Peter Boutell

SC Sentinel:   05/26/2012

Every year the Housing Authority of Santa Cruz County has received funds to help out first time homebuyers with the Mortgage Credit Certificate MCC program. I believe that this is the best program for homebuyers because it puts money back into the hands of homeowners.

This program is offered throughout Santa Cruz County as well as other counties in the state. For as long as I can remember, the Housing Authority here has been offering funds each year to promote homeownership and does a wonderful job at managing the demand for this program. This week the Housing Authority announced a new allocation of funds for 2012.

This is the only first time homebuyer program that actually puts money back in the homebuyers’ pockets each month and here is how it works: The home owner gets a tax credit not just a deduction! of up to 20 per cent of the interest portion of his mortgage payment each month. For example, on a $400,000 loan used to buy a home, the monthly principal and interest payment will be $1,910 for a 30 year fixed rate loan at an interest rate of 4.00 percent. The MCC program will allow the owner to deduct up to $3,100 from his federal income tax bill in the first 12 months of home ownership. That is a savings of more than $280 per month!

The savings will continue throughout the life of the loan as long as the home remains owner occupied and the MCC paperwork is filed each year with the homeowner’s federal tax returns. The cash benefit of this program will decrease each year as the loan balance decreases.

It should be noted that since interest paid on a mortgage for the purchase of a principal residence is a tax deductible expense, the remaining 80 per cent of the mortgage interest paid becomes tax deductible and will represent an additional monthly savings.

There also is the added advantage that since the effective house payment will be reduced by the amount of the MCC tax credit, lenders are able to qualify home buyers for a larger mortgage loan, which translates to a higher sales price.

To receive the credit on a monthly basis, borrowers can adjust their W-4 with their employer i.e. claim more dependents so that they will have less deducted out of their paycheck each month for their federal income tax withholding. Alternatively, if the borrowers choose to receive the credit annually, the credit will come back as a refund at tax time of the following year. Be sure to consult with your tax preparer.

Who qualifies? First of all, you have to be a first time home buyer, which is defined as someone who has not owned the home that they have lived in during the past three years it is OK to own or have owned a rental or investment property. For the property to qualify this year, the house or condo must be purchased for $591,098 or less Last year that was set at $573,881. The annual income of the persons that is buying the home must be less than $87,000 for a family of one or two or less than $100,050 for a family of three or more.

In order to be one of the lucky families who receives a Mortgage Credit Certificate this year in Santa Cruz County, you will need to be prepared.

That means that you must take action now to be preapproved for a loan. The first step toward preapproval is to meet with a participating lender and submit 3 years of federal tax returns, W-2s, 30 days of current paystubs, and two months of bank statements for each one of your savings, checking, stock and retirement accounts.

You also need to start actively looking at homes. To actually apply for one of these precious MCC certificates there is enough money for perhaps just eight this year, you must be in contract to purchase the home. There is a $250 application fee that goes to the Housing Authority; it should be noted that some lenders will fill out the paperwork for you.

In order to take advantage of these tax credits, you or your accountant must fill out IRS form No. 8396 along with your federal tax returns each year. Although there is a recapture provision that could trigger a partial repayment of these benefits if the home is sold within nine years, it is not likely to kick in. Ask your mortgage consultant to explain the details.

Not all lenders participate in this program, so be sure to ask!