Selling a Home You Bought With OHFA Help: Repayment and the Recapture Tax
The Ohio Housing Finance Agency, or OHFA, helps first-time buyers get into a home with a lower-cost loan, down payment assistance, or a mortgage tax credit. That help comes with a few strings that only matter if you sell. Two are worth knowing before you set a price: repaying the down payment assistance, and a federal recapture tax that sounds scarier than it usually is.
A small Cape Cod style starter home with light blue siding and white trim, a young tree in the front lawn, on a clear autumn morning
If you used OHFA Down Payment Assistance and sell within seven years, OHFA says you must repay all of it. Grants for Grads has a five-year rule tied to staying in Ohio. Separately, a federal recapture tax can apply to OHFA bond-financed loans and mortgage tax credits, but only if you sell within nine years, make a profit, and your income is over the limit at the time of sale. OHFA says it reimburses that tax on loans closed on or after March 1, 2006.
Two different things that can come due
People often mix these up, so it helps to separate them. The first is the down payment assistance itself. It is money OHFA put toward your purchase, and OHFA forgives it over time. Sell too early, and you pay it back from your sale proceeds.
The second is a federal recapture tax. It has nothing to do with the down payment help. It comes from the fact that some OHFA mortgages are funded by tax-free mortgage revenue bonds, and OHFA also offers mortgage tax credits. Federal law can take back part of that benefit if you sell early, profit, and earn more than the program allowed.
| What | When it can come due | Source |
|---|---|---|
| OHFA Down Payment Assistance (3% conventional, 3.5% FHA, VA, USDA) | If you sell within seven years, repay all of it. Forgiven after seven years | OHFA Down Payment Assistance page |
| Grants for Grads assistance (3% or 3.5%) | If you sell and move out of Ohio within five years, repay some or all. Forgiven after five years if you stay in Ohio | OHFA Grants for Grads page |
| Federal recapture tax (bond-financed loans and mortgage tax credits) | Only if all three: sale within nine years, a net profit, and income over the limit at sale | OHFA MTC Holders page; 26 USC 143(m) |
This summarizes OHFA's public pages and the federal statute as we read them. Your own loan papers control. OHFA has other programs, such as Ohio Heroes, whose repayment terms we did not find on OHFA's program page, so we do not describe them here.
Selling a home you bought with OHFA help?
Tell us the address. We will give you a no-obligation cash offer so you can see your net after the payoff and any assistance that comes due.
The recapture tax test, step by step
OHFA puts the rule simply: the recapture tax applies only if you sell within the first nine years, make a net profit, and your income is over the maximum limit at the time of sale. If any one of those is missing, there is no recapture tax. OHFA also says that "very few people have ever had to pay" it.
Federal law says the extra tax is the lesser of the "recapture amount" or 50% of your gain. The recapture amount multiplies three things:
- 6.25% of the highest loan balance you were liable for.
- A holding-period percentage that rises 20 points a year to 100% in the fifth year, then falls 20 points a year to 20% in the ninth.
- An income percentage: how far your income in the year of sale is over the adjusted limit, divided by $5,000, and capped at 100%.
Say the loan started at $150,000. 6.25% of that is $9,375. You sell in the fourth year, so the holding-period percentage is 80%: $7,500. Your income is $2,500 over the adjusted limit, so the income percentage is 50%: $3,750. If your gain was $20,000, half of it is $10,000. The tax increase is the lesser number, $3,750. If the loan closed on or after March 1, 2006, OHFA says it reimburses the actual recapture tax paid. These numbers are invented to show the steps.
Details that change the math
A few parts of the federal rule are easy to miss, and each one can lower or erase the tax.
- The income limit grows each year. The "adjusted qualifying income" starts from the highest family income that would have qualified when you got the loan, then rises by 5% for each full year you owned the home. It is based on your family size at the time of sale, so a bigger family has a higher limit.
- The gain from the sale is not counted as income for this test. For the income percentage, federal law uses your adjusted gross income, plus any tax-exempt interest, minus the gain from this sale.
- Refinancing early can shrink it. If the subsidized loan is fully paid off during the first four years, for example by refinancing, the holding-period percentage for later years drops evenly to zero over the next five years.
