Lender Guidelines: 2.3 First-Time Home Buyer Requirement

For Non-Bond DPA (No MCC): Borrowers are not required to be first-time home buyers. Borrowers may have previously owned or may currently own a home, provided that the home being purchased becomes the borrower’s principal residence upon loan closing. If the borrower purchased their current home using TSAHC’s DPA program, they must sell their current home in order to be able to use the DPA program to purchase the new principal residence.

For MCC Only, Non-Bond DPA (with MCC), or Bond DPA: Mortgagor(s) applying for Bond DPA or an MCC cannot have had an ownership interest in a principal residence at any time during the preceding three years ending on the date the mortgage is executed. The mortgagor and spouse, and any other adult who will be named on the deed of trust, must meet this first-time home buyer requirement. The first-time home buyer requirement does not apply to acquisitions of homes in Targeted Areas or if a mortgagor is a “Qualified Veteran” as defined in the next paragraph.

“Qualified Veteran” means a person who is a “veteran” (as defined in 38 U.S.C. Section 101) who has not previously obtained a loan financed by single family mortgage revenue bonds utilizing the Qualified Veteran’s exception to the first-time homebuyer requirement (as set forth in Section 143(d)(2)(D) of the Code). Under this definition of “veteran” (unlike the definition of “Veteran” under section 2.1 above), active duty military do not qualify as a Qualified Veteran.)This requirement must be verified by the Lender’s examination of the borrower’s federal tax returns for the preceding 3 years (or by the other permitted documents described below) to determine whether the borrower has claimed a deduction for mortgage interest or taxes on real property claimed as a principal residence. For purposes of the first-time home buyer requirement, a person is treated as having an ownership interest if such person is living in the home as his or her principal residence and is listed on the deed of trust, even if he or she does not take a mortgage interest deduction on his or her federal tax returns. For married couples, each spouse is treated as holding an ownership interest, even if not listed on the deed of trust. For a person who is not a spouse (for example, a parent of a mortgagor) who is a co-signor under, or a guarantor of, a promissory note secured by the mortgage, but who does not occupy the property and has no present ownership interest in the residence, is not required to satisfy the first-time home buyer requirement.

Each borrower is required to submit acceptable documentation with his or her MCC or Bond Loan application to demonstrate that he or she meets the first-time home buyer requirement. The following documentation options are acceptable:

a. Signed and dated Form 1040, 1040A or 1040EZ federal income tax returns for the past 3 years with all schedules that show no deductions for mortgage interest or real estate taxes for a Principal Residence. Please note: For any loan closing after February 15 of a calendar year, the tax return for the prior calendar year MUST be included.

b. For borrowers who do not have copies of the actual tax returns submitted to the IRS, the borrower may submit transcripts from the IRS that reflect his or her 3 most recent federal tax returns. The transcripts from the IRS do not have to be signed. The transcripts can be submitted in lieu of the tax return copies, provided that the transcripts show that no mortgage interest deduction was taken.

c. For borrowers who are unable to obtain a computer printout from the IRS, as described above, the borrower can request instead IRS Letter 1722, which summarizes pertinent data from the Borrower’s tax returns for the requested years. However, the Borrower must also obtain on the Letter 1722 a statement from the IRS that no mortgage interest deduction was taken during the 3-year period for each year the borrower filed a Form 1040 during the 3-year period.

d. For borrowers who cannot locate copies of their actual tax returns submitted to the IRS, the borrower may request copies of the returns from the IRS using Form 4506.

e. In the event the borrower was not obligated to file federal income tax returns for any of the preceding 3 years, this must be indicated on the Bond Program Affidavit or the MCC Program Affidavit, as applicable. A borrower who cannot provide tax returns because he/she did not file them when required to do so (and failed to file for any applicable permitted extension), are not eligible for Bond DPA or an MCC. If one or more of a borrower’s tax returns reflect that the borrower took a deduction for mortgage interest or real estate taxes on property claimed not to be the principal residence, documentation (rent receipts or canceled checks) of the rental history is required beginning with the period of said tax return through the Bond DPA or MCC application date. An ownership interest in a mobile home will be considered a prior ownership interest in a principal residence if the mobile home was (1) permanently attached or anchored to land and had the wheels and other components used in transportation removed, and (2) taxed as real property. Remember, except for cases involving a self-employed borrower, the borrower submits copies of 3 years’ tax returns NOT to verify income, but to verify first-time home buyer status.

If one or more of a borrower’s tax returns reflect that the borrower took a deduction for mortgage interest or real estate taxes on property claimed not to be the principal residence, documentation (rent receipts or canceled checks) of the rental history is required beginning with the period of said tax return through the Bond DPA or MCC application date.

An ownership interest in a mobile home will be considered a prior ownership interest in a principal residence if the mobile home was (1) permanently attached or anchored to land and had the wheels and other components used in transportation removed, and (2) taxed as real property. 

Remember, except for cases involving a self-employed borrower, the borrower submits copies of 3 years’ tax returns NOT to verify income, but to verify first-time home buyer status.

For access to the full TSAHC DPA & MCC Guidelines, please click here.