MassHousing, the independent public agency charged with making housing affordable in Massachusetts, is looking to help first-time homebuyers take advantage of the $8,000 federal housing tax credit.
The agency will lend the $8,000 to qualified homebuyers, at no interest, so the buyer can use the money immediately to buy the home instead of waiting to receive a tax refund months later. Rockland Trust Co. is one of a small number of banks participating. Steve Borgerson, vice president and regional mortgage manager for Rockland Trust, answered a few questions about it.
PBN: Rockland Trust is now a participant in MassHousing’s new Tax Credit Loan Program. How does it work?
BORGERSON: An eligible first-time home borrower who is purchasing a home and utilizing a MassHousing mortgage product obtained through one of their community bank partners, such as Rockland Trust, may also request that the lender provide an $8,000 tax credit loan. These funds are provided at the closing and can be used towards the down payment and closing costs for the purchase.
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PBN: What type of borrower qualifies for the program? Is it available to anyone who would qualify for the tax credit?
BORGERSON: Yes, as long as they are applying for a MassHousing first mortgage. … Buyers must meet certain income requirements and be first-time homebuyers. They also must close on the home before Nov. 30, unless Congress extends the program. Ninety-five percent of the time, if a borrower qualifies for a MassHousing first mortgage, they will qualify for the tax credit.
PBN: Does the loan change Rockland Trust’s lending guidelines? Meaning, will the bank loan to someone who wouldn’t have qualified for a mortgage otherwise?
BORGERSON: The guidelines for obtaining a mortgage may be slightly more conservative when a tax credit loan is utilized. However, that does not mean this program is a deterrent to qualifying for a mortgage. Having an addition $8,000 available to assist with the purchase generally leads to a reduced mortgage payment and ultimately a more affordable loan. There will be a large number of people that utilize this program that could not have purchased a home without the tax credit loan being made available.
PBN: What if someone can’t pay the MassHousing loan back?
BORGERSON: Because the loan is based on an anticipated tax refund, it is possible that when someone files their income taxes that their refund is not enough to repay the loan. The program accounts for this scenario by not mandating the loan be repaid by their tax refund. The program is set up so that if a tax credit loan is not repaid by June 2010 then it becomes a 10-year fixed-rate loan, and a bill is issued monthly and sent in addition to the first mortgage bill. This structure provides the borrower with the opportunity of turning a short-term obligation into a long-term one. In the event the borrower would prefer to use their tax refund check to do improvements on the property or use the funds for another purpose they can choose to do so and repay the tax credit loan over 10 years beginning in June 2010. It should be noted that if the borrower chooses not to repay the loan, they will pay interest on the loan equal to the interest rate on their first mortgage.
PBN: Has anyone taken advantage of it yet?
BORGERSON: The program was just recently launched by the state and MassHousing, and Rockland Trust is happy to report that we have just completed our first home purchase that included a tax credit loan. It was a great benefit to the borrower as they were able to use the funds to cover the needed 3 percent down payment, without which they would not have been able to purchase the home. MassHousing has 71 tax credit loans in process, a number of which are for Rockland Trust customers.