- A fire or storm loss is treated differently. If the home is destroyed by fire, storm or other casualty and you buy a home to live in on the same site within the federal replacement period, the recapture rule does not apply to that conversion.
- Death is excluded. A disposition by reason of death does not trigger recapture.
If a fire is part of your story, our post on selling a fire-damaged house in Cleveland covers the selling side. For the tax side, a tax professional should look at your specific facts.
What to gather before you sell
Find your closing file from the purchase
Check which OHFA programs you used
Count the years
Ask your servicer for a payoff that shows any assistance due
Talk to a tax preparer about recapture
Your six options
| Option | Assistance and recapture | What to weigh |
|---|---|---|
| Keep it | Nothing comes due. Each year brings you closer to forgiveness | Waiting past year seven, or year nine, can change your numbers |
| Repair it | Nothing comes due while you own it | Improvements can affect your gain if you sell later |
| Rent it out | Check your loan papers before you move out | Ask OHFA or your servicer how renting affects your loan |
| List with an agent | Repayment and any recapture tax apply on the usual rules | Commissions often run 5.5% to 6%, which lowers both your proceeds and your gain |
| Sell it yourself (FSBO) | Same rules | No commission, but you manage the payoff and paperwork |
| Sell direct for cash | Same rules, paid at closing from proceeds | As-is, as fast as 7 days, typically around 21. Compare the net, not the price |
Selling for less does not avoid repaying assistance. It can lower your gain, which matters for the 50% cap on recapture. Compare each path by what you keep.
See your real number
We buy houses across Cleveland and Northeast Ohio as-is. Ask for a written offer and set it next to a listing estimate, after the payoff and any assistance repayment. If listing nets you more, we will tell you.
This article summarizes OHFA's Down Payment Assistance, Grants for Grads and MTC Holders pages and 26 U.S.C. § 143(m) as we read them in October 2026. It is general information, not tax or legal advice. Program terms can change and your own loan documents control. Talk to OHFA, your servicer and a tax professional before you sell.
Questions about selling early?
Call or send us the address. We will walk through how a sale would work with your loan and leave the decision with you.
Frequently asked questions
OHFA says its Down Payment Assistance is forgiven after seven years, and if you sell within seven years you must repay all of the assistance provided.
OHFA says Grants for Grads assistance is forgiven after five years as long as you stay in Ohio. If you sell your home and move out of Ohio within five years, you must repay some or all of it.
It is a federal tax that can apply when a home financed with a tax-exempt mortgage revenue bond loan or a mortgage tax credit is sold. OHFA says it applies only if you sell within the first nine years, make a net profit, and your income is over the limit at the time of sale. All three must happen.
OHFA says that, effective March 1, 2006, it reimburses homebuyers for the actual recapture tax paid to the IRS on loans closed on or after that date. You request it with OHFA's reimbursement form.
Federal law adds the lesser of two numbers to your tax: the recapture amount, or 50% of your gain on the sale. The recapture amount is 6.25% of the highest loan balance, times a holding-period percentage that peaks in year five, times an income percentage based on how far your income is over the adjusted limit.
Yes. It does not apply to a disposition by reason of death, or to a sale more than nine years after the testing date, which is generally when the subsidized loan began.
Federal law requires the bond issuer to give you a written notice of potential recapture at settlement, and within 90 days a statement of the federally subsidized amount and the income limits for each of the nine years. Look for those papers in your closing file.
Find out what we would pay
Free, no obligation, and no pressure. If our number does not work for you, that is a perfectly fine answer.
Keep reading
The Cash Offer Process
Selling a House With a USDA Direct Loan? What Subsidy Recapture Means
If your USDA Direct home loan came with payment assistance, some or all of that help may be due back when you sell. Here is how the federal recapture rule works and how to plan for it.
Liens, Taxes & Title
Do You Pay Tax When You Sell Your House?
Most sellers owe nothing. The federal rule excludes up to $250,000 of gain — $500,000 for many couples — and inherited houses usually show almost no gain at all.
The Cash Offer Process
Selling Your House: The Mortgage Payoff and Your Escrow Refund
When you sell, your mortgage is paid off from the sale, your servicer owes you back whatever is left in escrow, and Ohio law limits prepayment penalties. Here is how each piece works and when the money moves.