Nationwide, home prices continue to rise in most areas putting pressure on first time home buyers. Virginia is no different, but luckily there are some great programs offering affordable home payments and down payment assistance (DPA). One of these organizations is called VHDA, short for Virginia Housing Development Authority. Unlike many other housing finance agencies who offer low or no interest DPA loans, Virginia offers a true grant in addition to the more traditional DPA. On the grant, there is no second mortgage. Just free down payment money if the buyer and property qualify. Other than traditional loan requirements, this grant has a few extra requirements. In this article, we discuss several options offered which combine affordable first mortgages with down payment assistance, free grants, and MCC tax credits.
This article includes VHDA changes effective 8/15/2018! Program additions and one discontinued option explained.
VHDA DPA Grant Versus VHDA Plus Second Mortgage
Maybe the easiest way to understand this is to thinking about college. A grant for college means that money is free with no repayment requirement. While a loan must be paid back at some point. For instance, the Plus Second Mortgage has a 30-year term and a low fixed rate. Which means the down payment assistance funds complement the first mortgage with easy to afford terms. That’s basically how grants versus the Plus second mortgages work. Both offer the benefit of home ownership and each has its unique advantages. The key is to determine which fits a buyer and the particular property’s characteristics. Each option provides a buyer with funds to help or fully cover against the first mortgage down payment. So, each of these may be combined with an FHA or Fannie Mae No MI first mortgage, which will be explained in a moment.
Primarily, these loans are used by first time home buyers. Although several options allow for repeat buyers as well. If using a first time buyer loan yet buying in a federal targeted area there is an exception to the first time buyer rule. First time and subsequent buyers may use VHDA in the blue shaded targeted areas (see map below). Do keep in mind that “first time home buyer” does not mean first time ever. Buyers who have not owned and lived in a primary residence in the last 3 years would be considered a first-time buyer. Let’s discuss the details and benefits of these program combinations.
VHDA FHA with DPA Grant
How would you like to buy a home in Virginia with a great low-down payment mortgage, but also get free assistance towards the down payment? That is what buyers get with the VHDA DPA Grant. The DPA grant offers up to 2.5% of the purchase price in the form of a gift. Basically, the combination of the FHA first mortgage and the grant, the buyer has a net down payment of 1%. Plus, the grant does not require repayment! Free money to help buy a home in Virginia is pretty awesome. A few of the VHDA FHA loan and grant combination requirements are as follows:
- Primary residence located in Virginia
- VHDA grant provides free assistance
- 30 year fixed term first mortgage
- 620 minimum credit score
- Maximum 45% debt to income ratio – Don’t worry, we calculate this
- Must meet household income limits
- Buyer is expected to live in the property for 1 year
- First time home buyer (unless buying in a federal targeted area)
- Home buyer education required for all first-time buyers
- Seller may pay up to 6% of the price in buyer closing costs
- Eligible for MCC tax credit – MCC restrictions apply
Fannie Mae No MI Program with VHDA Grant
Another variation of assistance offered by Virginia Housing Development Authority is the Conventional Fannie Mae no mortgage insurance loan. An advantage of this first mortgage product is that there is no mortgage insurance. This can make a decent difference in the monthly payment which is so important. One of the most popular questions is, “What will my house payment be?” Fortunately, with this option, the answer is a lower than traditional payment. Additionally, the conventional option doesn’t have the financed funding fee like FHA. So, here are two reasons that the conventional option could be the way to go. The down payment requirement for the conventional first mortgage is 3%, but when coupled with a 2% of the price DPA grant, the down payment reduces to 1% of the sales price. In the end, this program coupled with the free grant funds provides quite an affordable way of buying a home in Virginia.
- 30-year term on the first mortgage
- Primary residence in Virginia
- Buyer is expected to live in a property for 1 year
- VHDA grant provides free assistance
- First time buyers or buyers purchasing in a targeted area
- 660 minimum credit score
- Seller may pay up to 3% of the price in buyer closing costs if over 90% LTV, 6% if 90% or less LTV on the first mortgage
- 45% maximum debt to income ratio
- Must meet grant income limits
- Home buyer education required for all first-time buyers
- Eligible for MCC tax credit – MCC restrictions apply
The VHDA grant must be used in conjunction with a VHDA first mortgage loan. Therefore, for us to offer the down payment assistance, we must provide the first mortgage and the grant. The closings for both happen simultaneously.
