CHFA ................ Federal Recapture Tax

As I stated in my previous blog, last week I posted a blog updating some of the changes to Connecticut Housing Finance Authority (CHFA) since my previous post. This post covered most of the requirements for CHFA Loans as well as additional programs that they have. The danger, as I stated before, of writing a post like this is that it covers so much, that it is very easy to miss some very important points that most do not know, or have a misconception about. The reason why I included so much in that blog is because I wanted a blog that a Borrower could go to, and read all about CHFA in one place without having to search around and jump from one screen to another.

The first CHFA feature that I tried to clarify was the misunderstandings that CHFA is JUST for First Time Homebuyers.  In this post I want to clear up misinformation about the "Federal Recapture Tax" feature of CHFA Mortgages, that some Brokers and Loan Officers that are not able to do CHFA Loans make.

Brokers and Loan Officers that are not able to do CHFA Loans, often try to scare Borrowers by telling them that they do a CHFA Mortgage, that they will have to pay a "Federal Recapture Tax" when they sell the property.  It is unfortunate that they do this, but it happens all the time, and nothing could be further from the truth.  McCue Mortgage is one of if not the largest CHFA Lender in Connecticut today, and we cannot remember the last time that a CHFA Borrower had to pay a "Federal Recapture Tax" on a CHFA Loan, and this is the reason why.

Under certain circumstances, CHFA mortgage loans may be subject to Federal Recapture Tax. The payment of federal recapture tax occurs at the time the property is sold, only if ALL three of the following conditions apply, not one or two, but ALL three:

1. The house is sold or disposed of within nine (9) years of being purchased, for reasons other than death.
   
2. There is a capital gain on the sale of the home.
   
3. The household income exceeds Federal Recapture Tax limits at the time of the sale.

If homeowner’s income has reached the point that it exceeds the Federal Recapture Tax Limits (and these limits go up for each of the first 9 years of the loan), they would probably be only too happy pay the tax in exchange for that income. And even then the other two conditions MUST also apply in order for this tax to be paid.

So if a Broker of Loan Officer trys to tell you not to do a CHFA Mortgage because you will be penalized when you go to sell your house within the first 9 years, point them to this blog and see what they say.

I hope this clarifications proves to be useful to those reading it, and if you have any further questions please contact me and I will be happy answer them.

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Info about the author:

George Souto is a Loan Officer who can assist you with all your FHA, CHFA, and Conventional 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