Cash strapped first time home buyers in Illinois just got another option for buying a home with almost no money down. IHDA, the Illinois Housing Development Authority, has now released a program which allows qualified first time home buyers to use part of their $8,000 first time home buyer tax credit upfront as part of their down payment on a new home. Coming up with a down payment has been the biggest obstacle for many potential home buyers, and this new program will allow up to $6,000 of the tax credit to be borrowed in advance and used as part of the 3.5% payment needed on an FHA loan.

There are some catches and limitations with the program. It isn’t a 0% down loan, the first time home buyer has to have at least 1% of their own funds invested (or $1,000, whichever is higher). There are also minimum credit score requirements of 660, income limits apply, the maximum debt ratio is 41% so you won’t be able to afford as much as with a straight FHA loan and home ownership education is required. The rate on this loan will be higher than you could get if you were able to come up with the down payment on your own (with FHA the entire down payment can be a gift from a relative), so if you have other options, this wouldn’t be the first choice. But if you do fit the situation, this is a way to buy now and take advantage of the first time home buyers tax credit before it goes away. We will be rolling this new program out some time next week.

Here are the program details, directly from IHDA:

The Illinois Home Start Loan Program

Home Start 30 year Fixed Rate Loan / Home Start Tax Credit Advance Loan

Purpose

To assist Illinois first-time homebuyers in need of down payment assistance, to access funds on a short-term basis in anticipation of the federal income tax credit for first-time homebuyers. This program helps borrowers take advantage of the $8,000 Federal Tax Program that expires November 30, 2009. Without this program, these borrowers would not be able to take advantage of historically low interest rates, along with home prices that have declined 20% to 40% in recent months.

 

First Mortgage Description

The first mortgage program will be a 30 year fixed rate amortizing loan insured by FHA. This loan can be used without the Tax Credit Advance loan. The loan will

be serviced by U.S. Bank Home Mortgage. Underwriting terms are listed below. The first mortgage program is designed to continue past November 30, 2009

based on market conditions.

 

Second Mortgage Description

The Tax Credit Advance Loan will be secured by a second mortgage on the home. The loan will not accrue interest for the initial period which is through June

30, 2010. An administrative fee of $300 will be charged. The Tax Credit Advance Loan will only be issued with an Illinois Home Start 30 year fixed rate loan.

Within the initial period, borrowers will file their tax return requesting their federal tax credit. This tax credit can be used to repay the tax advance loan. If the loan is not re-paid by June 30, 2010, then the remaining loan amount becomes a ten year amortizing loan at ½% above the rate on the Illinois Home Start 30 year loan, and the loan will be serviced by U.S. Bank Home Mortgage. This program is scheduled to end November 30, 2009. All loans must be closed by that date.

The Illinois Housing Development Authority reserves the right to terminate the program prior to the scheduled end date.

Program Requirements

Eligibility: Home Start 30 year – must qualify based on FHA loan guidelines as well as IHDA’s current program guidelines.

Tax Credit Advance Loan – must qualify and secure a Home Start 30 year mortgage.

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Loan amount: Home Start 30 year - is based on IHDA’s program guidelines posted on the website: IHDA.org.

Tax Credit Advance Loan - 3.5% of purchase price with a maximum loan amount of $6,000. This loan is to be used towards the down payment.

Borrower’s investment: Borrower must contribute 1% of the purchase price to the transaction.

Exclusions: Other IHDA HOME Funds, Trust Fund assistance or other programs as deemed by IHDA may not be used in this transaction when securing a Tax Credit Advance Loan.

Occupancy: Property must be occupied as the borrowers’ primary residence within 60 days of closing. Borrower must maintain occupancy for the life of the loan. The IRS requires a rebate of the federal tax credit if residency is not maintained for 36 months.

Fee: Tax Credit Advance Loan - $300 paid at closing. This may be netted out of proceeds of the tax advance loan. $100 will be refunded if the loan is paid in full by June 30, 2010.

Loan Term: Tax Credit Advance Loan - 0% through June 30, 2010. If there is an unpaid balance at that date, it then becomes a ten year amortizing loan with a rate of the first mortgage plus ½%.

Eligible property: Existing 1 unit, single family properties.

Underwriting: Must include 2nd mortgage payment in total housing expense ratio. The income certifications and other required documents will be reviewed by the IHDA Compliance Officers.

FICO: 660 minimum

LTV: 96.5%

CLTV: 100%

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Ratios: 41% Back-end debt to income ratio.

Purchase eligibility: Tax Credit Advance Loan – must close within 90 days of reservation or November 30, 2009, whichever is shorter.

Prepayment: The 2nd mortgage loan is due in full upon payoff or refinance of the first mortgage.

Mortgage Credit Not eligible with this program.

Certificates:

Servicing: U.S Bank Home Mortgage will service both loans.

Homebuyer Education: Homebuyer education is required prior to closing the loan.

 

If you have any questions on how this new program will work, give me a call.

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