Mortgage Credit Certificate (MCC) Program Manual Available at: http://www.wshfc.org/sf/downloads.html
The MCC is a federal income tax credit. With the MCC, the qualified homebuyer is eligible to reduce their amount of federal tax liability equal to a portion of the annual interest paid on their mortgage in the form of a special tax credit.
How the MCC Program Works A qualified homebuyer is eligible to reduce their amount of federal tax liability equal to a portion of the annual interest paid on their mortgage as a special tax credit. The amount of the credit is equal to 20% credit rate on the MCC multiplied by the annual interest paid. The lender takes into consideration the effect of the MCC when determining the total amount of household income available for the monthly housing payment. All potential applicants should contact a qualified tax preparer.
Value of a Tax Credit vs. Tax Deduction $200,000 mortgage x 6% interest = $12,000 annual interest $12,000 times 20% credit = $2,400 w/MCC w/o MCC Tax Credit Tax Credit Tax Deduction Total Income (married, joint filing) $60,000 $60,000 Standard Deduction (9,700) (- 0 -) Itemized Interest (- 0 -) (12,000) Exemptions (2) (6,200) (6,200) Total Taxable Income $44,100 $41,800 Federal Income Tax Liability 5,904 $5,559 MCC Credit (2,400) (- 0 -) Taxes Paid $ 3,504 $ 5,559
MCCNo MCC Interest Rate6.0% Term30 years Monthly P & I$1,199 MCC Rate20%0 Monthly Credit$2000 Effective P & I $999NA Effective Interest4.38%NA Effective Interest Rate $200,000 Loan Amount $2,400 Annual Credit/12 = $200 per month
BENEFITS Homebuyer Tax Credit is more valuable than a deduction Can still deduct remaining 80% of interest paid Increases homebuyers take home pay - file amended W-4 Can qualify for a larger mortgage loan $200 monthly benefit = $33,358 of additional loan funds Valid for the life of the loan, as long as the borrower remains owner-occupant of the residence Credit may be reissued after refinancing One-time fee of $650 Unused credit carry-forward up to 3 years
Lenders Any loan officer is eligible to offer the program. Bank funding the loan must sign a participation agreement prior to participating. Loans can be brokered to a participating lender or sold on a correspondent basis. Please check with a participating lender prior to proceeding. Uses lenders first mortgage product including FHA, VA, Fannie Mae, Freddie Mac, and all loan types listed on page 2.1 of House Key manual. Additional revenue for lenders
Income Limits Maximum Annual Household Income Limits Non-TargetedTargeted County 1-2 persons 3+ persons 1-2 persons 3+ persons Island $75,000 $87,000 $90,000 $95,000 Pierce/San Juan$75,000 $87,000 $75,000 $87,000 King/Snohomish $90,000 $97,000 $90,000 $97,000 All Other Counties$65,000 $75,000 $75,000 $75,000
Eligible Borrowers IRS Tax Code Compliance: Owner Occupancy First Time Homebuyer See section 3 of House Key manual for further information WSHFCWSHFCWSHFCWSHFC
Household Size WSHFCWSHFCWSHFCWSHFC Includes all occupants who reside in the household including children, significant others, roommates, etc.
Income Calculation WSHFCWSHFCWSHFCWSHFC You must include income from all persons 18 years of age and over who will be residing in the home. Non Occupant Co-signers are not allowed.
Annualized Income Future Projected Income for one year following loan closing (anticipated income) Includes ALL sources of income Includes raises See Section 3 of House Key manual.
Acquisition Cost Limits Maximum acquisition cost limits of a single-family residence must not exceed the following: CountyNon-Targeted Targeted Clark/Island$330,000$360,000 Jefferson/Pierce/Snohomish$370,000$395,000 King/San Juan$450,000$475,000 Kitsap/Whatcom$300,000$335,000 Skagit$285,000 N/A All other counties$270,000$290,000
Property Requirements The property cannot contain more than one self-sufficient unit Cannot have more than one service meter supporting the entire property Cannot have excess land value - less than two acres No more than 15% of the residence may be used for trade or business purposes See Section 4 of House Key manual
Homebuyer Education WSHFCWSHFCWSHFCWSHFC All borrowers on the note and deed of trust must attend a Commission sponsored homebuyer education seminar prior to reservation of MCC.
