Before I get into the first Loan Program in this series, I need to further clarify the intent of this series “Mortgage/Loan Programs with Low or No Downpayment Still Available In Connecticut”. This series is not intended to break down each of the Loan Programs, and to technically explain each one. While a little bit of that will be done, the main content of each blog will focus on who they are intended for, and what are the qualifications that a Borrower needs to meet, in order to qualify for each of these programs. For a more technical explanation of each Mortgage Program, I will either link to a previous blog that I have written on that Mortgage Program, or directly link to that Loan Program website it self. Having said that let’s start with the first one, Connecticut Housing Finance Authority (CHFA) Mortgages.
Connecticut Housing Finance Authority (CHFA) is the number one “Mortgage/Loan Programs with Low or No Downpayment Still Available In Connecticut”. CHFA Mortgages are funded through Tax Exempt Bonds, and insured (backed) by FHA, VA, or USDA, however, most CHFA Mortgages are FHA insured. Because CHFA Mortgages are funded directly by CHFA, but insured by FHA, VA, or USDA they have overlapping guidelines that Borrower need to meet in order to qualify for these Mortgages, and I will give examples of this shortly.
CHFA is mainly intended for “First Time Homebuyers”. A “First Time Homebuyer” by definition is someone who has not owned a property in the last three years. Which means that you can have owned a house in the past, but as long as 3 years have passed since you last owned it (this applies to both selling the house or it having been foreclosed), then you are a “First Time Homeowner” again. Now I said that is the main intent, because there is an exception to this rule. If a house happens to be located in a town/city or area that CHFA has listed as a “Targeted Area”, then the Borrower does not have to meet the definition of a “First Time Homebuyer”, as long as the house that they are buying is the only house that they will own.
CHFA Mortgages are only for Borrowers who will occupy the property, they are not available for Non-Owner Occupied (Investment) Properties, and at no time can a Borrower purchase another property while they have a CHFA Mortgage, if they do CHFA will call the loan. That means that CHFA will require the remaining amount still owed on the Mortgage to be paid off in full. For example, a “First Time Homebuyer” purchases a house with a CHFA Mortgage. As time goes by they start to make more money and the family starts to grow, so they decide that it is time to purchase a bigger house. They do not have any intent on keeping both houses, and have two mortgages, so they put the house on the market. However, no one seems to be very interested in their house and they are not seeing much activity. In the mean time they find a house that they fall in love with and want to purchase it, but they can’t, because they have not sold their present house. CHFA will not let them purchase the new house while they still have a mortgage with CHFA, and the Lender is required to notify CHFA of the new loan. The Lender cannot claim that they did not know that the Borrower had a CHFA Mortgage, because one of the documents that the Borrower will have to provide to the Lender is documentation on the present mortgage. The only way around this would be for the Borrower to refinance the CHFA Mortgage into a new Loan Program.
Having said that CHFA is an excellent "Mortgage/Loan Programs with Low or No Downpayment Still Available In Connecticut", because the disadvantages are few, but the advantages are many. Without getting into a lot of detail (I will provide a link at the end of this blog to one of my blogs on CHFA that will give more detail) CHFA only requires a Borrower to have a 3.5% Downpayment, and if they do not have the 3.5%, they can either get the whole amount from a qualified Gift Source, or borrow the full amount on a second loan (DAP) from CHFA. This second loan is at the same Interest Rate as the first loan, and all Closing Costs can be included in the second loan as well. The main stipulation to this second loan is that the Borrower has to have less than $5,000, including 401K’s or other retirement accounts. If they have more than $5,000 than they will be required to use any amount over the $5,000 towards the 3.5% Downpayment/Closing Cost, and then they can borrow the balance as long as the second loan will be more than $3,000.
Since CHFA Mortgages are funded and subsidized through Tax Exempt Bonds, CHFA Interest Rates are below the Market Rate of other Loan Programs. This makes CHFA Mortgages very attractive to Borrowers, because they will have lower monthly payments, which allows them to keep more of their own money.
CHFA Mortgages do have "Income and Property Price Limits". These limits can change from town/city to town/city, so you always need to check what the Income and Property Price Limits are for the town/city you want to purchase in.