FHA Purchase with VHDA Plus Second Mortgage
The free money options above sounds great, but what if a buyer doesn’t have the 1% down or just prefers no money down? Virginia Housing has an FHA no down payment solution as well. Rather than requiring 1% down, this Virginia down payment assistance, VHDA Plus Second Mortgage, provides either 3.5% or 5% of the sales price. Therefore, it bridges the gap between the purchase price and the FHA first mortgage loan amount. With FHA requiring 3.5% down and the DPA providing the difference or more, buyers have a great, no down payment option.
This down payment assistance is not free, but it is cheap and provides a great advantage for first-time buyers in Virginia. Characteristics of the FHA loan combined with the Plus Second include the following:
- First and second mortgages offer 30-year term & low fixed rate
- 3.5% Second Mortgage Requires a 620 credit score
- Credit scores 680+ can receive extra funds towards closing costs (5%)
- Liberal credit qualifying
- Combined with our FHA first mortgage benefits
- Seller may pay up to 6% of the price in closing costs for the buyer
- Home buyer education required for all first-time buyers
- Eligible for MCC tax credit – MCC restrictions apply
Fannie Mae No MI with VHDA Plus Second Mortgage
As mentioned in the other Fannie Mae No MI, a loan without mortgage insurance helps provide affordable payments. On top of being absent of mortgage insurance, the VHDA Plus Second Mortgage provides a no down payment option. For this Fannie Mae conventional loan, the Plus Second Mortgage provides either 3% or 4.5% of the purchase price in down payment assistance for Virginia buyers. With the first mortgage requiring 3% down payment, both options cover it. Thus, resulting in a no down payment purchase. To qualify for the higher down payment assistance, the minimum credit score increases to 680. Assuming a buyer qualifies for the 4.5% DPA, the extra 1.5% may contribute towards the buyer’s closing costs. Quite the benefits for first time home buyers!
- 30-year term on the first & second mortgage
- First time buyers or buyers purchasing in a targeted area
- 3% DPA requires 660 minimum credit score
- 4.5% DPA requires 680 minimum credit score
- 45% maximum debt to income ratio
- Must meet standard income limits
- Home buyer education required for all first-time buyers
- Eligible for MCC tax credit – MCC restrictions apply
These 4 great home buying options help Virginia residents combat the rising home prices. So, we have discussed the programs and now let’s talk about income and price limits, tax advantages, and other great low-down payment products for Virginia buyers.
VHDA Income Limits
As mentioned above, there are income limits required in order for first time home buyers to use these products. The grants go by household income. Household income means everyone 18 or older receiving income in the household. Whether on the loan or not, everyone’s income must be counted if they meet this description. The VHDA Plus Second goes includes income for all borrowers and non-borrowers taking title. This could help in some situations. Fortunately, the income restrictions are very liberal. So, these aren’t just for the very low-income category. As you will see in the chart below, it is well into the moderate-income realm.
VHDA Sales Price Limits
We have primarily discussed borrower qualification, but there are also some property requirements. For example, if using an FHA first mortgage in the purchase, the property must meet FHA condition and safety requirements. Furthermore, there is a sales price limit based on the property’s geographic area. Keep in mind that this limit goes by the sales price or appraised value. Whichever is less. The sales price limit starts at $251,900, but it is higher in other areas mentioned below.
The chart below states which cities or counties are included in the metropolitan areas mentioned for both sales price and income limits. For instance, if buying a home in Chesapeake with the VHDA grant program, the sales price and income limits for the Norfolk-Virginia Beach-Newport News area would be used. In this case, the sales price limit for Chesapeake VA is $375,000.
