The First Time homebuyer credit has expired, but qualified buyers have access to similar tax credits through the Mortgage Credit Program (MCC). Texas Affordable Housing Specialist Bill Edge can provide you with the information to obtain up to $2,000 per year in tax credits for every year you live in your new home.
The savings available with an MCC tax credit are calculated by multiplying the annual interest on the mortgage loan by the program’s mortgage credit rate. In many cases, the MCC program provides an annual savings to the borrower of $2,000. That translates to over $165 in possible savings each month for homeowners. And, under FHA guidelines, this monthly savings amount can reduce the borrower’s P&I payment for qualification purposes!
To qualify for an MCC program, homebuyers could not have owned a home as a principle residence in the last 3 years unless they are a Qualified Veteran or purchasing in a Go Zone or Disaster Area. In Addition, the homebuyer must purchase a home in a participating county and meet maximum household income and home purchase price limits. MCC’s are available to homebuyers purchasing a principal residence, and buyers can apply for their local program at a participating lender. If you have any questions contact Bill Edge at 713-240-2949.
Texas Mortgage Credit Program
The Texas Department of Housing and Community Affairs created its Texas Mortgage Credit Program for the residents of Texas, to help make ownership of new and existing homes more affordable for individuals and families of low and moderate income, especially first time buyers.
Who is eligible to receive an MCC? The program is open to those individuals and families who:
- meet income and home purchase requirements;
- have not owned a home as primary residence in the past three (3) years;
- meet the qualifying requirements of the mortgage loan;
- will use the home as their principal/primary residence.
Note: The MCC may not be used in connection with the refinancing of an existing loan, unless the loan meets the “Qualified Subprime” loan guidelines.. Targeted Areas – first time homebuyer requirement is waived; increased income and purchase price limits.
How much of a tax credit can be issued under the MCC program? The size of the annual tax credit will be 30% of the annual interest paid on the mortgage loan. However, the maximum amount of the tax credit shall not exceed $2,000 per year. The credit cannot be larger than the annual federal income tax liability, after all other credits and deductions have been taken into account. MCC credits in excess of the current year tax liability may, however, be carried forward for use in the subsequent three years.
MCC Example: MCCs are issued directly to qualifying Applicants who are then able each year to take a tax credit equal to a specified percentage of the interest paid on their mortgage not to exceed $2,000. The Mortgage Credit Certificate Rate is 30 percent. Thus, an Applicant with a $121,000.00 mortgage (30 year fixed with equal monthly installments of principal and interest) would realize the following savings:
|Total Interest Paid First year:||$ 7,260.00|
|Mortgage Credit Certificate Rate:||X .30|
|Tax Credit Amount:||$2,178.00
During the first year of the Program, this Applicant would be entitled to a tax credit of $2,000.00. Based upon such entitlement, he or she would be able to file in advance a revised W-4 withholding form taking into consideration this tax credit and have approximately $167.00 per month in additional disposable income. Additionally, taxpayers who file itemized returns may take a deduction for their mortgage interest paid each year, less an amount equal to the tax credit taken. (In the above example, the additional interest deduction would be $7,260.00 less $2,000.00, or $5,260.00)
MCC Program Criteria / Requirements: All mortgage loan types are eligible. The mortgage loan, available through a network of participating lenders, must be underwritten according to FHA, VA, USDA/RHS or conventional loan criteria and will be at prevailing market rates. New and existing single family homes, townhouses, condominiums and manufactured housing (with certain restrictions) are eligible properties. Purchase price and income limits, adjusted by household size apply. The homebuyer must also occupy the property as their principal residence.
Tax Credit versus Tax Deduction: A mortgage interest deduction differs from a mortgage tax credit in a number of ways. For example, all homebuyers, regardless of income, may take a mortgage interest deduction, whereas mortgage tax credits are available only to holders of MCCs.
Length of Benefit: Each year, the mortgage tax credit will be calculated on the basis of 30% of the total interest paid on the mortgage loan that year. The MCC will be in effect for the life of the mortgage loan, so long as the residence remains the principal residence. In order to maintain the MCC the homebuyer can adjust their withholdings on their W-4 form with their employer and must file IRS Form 8396 with their federal income tax return. The form can be obtained from the IRS web site at www.irs.gov.
Qualified Subprime Loan: A mortgage loan originally financed through an ARM and made after 12/31/01 but before 01/01/08. In order to qualify for refinance under the program, borrower must meet FHA Hope for Homeowners guidelines.
Targeted Areas: In accordance with program guidelines, the Texas Mortgage Credit Program has funds set aside for targeted area loans. A Targeted Area is a census tract in which 70% or more of the families have incomes that are 80% or less of the statewide median income or an area of chronic economic distress. Homebuyers purchasing properties located in Targeted Areas do not have to be a first time homebuyer and purchase price and income limits are generally higher
Disaster Areas: first time homebuyer requirement is waived; increased income and purchase price limits.
Homebuyer Education Requirement: Homebuyer must complete a pre-purchase homebuyer education course prior to loan closing
Other Costs/Fees: In addition to the regular closing costs associated with the loan, there is a $75 MCC Commitment Fee (non refundable) and, upon closing, a MCC Issuance Fee of 1% of the loan amount.
Loans made in this program are subject to recapture tax provisions, under federal law..
Source: Texas Department of Housing and Community Affairs, First Southwest