Low or no Downpayment Mortgage Programs have undeservingly gotten negative publicity in recent years because of so many people losing their homes. The feeling by some is that because people bought houses with little or no money down that they are now upside down on their mortgages because of it. That might be, but that is not the reason why they are losing their home, the reason why they are losing their homes is because they bought a house that was more expensive than they could really afford. If anything mortgage that require little or no money down made it possible for Homebuyers to keep more of their money for those rainy days.
"Mortgage/Loan Programs with Low or No Downpayment Still Available In Connecticut", have much stricter qualifying guidelines than do other programs to try to keep Homeowners from losing their homes. If you remember at the beginning of this blog I mentioned that mortgages funded by CHFA, but insured by FHA, VA, or USDA have overlapping guidelines that Borrower need to meet in order to qualify. When the guidelines overlap, it is the stricter of the two guidelines that will apply. For Example, Borrowers with good credit scores can qualify for a FHA Loan with a Total –Debt-To-Income-Ratio of up to 57%, however, if a Borrower is applying for a CHFA/FHA Mortgage and has Total –Debt-To-Income-Ratio of more than 45% they will not qualify. And if they are applying for a DAP Loan along with that first mortgage, they will not be able to exceed a Total –Debt-To-Income-Ratio of more than 41%. The same is true for CHFA Mortgages that are insured by VA or USDA, the stricter guideline will apply. CHFA goes over and above most programs to try to insure that Borrowers do not over extend themselves.
One more thing before I rap up here. Lenders and Brokers in Connecticut that cannot do CHFA Mortgages will try to scare Borrowers by telling them that CHFA Mortgages have a Recapture Tax if they sell the house within the first 9 years. This is true, but what they don’t tell them is that in order for the Recapture Tax to apply, they will also have to make a Capital Gain on the sale of the house, and their Income will have to be over the Recapture Tax Income Limit for that particular year. At McCue Mortgage we have been doing and servicing CHFA Mortgages for over 30 years, and we can remember that last time someone had to pay the Recapture Tax.
If you would like more detail information on CHFA "Mortgages /Loan Programs with Low or No Downpayment Still Available In Connecticut" please check out these blogs that I have previously written.
CHFA Not For Just First Time Homebuyers.
New Tax Credit .................... Connecticut Housing Finace Authority (CHFA)
CHFA ................ Federal Recapture Tax
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Info about the author:
George Souto is a Loan Officer who can assist you with all your FHA, CHFA, andConventional mortgage needs in Connecticut. George resides in Middlesex County which includes Middletown, Middlefield, Durham, Cromwell, Portland, Higganum, Haddam, East Haddam, Chester, Deep River, and Essex. George can be contacted at (860) 573-1308 or gsouto@mccuemortgage.com
Timely post George, just this afternoon I was talking to a prospective buyer on just this subject, specifically the 3 years without ownership. So happy to see a confirmation from an expert
Ed, all of Waterbury is considered a Targeted Area by CHFA, so everyone that meets the Income Guidelines, if this is going to be their only house, will qualify for CHFA, even if they have owned a house in less than three years. In other towns around Waterbury they will have to meet the three year rule, unless the town has a section that is considered a Targeted Area, and in that section of the town once again the three year rule does not apply.
George,
Always informative, it is good to know what other states are doing. Utah still has 100% financing available as well, Utah housing and rural housing are the 2 most common, not sure about any others, certain qualifications and limitations for both, not all lenders can do them.
George, you did a great job of breaking this info down. Educating consumers and agents is a good thing!
Debbie, same out here, not all Lenders can do these loans. But they are excellent loan produces for those that qualify.
Jen, we all learn from each other here in the rain when we share our part of the business with one another.
George, I am more than impressed! What a great post, I am bookmarking this for sure. I can say that I will be sure to give this information out to first time home buyers. You are awesome!
Andrea, thank you. If any of them come my way I will let you know :) :)
George nice article on low to no down payment loans. I can't say I do many USDA loans but FHA is as popular as ever.
Bill I follow your blog so I can understand why this type of loan is not an option for your Buyers. I love those big beautiful houses the you have been selling and getting listings on. These loan produces are meant for houses that are a little lower in price, and CHFA for example has Income Limits as well.
George,
This CHFA & FHA mortgage loan program that you have over there is great. Anyone contemplating of buying a home there should at least look into it, see if they qualify.
Esko, most do ask. It has been 5 years since they increased the Income and Property Limits, it would be nice they increased them a little bit.