOURLY 12.75 40.00 2,210.00

WEEKLY 0.00 0.00

BI-WEEKLY 0.00 0.00


MONTHLY 0.00 0.00

HOURLY/PART-TIME 0.00 0.00 0.00

ANNUAL 0.00 0.00

ANNUAL TO DATE 0.00 7.50 0.00

OVER TIME 0.00 0.00 0.00

OVER TIME YTD 2,319.00 12.50 185.52 Includes OT pay for YTD 2009 ($2,214) and

BONUS/COMMISSION/TIPS 0.00 5.50 0.00 YTD 2010 ($105)


DIVIDENDS, INTEREST, ROYALTIES, TRUSTS. ACTUAL OR IMPUTED INCOME FROM LIQUID FAMILY ASSETS. 0.00 0.00






PROJECTED RAISE (HOURLY) 0.25 40.00 2.00 7.22 Projected raise effective 10-01-10


OTHER 0.00 20.00 0.00

TOTAL MONTHLY INCOME 2,402.74 28,832.91


NON-PURCHASING OCCUPANT NAME:

HOURLY 0.00 40.00 0.00

WEEKLY 0.00 0.00

BI-WEEKLY 0.00 0.00


MONTHLY 0.00 0.00

HOURLY/PART-TIME 0.00 0.00 0.00

ANNUAL 0.00 0.00

ANNUAL TO DATE 0.00 19.50 0.00

0.00 19.50 0.00

OVER TIME 0.00 0.00 0.00

OVER TIME YTD 0.00 7.00 0.00

BONUS/COMMISSION/TIPS 0.00 1.00 0.00


DIVIDENDS, INTEREST, ROYALTIES, TRUSTS. ACTUAL OR IMPUTED INCOME FROM LIQUID FAMILY ASSETS. 0.00 0.00






PROJECTED RAISE (HOURLY) 0.00 40.00 11.75 0.00


OTHER 0.00 1.00 0.00

TOTAL MONTHLY INCOME 0.00 0.00

TOTAL MONTHLY HOUSEHOLD INCOME 5,626.59

TOTAL ANNUAL HOUSEHOLD INCOME $67,519.06

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

NIFA Loan Programs

• First Home

• First Home Plus

• First Home Focused

• Advance Buyer Credit (ABC)

• Affordable Housing Program (AHP)

• Mortgage Credit Certificate (MCC)

First Home Program

• Lower interest rate with 1% origination fee and .75% discount point

First Home Plus Program

• Par rate - no origination fee or discount points

• Introduced in Fall, 2005

• NIFA’s most popular interest rate program

• Lower interest rate

• Par rate - no origination fee or discount points

• Non first-time homebuyer

• Higher income limits

• Higher purchase price limits

First Home Focused (Targeted)

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

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.

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

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

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

ABC Second Calculation Example

Contract Sales Price $100,000

Settlement Charges $ 4,600

Gross Amount Due From Borrower $104,600

Earnest Deposit $ 1,000

Principal Amount of New Loan $ 98,200

Prorated Property Taxes $ 500

Total Paid By/For Borrower $ 99,700

Gross Amount Due From Borrower $104,600

Less Amounts Paid By/For Borrower $ 99,700

Remaining Amount Due = 2nd Mortgage Amount $ 4,900

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

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

http://www.housingdevelopers.org/

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

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)

Affordable Housing Program (AHP) Grant

Funds

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

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

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

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

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

Mortgage Credit Certificates

(MCC’S)

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

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

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

MCC Example

MCC ExampleMortgage Loan Transaction

Loan Amount $160,000

Interest Rate (30-year term) 5%

First Mortgage Interest (12 months) $7,946.39

MCC – 20% of mortgage interest $1,589.28

Remaining Interest Deduction $6,357.11

Borrower Information (married couple, no dependents)

Adjusted Gross Income $60,000

Standard Deduction $10,900

Taxable Income $49,100

Federal Tax Liability (tax table) $6,559.00

MCC Deduction $1,589.28

Remaining Tax Liability $4,969.72

Recapture Tax

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

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

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

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

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

Form D Example

(Column 1) (Column 2)

NON TARGETED AREA‑ TARGETED AREA

Adjusted Qualifying Income Adjusted Qualifying Income

HOME SOLDDURINGYEAR*

HOLDINGPERIOD %

Number of Family MembersLiving in Your Home

at the Time of Sale

Number of Family MembersLiving in Your Home

at the Time of Sale

2 or less 3 or more 2 or less 3 or more

1 20% $64,300 $73,945 $77,160 $90,020

2 40% $67,515 $77,642 $81,018 $94,521

3 60% $70,890 $81,524 $85,068 $99,247

4 80% $74,435 $85,600 $89,322 $104,209

5 100% $78,157 $89,880 $93,788 $109,420

6 80% $82,064 $94,374 $98,477 $114,890

7 60% $86,168 $99,093 $103,402 $120,635

8 40% $90,476 $104,048 $108,571 $126,667

9 20% $95,000 $109,250 $114,000 $133,000

Income Tables by Geographic AreaLINCOLN MSA (Lancaster County)

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.

Recapture Tax Reimbursement

• NIFA will not calculate the amount of the recapture tax owed

• NIFA loan must be active at the time of sale – (i.e. NIFA will not reimburse if the

mortgage loan has been refinanced.)

• Reimbursement from NIFA limited to the actual amount of the recapture tax.

Contact Information

Jacki Young, Single Family Program Manager

Phone number: (402) 434-3915

Email: [email protected]

Cindy Trautman, Assistant Program Manager

Phone number: (402) 441-4643

Email: [email protected]

Website: www.nifa.org

mailto:[email protected]

mailto:[email protected]

http://www.nifa.org/

Training Camp – NIFA 101

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