Part of our training to become a certified Texas Affordable Housing Specialist is to learn about programs offered by the state of Texas and similar local programs that lower the interest rates on homes.

The state program issues bonds to the general investor market and uses the money to buy down interest rates on mortgages. These 'bond programs' get periodic injections of funds, which are rapidly claimed by homebuyers.

First-time homebuyers and those with incomes below typical (area median family income - AMFI) are also eligible to receive grants. Priority is given to helping families purchase their first home.

Funds are allocated to cities to run those programs or they're adminstered from state.  Depending on where you want to purchase, we need to check either the city or with state to find out how much is available on each program and whether you qualify. 

Texas Department of Housing and Community Affairs also operates a program funded at the Federal level designed to increase cash flow to first-time homebuyers by granting them a tax credit, not just a tax deduction, for part of their mortgage payments.

In the early years of repaying a mortgage most of the monthly payment for principal and interest goes toward interest. The MCC program creates a credit on taxes paid of up to 30% of the interest paid in the preceding year with a maximum of $2,000.

On a $120,000 mortgage that might have $7,000 in interest paid the first calendar year, the MCC credit reduces taxes by $2,000, since that is the maximum compared to $2,100 (30% of $7,000). If your taxes for the year on regular wages are, say, $9,200, then the credit reduces your taxes to $7,200. This will assure you of a refund if your payroll is set up like everyone else.

But there's more. If you itemize your deductions (usually because you have extra expenses), then you can also count the difference between the actual interest paid and the credit. For the $7,000 in interest, you could then deduct $5,000 on your Schedule A, which might bring you an even larger refund.

Of course, they recommend you adjust your W-4 deductions so you get the benefit of lower taxes all year long, instead of a big refund check the next year. And the MCC isn't free the first year. It costs $75 plus 1% of the loan to be issued a MCC certificate in today's programs. Recapture rules apply if you sell before 10 years.

Are grants really available?

Yes and no.  Some cities operate grant programs to encourage homebuyers in their city.  Garland and Dallas both operate nice programs, but funding is quickly snapped up almost as soon as it is made available. 

Most people who ask about Down-Payment Assistance are really looking for a way to solve a cash savings problem.  Many people make decent money, but just haven't saved 3-5% for closing costs and prepaids.  So, monthly payment is not the problem, it's the down payment. 

DPA programs are available from dozens of sources.  Those programs are intended to generate a net non-profit donation from the seller.  It does this by supplying the buyer with a gift of the down payment, provided that the seller makes a donation to the non-profit greater than the gift they just made. 

Say the seller can afford to make a $4,500 donation from the sales price of the house and the buyer needs $4,000.  The non-profit pledges $4,000 and actually sends the money to closing.  The title company cuts a check from the seller's funds of $4,500 and sends that back to the non-profit.  The net result is the non-profit has $500 more to work with, even after it made a gift of $4,000 to the borrower. 

Here are some names of DPA providers, currently approved by the IRS, to conduct gift programs.  Remember, these are typically not charities looking to give you money. 

• Alta Crossing
• American Family Funds
• AmeriDream
• QuickDown
• Positive Alternatives
• Family Home Providers
• Genesis Housing
• Grant America
• Housing Action Resource Team
• Home Downpayment Gift Foundation
• Home Ownership Providers
• Main Street Foundation
• National Home
• Nehemiah - the most commonly cited name for DPA
• Newsong Down payment Assistance
• Preferred Program
• Texas Cares
• World Relief

A mortgage assistance program typically consists of 3 parts:

• First mortgage loan
• Grant
• Second morgage loan (forgivable)

The first mortgage loan is normally at market rate, but TSAHDC and others offer programs with subsidized interest rates on the first mortgage (the largest part of money, borrowed to buy a house).