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Our Programs

FirstHome Mortgage
Downpayment assistance up to $8,000
Downpayment assistance up to $4,000
Second mortgage up to $25,000
Mortgage Credit Certificates
Income tax return requirement
Recapture: What does it mean for your client?

FirstHome Mortgage

We sell tax-exempt Mortgage Revenue Bonds to investors and use the funds to finance low-cost mortgages for first-time home buyers whose income has kept them out of the housing market.

Because these loans are financed with Mortgage Revenue Bonds, you may hear lenders refer to them as “MRB” loans.

Partnering with our participating lenders, we offer 30-year, fixed-rate conventional, FHA, VA, and USDA mortgages at competitive interest rates.

100% financing may be available for VA and USDA loans. Downpayments for FHA and conventional loans are generally 3% of the sales price.

How does it work?

Because they are financed with tax-exempt bonds, our mortgages can have interest rates that are approximately one percentage point below the market rate. A decrease of one percentage point in the interest rate could increase your client’s purchasing power by approximately $15,000.

If a potential home buyer has an annual income of $44,000, and her car payment and other debts total $400 a month, that client would have approximately $1,100 available for a monthly house payment. Depending on where the home is located, property taxes and hazard insurance will cost about $275, leaving $825 to pay the principal and interest on the mortgage.

The chart below shows what the purchasing power would be, based on different interest rates.

Home buyer eligibility

To qualify, a home buyer:

• Must be a first-time home buyer or not have owned a principal residence during the past three years. Even if they are not first-time buyers, your clients may be able to use a FirstHome Mortgage if they are buying in an area designated as economically distressed.
• Must have an annual household income that falls within the allowed limits, up to $85,000 depending on family size and the county where the home is located.
• Must be purchasing a home with a sales price up to $220,000 for new construction, and up to $210,000 for an existing home.
• Must buy a home in North Carolina and occupy it within 60 days of closing.
• Must be a reasonable credit risk.

Eligible properties

Most types of homes qualify for the FirstHome Mortgage. Eligible properties include:

• New and previously owned detached homes
• Townhouses and Planned Unit Developments (PUDs)
• Condominiums
• New doublewide manufactured homes on permanent foundations, purchased through land-home transactions.

While existing manufactured homes cannot be financed with our FirstHome Mortgage, they may qualify for a Mortgage Credit Certificate (MCC).

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Downpayment assistance up to $8,000

Home buyers who need help with a down payment and closing costs may qualify for interest-free, deferred second mortgages up to $8,000. The buyer pays $1,000 out-of-pocket and the loan pays up to $8,000 of the balance.

These second mortgage loans are processed by the lender at the same time as the FirstHome Mortgage.

No payment is due on the principal for up to 30 years from the date of closing. However, payment becomes due upon selling the home, refinancing, loan default, or if the home ceases to be the principal residence of the owner.

Home buyers must meet the same eligibility requirements as for the FirstHome Mortgage with the addition of the following:

• Home Buyer income is up to $79,050 for a family of eight and depending on the county where the home is located. Sales price of the home is up to $210,000.
• The lender does a cash-flow analysis for the buyer.
• Homes built before January 1, 1978 and homes that are tenant-occupied, are not eligible for NCHFA down payment assistance.

The North Carolina Housing Finance Agency has been providing this downpayment assistance for several years using federal HOME funds. Currently, some of the funding comes from the American Dream Downpayment Initiative (ADDI), signed into law in December 2003.

Please direct home buyers to the Home Buyer section of this Web site for more information on our downpayment assistance or advise them to call us at 1-800-393-0988 and ask to speak with an underwriter.

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Downpayment assistance up to $4,000

For home buyers who have higher incomes than the maximum limits required under our $8,000 down payment assistance program, we offer a $4,000 second mortgage at 0% interest, deferred for up to 30 years. Buyers pay $1,000 from their own funds, and the loan pays up to $4,000 that can be used to help with the downpayment and closing costs. Certain credit score and housing ratio limitations do apply. Contact a participating lender or call an NCHFA underwriter at 1-800-393-0988 for specific details.

To qualify for the $4,000 downpayment assistance, a buyer's income can range from $56,000 statewide to $86,000 in larger metropolitan areas. Income limits for this downpayment assistance are the same as the income limits for FirstHome Mortgage.

Payment on the principal isn't due until 30 years from the date of the loan. Payment is due earlier if the buyer sells, transfers, or refinances the home; if the loan goes into default; or if the home ceases to be the principal residence.

Homes built before January 1, 1978, and homes that are tenant-occupied are not eligible for NCHFA downpayment assistance.

