MCC - More Help For Buyers

First Time Tax Credit is Not Alone

The stimulus package that created the first time homebuyer tax credit has gotten all the news over the last year and a half. It is a great program and has significantly increased the purchase activity across the country. We have previously discussed the fact that the added "move up" tax credit has not seemed to have near the same positive effect. Now we are closing in on the end of these credits and much more emphasis is turning towards short sales in the market.

This is probably a good time to remember there are a wide variety of other programs, predominantly state oriented, that can help borrowers purchase homes. Many states have bond programs that will grant down payment and closing cost money and/or offer significantly lower interest rates to qualifying borrowers. The loan process on these products is usually more involved and requires more work to get completed and this has lowered the use in traditional markets. These days it seems everyone is working harder for the same dollar so this option competes more favorably. Considering that short sales can take six months and foreclosure purchases may require extensive repairs, a state authorized loan program that takes sixty days to complete may be a compliment rather than a distraction.

Mortgage Credit Certificate

One state program that gets little attention but has wide application is the MCC product. It is available for every state although not every state gets an allocation of funds every year. It is a federally funded program that offers a tax credit to the borrower based upon a somewhat complicated formula involving interest paid on the mortgage. The maximum annual tax credit is $2,000. Because it is a verifiable amount and will be credited at year end, the client can actually adjust their withholding amount and therefore increase monthly cash flow.

The qualification for this program requires the borrower to participate in mortgage counseling, that they be a first time homebuyer and that their income not exceed 115% of the median income in the county of residence. In certain targeted areas the first time homebuyer requirement is waived. These targeted areas are usually hard hit economically or subject to some catastrophic event like floods or hurricanes. Your state will identify these target zones. The fact that many don't realize is that the income qualification is rather inclusive. In Indiana, for example, the income limit for a family of 2 for the down payment assistance program is $ 43,600. For the MCC program for the same family the income limit is $81,720.

In order to qualify for the credit, the lender will approve the loan per standard underwriting guidelines and then submit it to the appropriate state agency for approval under the MCC program. After closing the lender will manage a certification process that establishes the credit for the property. There is a recapture clause written into the product. If the borrower no longer qualifies within the income limits and sells the home for a gain in less than 9 years a formula kicks in for a percentage recapture. The original income limit increases 5% per year for the purpose of this recapture and the recapture is limited to 50% of the realized gain. If the borrower lives in the home for more than nine years, if there is no gain on sale, or the borrower still qualifies for the income requirement, there is no recapture.