Faculty Housing Assistance Program


This document provides an overview of the primary features of the Faculty Housing Assistance Program for both junior (untenured) and senior (tenured) faculty. Prior to starting a home search it is advisable to contact Christine Holland in the Faculty Relocation Office at 617-253-4249 or hollandc@mit.edu, for more detailed information about the program.

Summary

Program for Senior (Tenured) Faculty

Contingent Interest Mortgage Program For Senior (Tenured) Faculty (CIMP-SF)

Programs for Junior (Untenured) Faculty

Contingent Interest Mortgage Program For Junior (Untenured) Faculty (CIMP-JF)

No-Interest, Fully Amortizing Loan (NIFAL) Program For Junior Faculty

Frequently Asked Questions

 

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SUMMARY:

The MIT Faculty Housing Assistance Program (FHAP) has been established to support newly hired junior and senior faculty as well as recently tenured faculty in purchasing a primary residence in the local housing market.

The program is available to newly hired junior and senior faculty up to four (4) years from their hire date and newly tenured senior faculty up to four (4) years from their tenure date.

The details of the programs for junior and senior faculty differ, as described below.
 
NOTE: Since the primary motivation for the FHAP is to help compensate for the high cost of housing in the Metro Boston area, in future years the program may be altered on a going forward basis in any and all respects or may be terminated entirely depending on changes in the local housing market. The terms of any then outstanding loans, however, would continue to be governed by their existing loan documents.

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PROGRAM FOR SENIOR (TENURED) FACULTY:

CONTINGENT INTEREST MORTGAGE PROGRAM FOR SENIOR (TENURED) FACULTY (CIMP-SF)

The CIMP-SF is a tax-efficient, minimum interest, second mortgage program to assist newly hired or recently tenured faculty in purchasing a home in the expensive local area housing market.

The CIM-SF will be secured by a mortgage on a “qualifying residence”.

The interest rate is capped at the Annual Long-Term Applicable Federal Rate in effect when the mortgage is closed. This is the lowest tax efficient rate that is allowed by the IRS.

ELIGIBILITY:
This program is available one time only to all newly hired full-time faculty members hired into a tenured position or existing faculty members promoted to a tenured position. The eligibility period is up to four (4) years from the date in which the faculty member received tenure.

Junior faculty members promoted to a tenured position, who have outstanding loans under the CIM-JF program, have the option to refinance these mortgages to the CIM-SF program so long as it is within the four (4) year period of eligibility.  
 
QUALIFYING RESIDENCE:
The MIT Faculty Housing Assistance Program (FHAP) is only applicable to a faculty member’s “principal residence” within a 50-mile radius of MIT.

“Principal residence” is defined by the IRS, under Section 121 of the Internal Revenue Code, using a facts and circumstances standard and considering, among other facts, where the faculty member resides most of the time, the address listed on the faculty member's tax returns, voter registration, driver's license, and automobile registration, the faculty member's billing address and the faculty member's principal dwelling throughout the academic year.

Single-family residences, condominiums, co-operatives and some multifamily residences do qualify.

Faculty may request approval to use the FHAP to purchase a multi-family property so long as:

  1. The faculty member's residence constitutes 50% or more of the current applicable value.
  2. Only the portion of the applicable value of such a property that is occupied by the faculty member as his or her principal residence may be taken into account in determining the Maximum Loan Amount for the CIMP-SF.

NOTE: Vacation homes, investment properties, and income properties are NOT qualifying residences.

MAXIMUM LOAN AMOUNT:
The lesser of $300,000 or 40% of the “applicable value” of the property.

The “applicable value” is the fair market value of that portion of the property that constitutes the principal residence of the faculty member. This is determined by the purchase price or as such value that is determined the first mortgage lender’s appraisal or by a certified appraiser approved by MIT, whichever is less.  

EXAMPLE: Single family, condominium, co-operative
Purchase Price/Appraised Value:
$750,000 x 40% = $300,000 is the Maximum Loan Amount for the CIMP-SF
$600,000 x 40% = $240,000 is the Maximum Loan Amount for the CIMP-SF

Therefore to take advantage of the full $300,000, the minimum home purchase price is $750,000.

