FHA Plus Loan with Mortgage Credit

[Gabrielle E.]

I'm considering using an VHDA FHA Plus loan and obtaining a VHDA Mortgage Credit Certificate to purchase my first owner occupied investment property. What are you thoughts on this strategy for purchasing a property between 100-135k? Would it be advantageous to save my cash and use other people's money or should I pay 3.5-5% out of pocket?

FHA Plus info:

This VHDA-financed FHA-insured home loan includes a second mortgage designed to help qualified borrowers who need down payment and closing costs assistance.

Borrower(s) must have cash available equal to a minimum of 1% of the sales price.

Second mortgage – 3.5% to 5% of sales price.

Maximum second mortgage 3.5% for qualified borrowers with a 620 – 679 credit score or 5.0% for qualified borrowers with a 680 or greater credit score. The maximum second mortgage is based on the lower of sales price or appraised value.

The 30-year fixed interest rate for the first and second (both VHDA-financed) mortgage is slightly higher than our standard fixed rate programs.

Mortgage Credit Certificate Info:

If you're buying your first home, a Mortgage Credit Certificate (MCC) from VHDA could save you thousands of dollars by reducing the amount of federal income tax you owe.

Unlike an income tax deduction, an MCC is a dollar-for-dollar credit against your federal income tax liability:

• The credit is equal to 20 percent of the annual mortgage interest you pay.
• The remaining 80 percent may still be taken as a tax deduction.
• The MCC is effective for the life of your mortgage, as long as you live in the home.

Thanks for the advice and help BP!