MCC Tax Credit Lowers First Time Home Buyer Income Tax Bill
We have just thrown out some awesome home loan options using the above mentioned down payment assistance and grants. Over and above these options, there is the Mortgage Credit Certificate (MCC) tax credit. An MCC tax credit is a certificate issued that allows the buyer to claim a dollar for dollar tax credit during a given year. It is based on a percentage of the interest paid in a given year. Because it is a credit and not a deduction, it has that bottom line, dollar for dollar reduction in tax liability. That’s right – Lowering your income tax bill! So, these savings help buyers more easily afford a housing payment. Each of the VHDA mortgages mentioned may be combined with the MCC tax credit. That is, as long as it is a first-time buyer or buying in a federal targeted area. Plus, the MCC is effective for the life of the mortgage as long as the buyer continues to live in the residence.
- Purchase only
- First-time buyers only
- Potential recapture
- Income limits
- Eligible for all VHDA programs
- Minimum credit score & debt ratio goes by loan program
- Maximum 2 acres, exceptions to 5
Hmmm…Buying a house with financing that potentially provides free down payment money, great fixed terms, and a lower income tax bill? Where do you sign up, right?
First-Time Buyer Virginia Products
In addition to the Virginia Housing Development Authority, we offer a lot of no money down or low money down home loans. No money down loans includes VA home loans and USDA Guaranteed loans. Low down payment options include FHA, Conventional 97% LTV programs: Fannie Mae HomeReady and Freddie Mac Home Possible, and several renovation loans.
USDA Loans Virginia
USDA is a no money down mortgage option with low fees and mortgage insurance compared to other government loans. Plus, it is not just for first time home buyers. Similar to VHDA, USDA has household income limits as well as property eligibility areas. Contrary to belief, USDA is not just for low income and small purchase prices. Check out a recent article explaining the USDA income limits as well as an article explaining USDA eligible areas. Benefits include up to $453,100 loan amount, 620 credit scores, 6% seller paid costs and 30-year fixed rates.
VA Home Loans Virginia
Coastal Virginia is home to a large military population, plus there are many Veterans throughout the state. Therefore, VA home loans are an important home buying product for Virginia residents. Features such as no down payment, no monthly mortgage insurance, and having multiple VA loans at once provide buyers what may be the best loan in America. Other benefits include 600 credit scores, higher debt ratios allowed, seller paid costs, seller paid concessions to cover buyer debts and more, using the rent to qualify when vacating a residence. Virginia service members should check out our streamlined VA purchase process to see how easy it is to buy a home.
Virginia Conventional 97 HomeReady and Home Possible
Newer programs offering low down payment and affordable monthly payments include the Fannie Mae HomeReady loan and the Freddie Mac Home Possible home loan. These provide solutions offer a low 3% down payment option which can even be gifted. Additionally, the programs offer discounted mortgage insurance which means lower payments than traditional 3% conventional loans. Although there are income limits for these products, there are many areas exempt from this requirement. This helps even more buyers take advantage of a low payment, low out of the pocket loan. These products are not limited to first time home buyers.
FHA Loans in Virginia
Like VA loans, FHA is a very flexible option for Virginia buyers. FHA allows for 3.5% down payment on the traditional option, but it also has a $100 down option for qualified HUD-owned foreclosures. Advantages include 600 credit score or lower, gift down payment or gift of equity allowed, 55% or more debt ratio possible, and similar to other loan options has the ability to. Finally, FHA loans are not just for first-time buyers. Although having 2 FHA loans at once is allowed, there are restrictions.
Renovation Loans Virginia
As sure as you are reading this, you have probably watched an HGTV fixer upper or similar rehab program. Our renovation loan options open up the playing field for buyers looking to buy a fixer-upper property. Most think that these properties are only available to cash buyer or investors. Yet, renovation loans allow Virginia buyers to buy the home that is in the right neighborhood, the desired school district has good structure but needs a remodel. Plus, our renovation products, which include VA renovation, FHA 203k, and Homestyle Renovation, offer lower down payments.
Contact OVM Financial Now for VHDA Buyer Programs
Certainly, by now it should be easy to tell that Virginia home buyers have a lot of options to purchase a home. Not only that but with very affordable terms and low to no down payment. Maybe even get a tax credit as a cherry on top! Now, we have shared some of the basics in this article. But, the best next step would be to call an OVM Financial loan officer to discuss goals and scenarios so that a plan may be put in place. The end goal is for Virginia residents to be new homeowners.