EXAMPLE: Multi Family Residences
Purchase Price/Appraised Value = $800,000
Faculty member occupies 50%
Maximum loan amount for a CIM is based on the percentage the faculty member is occupying so 50% = $400,000
CIM cannot be more than 40% of the purchase price/appraised value –
$400,000 x 40%  = $160,000 is the Maximum Loan Amount for the CIMP-SF

TERM of the CIM-SF: 30 years
           
INTEREST RATE:
The Annual Long-Term Applicable Federal Rate (AFR) in the month the mortgage is closed. This is the lowest tax efficient rate that is allowed by the IRS.

This interest rate is a fixed rate for the life of the mortgage.

The total interest due on the CIM equals the Fixed Interest (1/2 AFR) plus Contingent Interest.  The resulting interest rate is therefore guaranteed to be no greater than the AFR and no less than ½ the AFR. 

Fixed Interest: One half of the Annual Long-Term AFR at the time the loan is made is the annual interest charged to the mortgage. 

Contingent Interest: The effective interest rate of the mortgage is contingent upon the average, annual percentage of appreciation of the value of the property.  This is configured at the termination of the loan and is determined by the value of the property at the time the CIM was made in relation to the value of the property at the time the CIM is paid off.  This contingent interest will be no less than 0% and no greater than ½ AFR. 

Total Interest Due at the time the mortgage is paid off is determined as follows:

  1. If the property depreciates over the life of the loan, then 1/2 the AFR is the effective (payoff) mortgage interest rate. 
  1. If the property appreciates over the life of the loan at an average, annual rate of 0% or above, up to ½ AFR, then ½ the AFR is the effective (payoff) mortgage interest rate.
  1. If the property appreciates over the life of the loan at an average, annual rate greater than ½ AFR but less than the AFR itself, then that appreciation rate is the effective (payoff) mortgage interest rate.
  1. If the property appreciates over the life of the loan at an average, annual rate greater than AFR, then the AFR itself is the effective (payoff) mortgage interest rate.

NOTE: If the effective (payoff) interest rate is less than the AFR imputed income will occur.  Therefore if the payoff interest rate is less than the AFR the IRS considers the difference between the payoff interest rate and the AFR to be imputed income.  This imputed income will be reported on the faculty member’s W-2 as income in the tax year it occurs. It will also be reported as mortgage interest paid on a 1098 Mortgage Interest Form in the same tax year.

As taxable income this imputed amount is also subject to normal Social Security and Medicare (FICA) taxes as well as Federal and State income taxes at the time the loan is paid off.  Though Federal and State taxes will not be withheld the employee portion of the FICA tax for the imputed amount will be withheld from their regular pay. The faculty member is responsible for any income tax liability related to this imputed amount.

MINIMUM MONTHLY PAYMENTS:
A minimum monthly payment equal to the Fixed Interest or ½ AFR is required.

NOTE: Contingent Interest is deferred to loan maturity or termination.  Deferred interest accumulates and is compounded annually.

PRINCIPAL PAYMENTS:
There are no requirements to make regular payments to the principal. The principal can be repaid as a “balloon” payment at the termination of the mortgage.  However, payments to the principal can be made on the last day of any given month in increments of $1,000 or more.  

REFINANCING the CIM-SF:
The outstanding balance of a CIM-SF loan can be refinanced for a lower interest rate one time only during each 10-year interval of the mortgage term. The new interest rate will be at the prevailing Annual Long-Term AFR at the time of the refinance. The maturity date of the refinance will remain unchanged from that of the original mortgage.   

Loan transaction expenses for the refinance will be borne by the borrower. This will include the cost of an appraisal, recording fee and any legal fees required to close on the refinance.   

TERMINATION of the CIMP-SF:
Principal and outstanding interest is due on the earliest of:

  • The date of sale of the mortgaged property.
  • The date in which the property is no longer the faculty member's principal residence.
  • The date of termination of employment at MIT.  

