MFA home ownership programs provide deserving
families thousands of dollars of savings on their home loans through
below-market interest rates. In addition, borrowers receive all
of the benefits that come with owning a home. In fact, many borrowers
may not have originally been able to qualify for their home loan
without these programs.
"Recapture" is a potential repayment
of a portion of the interest savings that MFA has provided you through
the lower interest rate loan. This requirement comes from the federal
government. Initially, this may cause some concerns particularly
when making a decision whether or not to use this kind of financing
to purchase a home. Before making a decision you should be familiar
with some of the basics.
First of all, there is only a potential that you
may ever have to pay any recapture at all. The federal law is intended
only to recapture the interest savings from borrowers that are no
longer in a position where they need the savings. Since the law
has been in effect, it has been determined that the overwhelming
majority of borrowers will never pay recapture.
Payment of any recapture will only be required
if all three of the following events occur:
you sell the home during the first nine years
of ownership; and
you have a gain (net profit) on the sale of the
home; and
you experience substantial increases in your
income
(your income must nearly double!)
If all of the previously mentioned conditions
apply - the borrower may have to repay a portion of the interest
rate subsidy they have been receiving on the mortgage. Under current
MFA Mortgage$aver rates, the amount of recapture
will never exceed the amount of interest savings the borrower has
received as a result of using the program.
It is complicated to calculate the amount of recapture
that a borrower would actually be subject to. The actual amount
is computed by using a formula taking into consideration the following
things:
The date of sale or transfer of the home;
The borrowers income in the year of the sale
or transfer; and
The amount of gain from the sale or transfer.
The MFA would be happy to provide you with additional
information on how to calculate the actual recapture amount.
In order to illustrate how the recapture provision
may affect a borrower, some examples are demonstrated on the reverse
side to this pamphlet.
John and Mary purchase a home in Las Cruces
for $55,000 using an MFA Mortgage$aver loan. At the time they
purchase the home their annual income is $25,000.
Six years later, they decide to sell their home
(one of the worst years according to the recapture formula). They
sell the home for $85,000 and their income has increased to $50,000
annually. They realized a gain of $25,000 on the sale of their
home and their income has increased by 100%. As a result, these
borrowers would have to pay approximately $2,500 to repay the
amount of interest they saved.
As you can see, these conditions apply to very
few families.
Common Scenario
Mark and Loretta purchase a home in Farmington
for $74,000 using an MFA Mortgage$aver loan. At the time they
purchase the home their annual income is $30,000.
Seven years later, they have one child and they
decide to sell their home to move into a larger home. They sell
their home for $100,000 and a net gain of 27%. In addition, their
income has increased to $50,000 annually (an increase of 67%).
Wow! These borrowers have had some positive changes
in their lives over the past seven years; however, they are not
subject to any recapture at all.
As you can see, families may realize significant
financial changes in their lives, beginning with the advantages
of the MFA's loan programs, and not be required to pay any Recapture
tax. Again, even if recapture does apply, it will not exceed the
amount of interest rate subsidy on the loan. You owe it to yourself
to investigate the potential advantages of low-interest loans from
the MFA.
For more information about recapture, the MFA
and its Home ownership Programs,
For more information contact one or our Mortgage Servicing Representatives
Mortgage Finance Authority
Main : (505) 843-6882
Fax: (505) 242-2766