Second mortgage up to $25,000

In some cases, your clients may qualify to purchase homes in conjunction with a local nonprofit or government agency that uses financing from our New Homes Loan Pool. These transactions include deferred second mortgage loans up to $25,000. The second mortgage is targeted to home buyers with incomes below 80% of the area’s median income. The primary financing can come from a FirstHome Mortgage or a bank mortgage product.

The maximum second mortgage amount is $25,000, or 20% of the sales price, whichever is less. The minimum loan amount is $5,000. Review the list of agencies that have offered this assistance.

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Mortgage Credit Certificates (MCC)

Home buyers who meet our qualifying income requirements, sales price, and first-time home buyer guidelines may be eligible for a Mortgage Credit Certificate (MCC). This federal tax credit was authorized by Congress to assist home buyers with moderate and low incomes.

While all homeowners can claim an itemized tax deduction for mortgage interest, an MCC goes a step further by reducing tax liability, dollar-for-dollar, by a percentage of the mortgage interest paid.

If your client qualifies for an MCC, he will be able to claim 20% of the interest paid on the mortgage as a credit on his federal income taxes. Your buyer can save up to $2,000 per year on federal taxes, money that can be put toward the mortgage payment.

An MCC can be used with a 30-year fixed rate mortgage, including FHA, USDA, VA, and conventional loans. An adjustable rate mortgage may be acceptable in some instances. However, it cannot be combined with the Agency's FirstHome Mortgage.

The participating lender sets the terms of the mortgage. This includes the interest rate, down payment, underwriting criteria, discount points, and closing costs. While the North Carolina Housing Finance Agency issues MCCs to qualified buyers, we do not originate loans. The buyer gets the loan from one of our participating lender.

How does it work?

Suppose your client qualifies for an MCC and obtains a 30-year, 6.5% fixed-rate mortgage of $97,000. The first year’s interest payment is approximately $6,273. The MCC allows the homeowner to take a federal income tax credit of $1,255 ($6,273 x 20%) for that year.

If the homeowner’s federal income tax liability is $1,255 or more after all other credits and deductions, that homeowner receives the entire benefit of the MCC tax credit – $1,255. In figuring taxes, the homeowner also takes a deduction for the remaining 80% of the mortgage interest.

If the federal income tax liability is less than $1,255 ($800 for example), the tax is reduced by only $800 that year. However, remaining credit can be claimed on tax returns for the next three years, if tax liability increases.

A homeowner can benefit immediately from the MCC by filing a revised W-4 (Employee’s Withholding Allowance Certificate). In this example, the federal tax would be reduced by $105 a month ($1,255 / 12). The extra $105 increases the buyer’s take-home pay and helps make house payments more affordable.

Eligible properties

Most types of homes qualify for the MCC. Eligible properties include:

• New and previously owned detached homes
• Townhouses and planned unit developments
• Condominiums
• New and existing doublewide manufactured homes on permanent foundations, purchased in land-home transactions.

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Income tax return requirement

Each home buyer submits the last three years of signed federal income tax returns when applying for a FirstHome Mortgage or an MCC. Tax returns are the most reliable way of determining whether a person is a first-time home buyer: the return and the included schedules will not show deductions related to homeownership. (Buyers purchasing homes in targeted areas do not have to meet this requirement.) In addition, W-2s are required for each job held by the borrowers in the last calendar year.

February 15 is the date that marks a new tax year for this purpose. If your client will be closing on a new house after February 15, 2009, your client will need the tax returns for 2006, 2007, and 2008.

For all three years, your client needs to provide all forms submitted, whether 1040A, 1040EZ, TeleFile tax record, or 1040. If your client does not have the necessary tax returns, copies of the missing returns can be ordered from the IRS.

To get a copy of the most recent return, along with W-2s, your client will need to send IRS form 4506 along with a $39 payment to the IRS at the address listed on the form.

For returns not requiring W-2s (transcripts), your client can either call (800) 829-1040 and follow the directions on the voice prompts, or send IRS form 4506T to the IRS. There is no charge for transcripts and they should arrive in the mail within 10 business days.

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Recapture: What does it mean for your client?

The federal recapture tax applies to loans received through the FirstHome Mortgage and also to the Mortgage Credit Certificate.

However, most borrowers will never have to pay the recapture tax. For the tax to apply, all three of the following conditions must exist.

• The owner must sell the home within 10 years of purchase.
• Household income must rise significantly.
• The owner must receive a substantial gain from the sale.

Even if repayment is due, it will never exceed 6.25% of the original mortgage. To read about the recapture tax in detail, see our homeowner brochure For Sale: What Recapture Means for You (English) or For Sale: What Recapture Means for You (Spanish).

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