Lender Guidelines: 3.3 Assistance Options - Non-bond DPA (with or without MCC), Bond DPA or MCC Only
DPA: TSAHC offers down payment assistance (DPA) in the form of a non-repayable grant or a 3-year Deferred Forgivable Second Lien loan, as follows:
• For Non-Bond DPA Conventional Loans –3-year Deferred Forgivable Second Lien
• For Non-Bond DPA FHA/VA/RHS Loans – Grant and 3-year Deferred Forgivable Second Lien
• For Bond DPA FHA/VA/RHS Loans – Grant
The 3-year deferred forgivable second lien and grant is funded by the Lender at mortgage closing. DPA may be used to fund the borrower’s cash requirement to close, including the down payment, closing costs, pre-paid items, principal reduction and other related mortgage loan fees and expenses. No portion of the DPA can be used to pay down debts or paid to the borrower unless the borrower is being reimbursed for an overage of deposits for earnest money and/or items paid outside of closing, to the extent the minimum borrower contribution has been satisfied.
• Grant assistance does not need to be repaid after six months from the first lien mortgage loan closing date originated in conjunction with the down payment assistance grant
• No second lien
• Minimum 620 credit score
• Borrower has the option to choose from three assistance levels: 3%, 4%, or 5% of the total loan amount
• Available only with government loan types, the grant is not available for the HFA conventional loan options
DPA 3-year Deferred Forgivable Second Lien
• 0% interest with deferred principal payments (no monthly payments due)
• Forgiven, in full, upon maturity (third anniversary of the date of the Note)
• Repayable, in full, during 3-year term upon sale, transfer or refinance of the first lien mortgage loan or failure to occupy property as principal residence or other event of default
• Second lien
• Minimum 620 credit score for government loans and 640 for HFA Conventional loans
• No additional fees on 3-year Deferred Forgivable Second Lien
• The borrower has the option to choose from three assistance levels: 3%, 4%, or 5% of the loan amount
• Available with all loan types
MCC: With an MCC, the qualified home buyer is eligible to apply a portion of the annual interest paid on the mortgage as a federal tax credit, during each year that the mortgagors occupy the home as their principal residence. The portion or amount of the tax credit is equal to the mortgage credit rate on the MCC (20%) multiplied by the annual interest paid.
This credit reduces the federal income tax liability of the home buyer dollar-for-dollar, resulting in an increase in the home buyer’s net earnings. Increased home buyer income results in increased home buyer capacity to qualify for the mortgage loan.
In the example below, the credit amount is equal to the mortgage credit rate multiplied by the annual interest paid on the mortgage Loan in that given year. For example:
Mortgage Loan Amount: $200,000
Interest Rate: 5.50%
Mortgage Credit Rate: 20%
$200,000 x 5.50% = $11,000 (approximate interest paid in the first year)
$11,000 x 20% = $2,200 (Calculated Mortgage Credit Amount)
Please note: The annual benefit to the borrower will be the lesser of the credit amount or the amount of federal taxes owed after all other credits and deductions have been taken. The benefit cannot exceed the borrower’s federal income tax liability for the year. However, if the Borrower is unable to use all the maximum available MCC tax credit in any year, the unused portion of the tax credit can be carried forward three tax years or until used, whichever comes first.
A home buyer receiving an MCC can still take the normal tax deduction for interest paid on the mortgage. However, the home buyer must deduct the claimed credit from the annual interest paid ($11,000 - $2,200 = $8,800) before claiming a deduction for the balance.
The mortgagor(s) may receive the full MCC tax credit annually at the time they file their tax return or monthly by adjusting his or her federal income tax withholding by filing a revised Form W-4 with his or her employer.
MCCs with Non-Bond DPA: Borrowers who are first-time home buyers (and meet all applicable MCC and Non-Bond DPA requirements) may receive both Non-Bond DPA and an MCC, taking advantage of both forms of assistance. Borrowers must meet all the requirements relating to MCCs (and Non-Bond DPA) to qualify. MCCs may not be used in conjunction with a Bond DPA.
For access to the full TSAHC DPA & MCC Guidelines, please click here.