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Affordable Housing Programs In Virginia

Finding affordable housing as a first-time homebuyer in Virginia can be a significant challenge. Especially as home prices continue rising. Well, thanks to down payment and closing cost grants offered by the Virginia Housing Development Authority (VHDA), affording a house doesn’t have to be so hard after all.

In fact, these grants don’t have to be repaid whatsoever, and all of the VHDA’s mortgages have 30-year terms with a fixed interest rate.

An infographic which has a checlist for first-time homebuyers. There are important steps to follow before seeking affordable housing.

Down Payment Grant

Suppose you’re currently seeking affordable housing in the cardinal state. In that case, you could get a grant to cover 2-2.5% of the purchase price. But that will also depend on your loan type.

For instance, let’s say you have an FHA loan with a 3.5% down payment. After doing some simple math, you would have to put down 1% of the purchase price out of pocket. Otherwise, you would have to put down the total amount needed.

Furthermore, if you choose to take advantage of the Plus Second Mortgage program, you may end up not having a down payment, but we will touch on that a bit more later. However, the rules and guidelines per mortgage will vary, so it is essential to do your homework before continuing.

Closing Cost Grant

The VHDA created their Closing Cost Assistance Program for first-time homebuyers in rural markets and eligible active and retired servicemen. So, if you qualify, you can get a grant that will pay for 2% of the purchase price or appraised value. Generally speaking, this program will only work if you’re using their Rural Housing Services or a VA first mortgage.

Therefore, if you’re a VA, USDA, or FHA borrower, you will be exempt from such. And before closing on this topic, I must also say a closing cost grant cannot be coupled with one meant to help with a down payment. Moreover, they too shall not be combined with a Second Mortgage.

Affordable Housing Programs

Given that many people in Virginia need first-time homebuyer assistance, the Housing Authority has many home loan programs. First, we will start with their Government Loan Programs. In fact, FHA, USDA, and VA loans are all eligible for down payment grants. As a result, your out-of-pocket expenses will be reduced while buying a home.

Here’s another critical element to this process you must remember, their Mortgage Credit Certificate Program. This can grant you a significant advantage as you will be allowed to offset a part of the annual amount you owe in interest, but more on that topic later.

Thankfully, if you’re a repeat homebuyer in Virginia, you can also get affordable financing. With the Housing Authority’s Conventional Loan Program, you will need less cash at closing than you would with an FHA loan. Not to mention you’ll also pay the lowest sum available for conventional mortgage insurance. However, you may also opt to use the same type of home loan without having such.

Plus Second Mortgage

If you’re qualified, the Plus Second Mortgage Program will cut the need for a down payment for first-time homebuyers. How it all works is very simple. A VA Housing first mortgage will be paired with the Second Mortgage, allowing it to cover the down payment instead.

The total amount you can obtain for a Second Mortgage is generally 3-5% of the home’s purchase price. Then again, that will depend on your credit score and the kind of first mortgage you get. In short, your entire down payment can be covered.

You will also need to prove you have funds equal to 1% of the home’s purchase price at closing. Last but not least, you cannot exceed the VHDA’s loan limits, so make sure you do your research first.

Virginia Housing Loan Combo

A Virginia Housing Loan Combo allows you to combine a down payment grant, tax credit, and a free homebuyer class altogether. You’re basically getting a few money-saving benefits as a package, which is only obtainable if you’re a first-time homebuyer in the state. Although the homebuyer class is free, in my honest opinion, you might as well opt out of the course, given that you already have an educated Realtor.

Mortgage Tax Credit Certificate (MCC)

A Mortgage Tax Credit Certificate (MCC) can help you save thousands of dollars each year by reducing the amount you owe in federal income tax. In other words, this is a dollar-for-dollar credit toward your tax liability and is equal to 10% of the mortgage interest you pay per year.

Your MCC will remain in effect for the life of your mortgage. However, that is if specific requirements are met, and the loan isn’t refinanced. This is only available if you’re a first-time homebuyer in Virginia who is seeking affordable housing.

The VHDA recommends that you consult with a tax adviser if you’re curious to know how much you will actually save in taxes each year. Below is an example I pulled from their website to give you a general idea of how much you can save.

We’re going to say you have a $150,000 loan with an interest rate of 5%.

$150,000 loan X 5% interest rate = $7,500 in interest for the first full year. Next, $7,500 X 10% tax credit rate = $750 in tax savings for the year. These savings will continue each year you live in the home. Thus, continuing the avenue of affordable housing.

However, if you sell your home within the first nine years of the purchase, you could be subject to an IRS rule, otherwise known as a federal recapture tax. The extra amount you would owe will depend on the year you sold your home, along with how much profit you made. That will also be coupled with your level of income that year.

After all, it is recommended you ask your lender for more information about this. Likewise, you may also need to discuss the potential effects of a federal recapture tax with such an advisor.

Marlon A. Thomas, Jr.
Marlon A. Thomas, Jr.

Marlon A. Thomas Jr. is a residential Realtor and blogger in Williamsburg, Virginia, and has been living there since he was two. As a Realtor, his job is to act as a personal marketing expert and consultant for buyers and sellers. July of 2015, Marlon was on a family vacation in Miami, Florida. The skyline filled with a vast array of skyscrapers under construction further sparked his interest in real estate. His long-term goal is to become a commercial real estate investor. While also being an avid car lover, Marlon loves to attend drag races and car shows when possible.

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