With the villain of higher rates, we need a hero of a loan program. The OR Bond might just be that hero. Many lenders are not approved to offer the Oregon Bond Program. There are a lucky few of us who do and for towns like Ashland, it’s a big win.
With rates staying stubbornly in the 7% range, you may feel like you need a drink – shaken not stirred — but before you go there, let me tell you about the two programs the Oregon Bond offers. Here are the descriptions according to the OR bond web page, https://www.oregon.gov/ohcs/homeownership/pages/loan-programs.aspx
Cash Advantage: The borrower gets a competitive interest rate on their home loan along with cash equal to 3% of their loan amount. The cash assistance will help reduce the total closing costs needed to buy the home. Borrowers cannot use Cash Advantage funds for the minimum investment required for an FHA Loan.
Rate Advantage: The borrower maximizes their buying power with a competitive interest rate and a lower monthly payment.
The rate advantage is often over a half a percent in rate lower, thus improving a buyer’s borrowing power. Today it’s actually a .625% lower rate.
This program can be used with the USDA, VA or FHA loan programs. In Jackson County, the maximum income for a 1-2 person household is $98,800. With 3 or more in the household that maximum income goes to $113,620.
However, the city of Ashland is special (I don’t have to tell you that) but Ashland is what they call a targeted area. And in targeted areas, the program is still available but allows for increased incomes. For 1-2 persons the income cap is $118,560 and for 3 plus households, the income cap climbs to $138,320. This is for the city limits, not the general area.
https://www.ashland.or.us/Files/Ashland_Street_Map.pdf
The maximum sales price for the city of Ashland as a targeted area is $588,104. I recently looked for homes under $600,000 and found over 60 homes actively on the market. The Federal Housing Administration (FHA) loan maximum is $498257, and I was able to find 50 homes at or below that amount.
OK, Dave, what’s the catch? The catch is a potential recapture tax. Let’s take a look at this.
This tax applies only if you dispose of your home at a profit (“gain” for tax purposes) over your Acquisition Cost, and only to dispositions that occur in the first 9 years after the date of Loan closing. Further, this tax does not apply to dispositions to a spouse, or to a former spouse in divorce proceedings, by reason of death or, in certain circumstances, involuntary conversion due to fire, storm or another casualty.
The amount of the “recapture” tax increases each year after the Loan closing until the fifth year and then decreases each year to zero after nine years. The highest amount of the tax (because of the holding period percentage) is in the fifth year and is equal to 6.25% of the Loan’s original federally subsidized amount (original Loan balance plus CashAdvantage Home Loan assistance, if applicable).
Basically, If you know your income will be going through the roof and you plan to sell in year number 5, then perhaps the program is not ideal for you. It is important you study the program and there is a class required for you to attend. Let’s run the numbers to see if it makes sense to pursue the Bond program.
Maybe this is the right program, or maybe it’s not but it’s important to know there are several programs out there, not all lenders are the same, and I’m fortunate that we have such a wide array of home loan solutions.
I think one of the worst things a person can do is make assumptions about what they can or can’t do about buying a home. I encourage you to give me a call and let’s discuss, although tempted to meet over the martini, let’s stick with coffee!
DAVE PORTER has been in lending for four decades. He is a Sales Manager for loanDepot in Southern Oregon. He can be reached at 541-708-4020 or at dporter@loanDepot.com. He is licensed to originate home loans in OR and WA.
State disclaimer: loanDepot.com, LLC NMLS ID 174457. www.nmlsconsumeraccess.org Licensed by the OR Division of Finance and Corporate Securities, Mortgage Lending ML-4972.| WA: Licensed by the WA State Department of Financial Institutions, Consumer Loan Company CL-174457.