First Mortgage Guidelines MCCs are available with all loan types listed on page 2.1 of the House Key manual. They are also available with fixed or adjustable rate conventional conforming (i.e., Fannie Mae or Freddie Mac saleable), FHA, VA, or Rural Development mortgages. MCCs NOT available if the first mortgage is a House Key loan. Lenders will establish all underwriting criteria, including interest rate, down payment requirement, term, fees, points, and closing costs based on the mortgage loan type. Participant Lenders may charge up to a $100 MCC processing fee at closing.
Recapture Tax WSHFCWSHFCWSHFCWSHFC The recapture tax provision applies. ALL Three Things Must Happen : Sell - 9 Years Net Capital Gain Income Over Federal Limit Please see Section 5 of House Key manual.
Recapture Forms Borrower signs: Application - Recapture Provision Notice of Potential Recapture Tax on Sale of Home (MCC 13.5) Closing - Recapture Provision Notice of Potential Recapture Tax on Sale of Home (MCC 13.8)
Steps! Step 1Borrower completes a Commission sponsored homebuyer education seminar Step 2Buyer and Seller to sign and execute purchase and sale agreement Step 3Borrower makes application with a loan originator Additional forms/items needed at loan application: Homebuyer Education certificate for each borrower that will be on the loan Tax returns for prior three years Recent pay stubs within 45 days of closing Notice of MCC Fee Guidelines (MCC13.3) Notice of Potential Benefits Provided by a Mortgage Credit Certificate (MCC13.4) Application Recapture Provision (MCC13.5) Mortgagor Affidavit (MCC13.6) MCC Tax Credit Worksheet (MCC13.1) Step 4Loan originator to reserve MCC allocation on line or using Reservation Form (MCC13.9) if sending to another lender on broker or correspondent basis
Steps! Step 5Process/underwrite mortgage loan according to first mortgage guidelines Submit Pre-Closing Checklist (MCC13.2) for preliminary compliance review and approval Step 6Close mortgage loan and wire $650 MCC Fee to Commission Additional forms/items needed at loan closing: Seller Affidavit (MCC13.7) Closing Recapture Provision (MCC13.8) Re-executed Mortgagor Affidavit (MCC13.6), if necessary Step 7Send MCC Post Closing Checklist (MCC 13.13) and required documents to the Commission Step 8If approved, the Commission will deliver original MCC to MCC Holder and send a copy to the Participant Lender
Use of the MCC The MCC holder should consider adjusting his or her federal income tax withholding to receive the benefit from the credit on a monthly basis. The MCC holder may file a new W-4 form with his or her employer reflecting the MCC credit savings. A letter will be sent to the MCC holder with the Mortgage Credit Certificate explaining how to claim the MCC.
MCC Reissuance MCC Reissuance WSHFCWSHFCWSHFCWSHFC We can reissue under certain circumstances: The reissued MCC must be completed within one year of refinance; The reissued MCC must be for the same residence as listed on the MCC; The reissued MCC replaces the existing certificate; The certified mortgage amount on the reissued MCC doesnt exceed the outstanding balance of the mortgage amount prior to refinancing. MCC holders may refinance for an increased mortgage amount but will only receive the MCC credit to interest incurred from the existing balance of the original mortgage; The reissued certificate credit rate cannot exceed the certificate credit rate specified in the existing Certificate; and The reissued MCC does not result in an increase in the credit in any taxable year. A $375.00 non-refundable application fee must be included in a reissuance request.
Participant Lender Reporting Participant Lenders shall file an annual report with the Internal Revenue Service on IRS Form 8329 Participant Lender shall retain on its books, records and have available a summary of loans which includes the following information for 6 years: The name, address, and Social Security number of each MCC holder. The name, address, and federal taxpayer identification number (91-1874730) of the Commission. The date the loan was closed, the date the MCC was issued, the certified indebtedness amount, the credit rate under the MCC, and the amount of MCC issued. Participant Lenders are subject to the penalty provisions of Section 6709(c) of the Code. These provisions apply to the failure of Participant Lenders to file IRS Form 8329 and shall survive the termination of this MCC Program or any resignation of the Participant Lender.
How Do I Become a Participant Lender? All loan originators are eligible to offer MCCs to their borrowers. The lender approving and funding the loan is required to sign the MCC Participation Agreement prior to offering the MCC program to customers located at http://www.wshfc.org/sf/index.htm. The agreement details the Participant Lenders responsibilities, including reports provided to the IRS. There is a $500 participation fee.
Where is the MCC Program Manual Located? http://www.wshfc.org/sf/downloads.html