The Home Buyer's Korner

Information presented should be used for educational purposes only.

May 30th, 2015

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GREATER AIEA/WAIMALU HAWAII

The Home Buyer’s Korner

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Mortgage Credit Certificates

MN-Mortgage-Credit-CertificateThe Mortgage Credit Certificate (more commonly referred to as MCC) is a certificate issued by certain state or local governments that allows first time home buyers to claim a tax credit for some portion of their mortgage interest paid during the life of the loan. When purchasing and using an MCC if you sell the home within 9 years of your closing date you may have to recapture (repay) all or part of the benefit you received from the MCC program. For additional information on IRS’s policy for Recapturing (Paying Back) a Federal Mortgage Subsidy read IRS Publication 523.

The MCC program is designed to help first-time homebuyers offset a portion of their mortgage interest on a new mortgage as a way to help homebuyers qualify for a loan. Because it is a tax credit and not a tax deduction mortgage lenders use the estimated amount of the credit on a monthly basis as additional income to help the home buyer to qualify for the loan.

Some of these restrictions may be waived for certain circumstances. For example, following a natural disaster, state or local governments may raise or remove the income limits for affected municipalities temporarily to help spur redevelopment.

The MCC Credit can be used with Fannie Mae Conforming, FHA, USDA and VA home loans. These credits can help a home buyer qualify for a little “bigger” (more expensive) home. While all homeowners can claim an itemized tax deduction for mortgage interest, home buyers that secure an MCC can go a step further. An MCC reduces your tax liability, dollar-for-dollar, by a percentage of the mortgage interest you pay.

The amount of mortgage credit allowed varies depending on the state or local government that issues the certificates, but is capped at a maximum of $2000 per year if your State’s rate is over 20%, by the IRS. As an example, if a homebuyer were to receive an MCC that offers a 30% credit on a $200,000 loan for 30 years with a rate of 6%, the allowable tax credit would be figured as follows (all numbers rounded):

  1. Mortgage Interest Paid (1st Year): $11,933
  2. x MCC Credit: 30%
  3. = Total Credit: $3579

Because the total credit in this example exceeds the IRS limit of $2000, the homebuyer would report a $2000 credit on their tax return or to put it simply a $167 each month you shouldn’t leave on the table if you qualify for the credit. The buyer may continue to receive a tax credit for as long as they live in the home and retain the mortgage, so ask about the Mortgage Credit Certificate early in the pre-qualification process. The program requires additional underwriting and starting early ensures you can use it without passing your sales contract closing date.

Generally speaking, MCC first time home buyers must meet certain minimum guidelines:

  1. Home buyers must not have owned a home in the previous three years.
  2. Home buyers must meet income and purchase price restrictions.
  3. Home buyers must intend to use the new home as a primary residence.
  4. Home buyers must provide the last three years of their Federal Income Tax Returns
  5. PRE PURCHASE COUNSELING IS REQUIRED – online is acceptable
  6. All persons living in the house and signing the deed are counted in the family income limits (includes Non-Purchasing Spouse) ALL income is counted in family income and annualized over 12 months – overtime, bonus, social security, child support, unemployment compensation, rental, seasonal or part-time, self- employment, dividends, interest and lotto winnings.

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HAWAII HOME OWNERSHIP TOOLS

Your Home Purchasing or Refinancing & Renovation Tools,

Home Improvements, Home Renovations,

Mortgage Loan Officers, Real Estate Agents & General Contractors

are ready to assist you with your home purchase.

Here are just a few of the home improvements

you might consider with any Home Renovation loan

Repair or replace a roof

Install, replace or repair gutters and downspouts

Replace, repair or upgrade your HVAC system

Repair or replace plumbing

Install, repair or replace electrical systems

Kitchen remodeling (including the purchase and installation of appliances)

Bathroom remodeling, Full interior painting, Total exterior painting

Repair or replace a septic system and/or well

Disability access (wheelchair ramp, elevator, widen doorways)

Build, repair or replace deck, patio or porch

Basement waterproofing and finishing

Abatement/Stabilization of lead-based paint hazards

Replace old windows, Room additions, Finish an attic

Add a second story to your home

Replace a termite damaged sill plate (a water-damaged sill plate also)

Possible landscaping items such as correction of grading & drainage problems,

tree removal, repair a driveway and sidewalks

FHA 203K

Your Home Purchasing or Refinancing & Renovation Tool

Mortgage Loan Officers, Real Estate Agents & General Contractors

are ready to assist you with your home purchase

FANNIE MAE HOMESTYLE

The Conventional Alternative to FHA 203K

Great for Real Estate Investors and Second Home Renovations

Mortgage Loan Officers, Real Estate Agents & General Contractors

are ready to assist you with your home purchase

USDA RURAL DEVELOPMENT

Up to $10K for Home Improvements, Renovations or a Simple Remodel

Mortgage Loan Officers, Real Estate Agents & General Contractors are ready to assist you

A SIMPLE HOME SHOPPING INSPECTION TOOL

Organizing your home shopping experience affords a wise decision-making process.

This simple home inspection tool makes your ultimate buying decision a smart one.

To print this document click on “Open in New Window” located at the lower right corner;

click on “File”; then click on “Print”. In the center of the screen you will

have the option to “Create A Printable PDF of the Presentation”.

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