(This was in the original document – not sure if this is still valid)
“Faculty members who retire and who maintain the property as their principal residence have the option to retain the loan as a demand loan with all other terms and conditions unchanged. “

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PROGRAMS FOR JUNIOR (UNTENURED) FACULTY

CONTINGENT INTEREST MORTGAGE PROGRAM FOR JUNIOR (UNTENURED) FACULTY (CIMP-JF)

The CIMP-JF is a tax-efficient, minimum interest, second mortgage program to assist recently hired untenured faculty to purchase a home in the expensive local area housing market.

The CIM-JF will be secured by a mortgage on a “qualifying residence”.

The interest rate is capped at the Annual Long-Term Applicable Federal Rate in effect when the mortgage is closed. This is the lowest tax efficient rate that is allowed by the IRS.

ELIGIBILITY:
This program is available one time only to all new full-time junior (untenured) faculty members. The eligibility period is up to four (4) years from their date of hire to a faculty position.  

QUALIFYING RESIDENCE:
The MIT Faculty Housing Assistance Program (FHAP) is only applicable to a faculty member’s “principal residence” within a 50-mile radius of MIT.

“Principal residence” is defined by the IRS, under Section 121 of the Internal Revenue Code, using a facts and circumstances standard and considering, among other facts, where the faculty member resides most of the time, the address listed on the faculty member's tax returns, voter registration, driver's license, and automobile registration, the faculty member's billing address and the faculty member's principal dwelling throughout the academic year.

Single-family residences, condominiums, co-operatives and some multifamily residences do qualify.

Faculty may request approval to use the FHAP to purchase a multi-family property so long as:

  1. The faculty member's residence constitutes 50% or more of the current appraised value
  2. Only the portion of the applicable value of such a property that is occupied by the faculty member as his or her principal residence may be taken into account in determining the Maximum Loan Amount for the CIMP-JF.

NOTE: Vacation homes, investment properties, and income properties are NOT qualifying residences.

TERM of the CIM-JF: 10 years

MAXIMUM LOAN AMOUNT:
The lesser of $100,000 or 40% of the “applicable value” of the property
 
The “applicable value” is the fair market value of that portion of the property that constitutes the principal residence of the faculty member. This is determined by the purchase price or as such value that is determined by a certified appraiser approved by MIT, whichever is less.  

EXAMPLE: Single family, condominium, co-operative
Purchase Price/Appraised Value:
$250,000 x 40% = $100,000 is the Maximum Loan Amount for the CIMP-JF
$200,000 x 40% = $80,000 is the Maximum Loan Amount for the CIMP-JF

Therefore to take advantage of the full $100,000, the minimum home purchase price is $250,000.

EXAMPLE: Multi Family Residences
Purchase Price/Appraised Value = $400,000
Faculty member occupies 50%
Maximum loan amount for a CIM is based on the percentage the faculty member is occupying so 50% = $200,000
CIM cannot be more than 40% of the purchase price/appraised value –
$200,000 x 40%  = $80,000 is the Maximum Loan Amount for the CIMP-JF

INTEREST RATE:
Annual Long Term Applicable Federal Rate (AFR) in the month the mortgage is closed. This is the lowest tax efficient rate that is allowed by the IRS.

This interest rate is a fixed rate for the life of the mortgage.

The total interest due on CIM loans equals Fixed Interest (1/2 AFR) plus Contingent Interest.  The resulting interest rate is therefore guaranteed to be no greater than the AFR and no less than ½ the AFR. 

Fixed Interest: One half of the annual long-term AFR at the time the loan is made is the annual interest charged to the mortgage. 

Contingent Interest: The effective interest rate of the mortgage is contingent upon the average, annual percentage of appreciation of the value of the property.  This is configured at the termination of the loan and is determined by the value of the property at the time the CIM was made in relation to the value of the property at the time the CIM is paid off.  This contingent interest will be no less than 0% and no greater than ½ AFR. 

Total Interest Due at the time the mortgage is paid off is determined as follows:

  1. If the property depreciates over the life of the loan, then 1/2 the AFR is the effective (payoff) mortgage interest rate. 
  1. If the property appreciates over the life of the loan at an average, annual rate of 0% or above, up to ½ AFR, then ½ the AFR is the effective (payoff) mortgage interest rate.
  1. If the property appreciates over the life of the loan at an average, annual rate greater than ½ AFR but less than the AFR itself, then that appreciation rate is the effective (payoff) mortgage interest rate.
  1. If the property appreciates over the life of the loan at an average, annual rate greater than AFR, then the AFR itself is the effective (payoff) mortgage interest rate.

