For most people, securing financing is the first “key” to opening the door of homeownership, and for some people, qualifying for a mortgage may seem like more of a nightmare than a dream.
However, local REALTORS® and lenders are seeing firsthand how specific down payment assistance and community redevelopment programs provide affordable housing opportunities to first-time homebuyers, low-income and moderate-income individuals and families.
For example, the Greater Northwest Indiana Association of REALTORS® has added a new page to their online Buyer Toolbox at gniar.com that outlines a variety of down payment assistance programs.
Here you’ll find the latest information on programs offered at the federal and state level as well as programs specific to Lake County, East Chicago, Hammond and Gary.
Last week, Donna Zisoff, Broker/Manager of the Highland Coldwell Banker Residential Brokerage, invited a representative of the Indiana Housing & Community Development Authority (IHCDA) Homeownership Team to the office to outline their programs for assisting Hoosiers with making down payments, getting low interest rate loans and by offering a tax credit.
“We get calls asking about programs like this all the time,” Zisoff said. “First-time homebuyers and people experiencing some difficulty when it comes to being able to afford a move from their present home can definitely benefit from these programs if they qualify. While closing costs can be paid by a contributor such as the seller, you still need to qualify for a mortgage and that means the down payment needs to come out of your pocket or be a direct gift from a relative. These are great programs for helping with that down payment and getting people into a home.”
According to the IHCDA presentation, program underwriters review income eligibility and follow specific guidelines when it comes to qualifying for different program benefits, including the borrower(s) status as a first-time or next homebuyer, the home just be a principal residence, the property must be a “single family” residence (townhomes and condominiums are included), total household income and more.
It’s also important to note that the IHCDA is not a lender or credit underwriter. They promote homeownership in the state of Indiana by providing homeownership solutions through various programs, including:
Mortgage Credit Certificate (MCC)
MCC allows the homebuyer to claim a tax credit for a portion of the mortgage interest paid per year. The MCC is a dollar-for-dollar reduction against a borrower’s federal tax liability based on the first mortgage amount. The tax credit amount ranges between 20 percent and 35 percent of the interest paid on the mortgage each year with the remaining portion of the mortgage interest continues to qualify as an itemized tax deduction. The maximum credit per year is $2,000, and the annual amount the borrower receives will change as the mortgage loan amount decreases but the tax credit percentage never changes.
More specifically, a borrower may choose to take the tax credit at the end of the year or as additional monthly income:
This borrower could claim $1,155 as the tax credit
$110,000 x 5.25 percent x 20 percent = $1,155
(mortgage amount x interest rate x MCC rate = eligible tax credit amount)
By revising W-4 withholdings this borrower could take home an additional $96.25/month in pay
$110,000 x 5.25 percent x 20 percent = $1,155/12 = $96.25
Qualifying first-time homebuyers as well as those who do not qualify as first-time homebuyers can receive down payment assistance of 3 percent (conventional loans only) or 4 percent (FHA loans only). There are no purchase price limits so more Hoosiers can qualify for this program. You do need a minimum credit score (650 for FHA and 680 for conventional) to qualify for Next Home down payment assistance, which is forgivable in two years (no interest/no payments) when certain criteria are met.
For first-time homebuyers, Next Home can be combined with MCC (current/previous within the last three years homeowners can apply for Next Home only).
Here’s a compelling example from IHCDS of how first-time buyers could combine Next Home/MCC benefits on a home priced at $100,000:
• Next Home benefit - down payment assistance of $4,000 (FHA)/$3,000 (conventional)
• MCC benefit - tax credit for the life of the loan/primary residence with a first-year tax credit of $990/$975 or withholding allowance of $82.50/$81.25 monthly
“If people realize that they can get their down payment from this program and then if the seller contributes their closing costs, it really can get them into homes with very little of their own money as long as they qualify,” Zisoff added.
In order to qualify for down payment assistance including the IHCDA MCC/Next programs, you must first work with a participating lender in your area. Go to IHCDA.IN.GOV or request a list from your REALTOR®.