First Time Home Buyer
Mortgage Credit Certificate (MCC) Program
How Does it Work?
If you apply for an MMC loan / mortgage you are eligible for 20% of your annual mortgage interest as a direct federal tax credit, resulting in a dollar for dollar reduction of your annual federal income tax liability. The remaining 80% of your annual mortgage interest will continue to qualify as an itemized tax deduction.
The home you buy must be your principal residence.
You can not have an ownership interest in a principal residence at any time in the last three years.
The mortgage loan must be a new loan (not a refinance).
The federal government considers the MCC tax credit to be a subsidy. As such, you may be subject to federal “recapture tax” if you sell your home within nine years of purchase or you sell your home at a gain and your income increases above a specific level.
QUESTIONS AND ANSWERS
What is a Mortgage Credit Certificate?
The Mortgage Credit Certificate Program was authorized by Congress in the 1984 Tax Reform Act as a means of providing housing assistance to families of low and moderate income. The Hawaii Housing Finance and Development Corporation (HHFDC) is an Issuer of Mortgage Credit Certificates.
The Mortgage Credit Certificate (MCC) reduces the amount of federal income tax you pay, thus giving you more available income to qualify for a mortgage loan and assist you with house payments.
The MCC is available to homebuyers who meet household income and home purchase price limits established for the MCC Program, as well as other federal eligibility regulations.
How will a Mortgage Credit Certificate assist my home purchase?
The federal government allows each homeowner to claim an itemized federal income tax deduction for the amount of interest paid each year on a mortgage loan. For a homeowner with a MCC, this benefit is even better: 20% of your annual mortgage interest will be a direct federal tax credit, resulting in a dollar-for-dollar reduction of your annual federal income tax liability. The remaining 80% of your annual mortgage interest will continue to qualify as an itemized tax deduction.
The amount of your mortgage credit depends on the amount of interest you pay on your mortgage loan. However, the amount of your mortgage credit cannot exceed the amount of your annual federal income tax liability. Unused mortgage credit can be carried forward for three years to offset future income tax liability.
What are the loan terms?
You are free to seek financing from any lender. However, MCCs are available only through participating lenders.
QUESTIONS AND ANSWERS listed on this brochure. The lender providing the financing is allowed to establish the interest rate, loan term, down payment requirement, credit and underwriting criteria, loan type, mortgage insurance requirement, fees, points, closing costs, and all other terms.
A MCC can be used in conjunction with a conventional fixed rate loan, variable rate loan, FHA loan, VA loan or privately insured loan. However, a MCC cannot be used with a Hula Mae loan.
How long does the Mortgage Credit Certificate last?
The MCC will remain in effect for the life of your mortgage loan, so long as the home remains your principal residence. The amount of your annual mortgage credit will be calculated on the basis of 20% of the total interest paid on your mortgage loan for that year.
What are the requirements?
The MCC requirements include the following:
The home you buy must be used as your principal residence after you obtain your mortgage. If it stops being your principal residence, your MCC will be automatically revoked and you will no longer be entitled to claim the mortgage credit.
You cannot have an ownership interest in a principal residence at any time in the last three years.
The mortgage loan must be a new loan. You cannot be issued a MCC for the acquisition, replacement or refinancing of an existing mortgage loan. However, you may (on a case-by-case basis) be issued a MCC for the replacement of construction period loans, bridge loans, or similar financing of a temporary nature with a term of twenty-four months or less.
The federal government considers the MCC tax credit to be a subsidy. As such, you may be subject to federal “recapture tax” if (1) you sell you home within nine years of purchase, (2) you sell your home at a gain, and (3) your income increases above a specified level
What are the income and purchase price limits?
The purchase price limits vary by county, while the income limits vary by county and family size.
Income limits by county:
2 or less, 3 or more
Honolulu $123,600 $144,200
Maui $107,160 $125,020
Kauai $98,880 $115,360
Hawaii $88,080 $102,760
The income limits may be increased or decreased by the HHFDC pursuant to U.S. Internal Revenue Service guidelines.
Purchase price limits:
County Newly Constructed or Existing Residences
Federal Government Home Buying Programs
FHA Loan for Purchase or Refinance on Principal Residence
FHA loan is a federal assistance mortgage loan in the United States insured by the Federal Housing Administration. FHA loans have historically allowed lower income Americans to borrow money for the purchase of a home that they would not otherwise be able to afford.
FHA does not make loans. Rather, it insures loans made by private lenders. The first step in obtaining an FHA loan is to contact several lenders and/or mortgage brokers and ask them if they originate FHA loans. As each lender sets its own rates and terms, comparison-shopping is important in this market.
Potential lenders assess the prospective homebuyer for risk. The analysis of one’s debt to income ratio enables the buyer to know what type of home can be afforded based on monthly income and expenses and is one risk metric considered by the lender. Other factors, such as payment history on other debts, are considered and used to make decisions regarding eligibility and terms for a loan.
Department of Defense
Homeowners Assistance Program
Homeowners Assistance Program (HAP) to eligible service members and federal civilian, including non-appropriated fund, employees. The program is authorized by law, and administered by the US Army Corps of Engineers (USACE) to assist eligible homeowners who face financial loss when selling their primary residence homes in areas where real estate values have declined because of a base closure or realignment announcement. The American Recovery and Reinvestment Act of 2009 (ARRA) temporarily expands the HAP to assist service members and DOD employees who are wounded, injured or become ill when deployed, surviving spouses of service members or DOD employees killed or died of wounds while deployed, service member and civilian employees assigned to BRAC 05 organizations, and service members required to permanently relocate during the home mortgage crisis.