NOTE: If the effective (payoff) interest rate is less than the AFR imputed income will occur.  Therefore if the payoff interest rate is less than the AFR the IRS considers the difference between the payoff interest rate and the AFR to be imputed income.  This imputed income will be reported on the faculty member’s W-2 as income in the tax year it occurs. It will also be reported as mortgage interest paid on a 1098 Mortgage Interest Form in the same tax year.

As taxable income this imputed amount is also subject to normal Social Security and Medicare (FICA) taxes as well as Federal and State income taxes at the time the loan is paid off.  Though Federal and State taxes will not be withheld the employee portion of the FICA tax for the imputed amount will be withheld from their regular pay. The faculty member is responsible for any income tax liability related to this imputed amount.

MINIMUM MONTHLY PAYMENTS:
There are two options for monthly payments available for the CIMP-JF.

1. The minimum monthly payment required is a $1.00 Service Fee.  This Service Fee is not credited to either principal or interest.
Both the Fixed Interest and Contingent Interest are deferred to loan maturity or termination.

2. A monthly payment equal to the Fixed Interest or ½ the AFR.
The Contingent Interest is deferred to loan maturity or termination. 

NOTE: Any contingent interest that is deferred accumulates and is compounded annually.

PRINCIPAL PAYMENTS:
There are no requirements to make regular payments to the principal. The principal can be repaid as a “balloon” payment at the termination of the mortgage.  However, payments to the principal can be made on the last day of any given month in increments of $1,000 or more.  

REFINANCING the CIM-JF:
This mortgage cannot be refinanced.

Except:
Upon the award of tenure, the CIM-JF may be refinanced to the CIM-SF so long as the faculty member remains eligible and the property remains qualifying.

The term for the CIM-SF will be 30 years from the start date of the CIM-JF.

TERMINATION of the CIM-JF:
Principal and outstanding interest is due on the earliest of:

  • The date of sale of the mortgaged property.
  • The date in which the property is no longer the faculty member's principal residence.
  • The date of termination of employment at MIT.

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NO-INTEREST, FULLY AMORTIZING LOAN (NIFAL) PROGRAM FOR JUNIOR FACULTY

The NIFAL is a program to further assist newly hired junior (untenured) faculty to purchase a primary residence in the local housing market.

The NIFAL will be secured by a mortgage on a “qualifying residence”.

Funds for the NIFAL program are the responsibility of the faculty member's Department; so eligible faculty should contact his or her Department Head.

ELIGIBILITY:
This program is available one-time only to all newly hired full-time, junior (untenured) faculty for up to four (4) years from their faculty hire date.

QUALIFYING RESIDENCE: Same as for the CIMP-JF and CIMP-SF

MAXIMUM LOAN AMOUNT: $50,000.

TERM of the NIFAL: 5 years
The mortgage will be for a period of 5 years and forgiven over this 5-year period. 

Once the “forgiveness “has been completed, the mortgage will be discharged from the property.

INTEREST RATE:

  • For newly hired faculty members who qualify as “relocation” under IRS guidelines, at the time of receiving the NIFAL, this mortgage will be interest free.
  • For faculty members who do not qualify as “relocation” under IRS guidelines, at the time of receiving the NIFAL, interest is charged to the mortgage at the prevailing Annual Mid-Term AFR.   The principal and interest are forgiven. 

Both the forgiven principal and interest (if applicable) are considered to be taxable income and are added to the faculty member’s W-2 in the tax year it occurs. Any interest forgiven will also be reported as mortgage interest paid on a 1098 Mortgage Interest Form in the same tax year.

MONTHLY PAYMENTS:
There are no monthly payments, however the forgiveness will be reported to payroll on a monthly basis, beginning in the month after the NIFAL is funded.
 
The forgiveness of the NIFAL is considered by the IRS to be compensation.  To lessen the tax burden, the forgiven amount is spread over a 5-year period with forgiveness divided equally and reported monthly on the faculty member’s pay statement.

NOTE: FICA (Social Security and Medicare Tax) will be withheld on this forgiven amount each month.  However, federal and state tax will not be withheld and the faculty member will be responsible for any income tax liability related to this forgiven amount.

TERMINATION:
Any remaining balance of the NIFAL that has not been forgiven will become due on the earlier of:

  • The date of sale of the mortgaged property.
  • The date in which the property is no longer the faculty member's principal residence.
  • The date of termination of employment at MIT.  

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FREQUENTLY ASKED QUESTIONS

When should the faculty member apply for the Faculty Housing Assistance Program?
The application process begins once the faculty member has a signed Offer to Purchase.  It is important to notify the Faculty Relocation Office as soon as an offer is accepted on a property.

It is, however, recommended that the faculty member contact the Faculty Relocation Office prior to starting a real estate search, as it is important to have a full understanding of the details of the Faculty Housing Assistance Program.  

Is a conventional first mortgage required in order to receive mortgage assistance from MIT?
Yes.  The Faculty Housing Assistance Program (FHAP) is a second mortgage program ONLY.

Are there specific first mortgage lenders that must be used?
There is no requirement to use a specific first mortgage lender.  However, there are many first mortgage lenders that are unable to work with the MIT mortgage program in the current lending climate.
The Faculty Relocation Office has a list of the first mortgage lenders who are able to work with the MIT mortgage program.

Does MIT have a down payment requirement?
A down payment of at least 10% is required.  Therefore, the combined value of the first and second mortgages on a property cannot be more than 90% of the total value. 

If a NIFAL is used, MIT will consider the funds from the NIFAL as part of the 10% requirement. However, most first mortgage lenders will require a percentage of cash funds from the faculty member, in addition to the funds from the NIFAL, even if the NIFAL funds equal the full 10% of the purchase price.

What are the closing costs for the FHAP?
The faculty member is responsible for the cost of the appraisal, recording fees, lenders title insurance, and prepaid interest, if applicable. 

MIT will bear the cost for MIT’s attorney to represent MIT’s interests at the closing.

Can a portion of the NIFAL be accessed for the deposit needed when signing a Purchase & Sales Agreement?
Yes, the NIFAL funds can be advanced for the 5% deposit that is usually required at the signing of the Purchase & Sales Agreement.  Any NIFAL funds remaining will be funded at the closing.

What is the current Applicable Federal Rate (AFR)?
The AFR can be found at http://www.irs.gov/app/picklist/list/federalRates.html.  The Annual Long Term Rate is used for the CIM and the Annual Mid Term Rate is used for the NIFAL.

Can the monthly payment options be changed after the CIM is closed?   
There are several monthly payment options for the CIM.

  • Junior faculty may choose to pay $1.00, ½ interest or full interest.
  • Senior faculty may choose to pay ½ interest or full interest. 

The monthly payment option can be changed at any time.  The change will take affect on the last day of the month the change was made.

Opting to pay full interest may result in an overpayment of interest.  If this is the case, any overpayment of interest will be deducted from the principal at the time of payoff.

Are the monthly interest payments tax-deductible?
Yes, in the tax year interest payments are made a 1098 Mortgage Interest Paid Tax Form will be issued for the amount of mortgage interest paid in that tax year.

Any deferred interest, either fixed or contingent, is not tax-deductible until the tax year it is actually paid.

Is there a penalty if the CIM is paid off before the maturity date?
The mortgage can be “paid in full” at any time.  There is no penalty.

How is the value of the property determined when the CIM is paid off?
The value of the property is determined by the sales price or the appraised value determined by a certified appraiser approved by MIT at the time of the payoff, which ever is greater.

Are there costs to the faculty member associated with a payoff?
The faculty member is responsible for the cost of an appraisal and the recording fee to record the Discharge.

If capital improvements are made to the property, how does this affect the contingent interest?
Capital Improvements are taken into consideration when calculating the annual appreciation of the property.  The value of the capital improvements is determined using a 20-year straight-line depreciation method.  All capital improvements need to be pre-approved by the Faculty Relocation Office prior to making the improvement. 

For further instructions and documentation requirements in regards to capital improvements contact the Faculty Relocation Office.

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