Department of Veterans Affairs (VA)
Loan Guaranty Program for Purchase or Refinance (aka VA Loan)
A VA loan is a mortgage loan in the United States guaranteed by the U.S. Department of Veterans Affairs. The loan may be issued by qualified lenders and designed to offer long-term financing to American veterans or their surviving spouses. The basic intention of the VA direct home loan program is to supply home financing to eligible veterans in areas where private financing is not generally available and to help veterans purchase properties with no down payment.
The VA loan allows veterans 100% financing without private mortgage insurance or 20% second mortgage. In a purchase, veterans may borrow up to 100% of the sales price or reasonable value of the home, whichever is less. In a refinance, veterans may borrow up to 90% of reasonable value, where allowed by state laws.
VA loans allow veterans to qualify for loans amounts larger than traditional Fannie Mae/conforming loans. VA will insure a mortgage where the monthly payment of the loan is up to 41% of the gross monthly income vs. 28% for a conforming loan assuming the veteran has no monthly bills.
U.S. Department of Agriculture (USDA)
Direct Housing Loans
The Rural Housing Direct Loan Program provides very low and low income families with financing to build, purchase, repair or refinance homes and building sites that meet local codes. The home must be located in a rural community with less than 10,000 populations, on a farm or in open country not closely associated with an urban area. To determine USDA Property Eligibility, click here. Some of the eligible communities include Ewa Beach, Makakilo, Kapolei, Waianae, Waipahu, Pupukea, Haleiwa, Laie, Hauula, Kaaawa, and Kahuku.
Guaranteed Home Loans
Single Family Housing Guaranteed Loans require no down payment and no monthly mortgage insurance and are loans made by approved mortgage lenders to qualified low and moderate-income individuals and families in rural areas.
USDA Rural Development is expanding homeownership opportunities and affordability to homebuyers by providing lenders with loan guarantees that protect the lender from risk of loan loss. The lender passes the benefit on to the home buyer in the form of a loan requiring no down payment or mortgage insurance, limiting loan and closing costs, and offering favorable interest rates similar to conventional loans. The 2% loan guarantee fee paid by the applicant replaces mortgage insurance and is significantly lower than projected cost of monthly mortgage insurance.
Eligibility: Applicants for loans may have an income of up to 115% of the median income for the area. Families must be without adequate housing, but be able to afford the mortgage payments, including taxes and insurance. In addition, applicants must have reasonable credit histories.
Home Improvement and Repair Loans and Grants
The Home Repair Loan and Grant program provides loan and grant funds to be used to pay for needed repairs and improvements to dwellings of eligible very low income families living in rural areas with a population of 10,000 or less.
Grant funds, which must be used to remove health and safety hazards, may be made to persons 62 years or older who lack repayment ability for a loan. Repair loan and grants may be used to remove health and safety hazards such as repairing roofs, heating, electrical and plumbing systems, water and waste disposal, installing screens, windows, insulation and other steps to make the home safe.
Home improvement loans may include similar purposes but may also be used to modernize, add a room, remodeling and making overall improvements to the home. The home must be owner-occupied.
The Mutual Self-Help Housing Loan program is used primarily to help very low- and low-income households construct their own homes. The program is targeted to families who are unable to buy clean, safe housing through conventional methods and want to build equity in their home. Families participating in a mutual self-help project perform approximately 65 percent of the construction labor on each other’s homes under qualified supervision.
House Approves Homebuyer Tax Credit Extension
Today the House voted 409-5 to extend the deadline for closing home purchases to Sept. 30. The program initially required borrowers who signed contracts before April 30 to complete paperwork by July 1 to get a tax credit of as much as $8,000.
The House measure accommodates borrowers at risk of being disqualified for the tax credit because lenders and loan servicers aren’t processing mortgages quickly enough. The Senate is considering similar legislation.
NAR (National Association of Realtors,) estimates the number of homebuyers who have qualified for the tax credit and met the contract deadline of April 30, but who would not be able to close their transaction by the June 30 deadline, could go as high as 180,000. REALTORS® have reported as many as one-third of qualified applicants have been notified by lenders that their mortgages will not close before June 30 due to the sheer volume of applications in the pipeline.
The Mortgage Bankers Association reported that average contract interest rate for 30-year fixed-rate mortgages decreased to 4.67 percent from 4.75 percent, with points decreasing to 0.96 from 1.07 (including the origination fee) for 80 percent loan-to-value (LTV) ratio loans. This is the lowest 30-year contract rate recorded in the survey since the week ending April 24, 2009. The effective rate also decreased from last week.
How to Get the First-Time Home Buyer Tax Credit
Buying your first home is a significant, long-term investment representing many important aspects of our lives, as well as providing financial and emotional security. It is also the largest single transaction most people ever make. That’s why it’s so important to choose a home and a mortgage that are well suited to your needs. You need a top-notch agent there to guide you. Once you’ve decided to buy your first home, pursue it and make your dreams possible.
You’ve decided to purchase a home and take advantage of the Extended Home Buyer Tax Credit. Here’s what you have to do to get your benefit:
- Close on your home purchase between November 7, 2009 and April 30, 2010, or have a binding written contract in place by April 30, 2010 with a closing date no later than June 30, 2010.
- Decide whether to:
- apply the credit to your 2009 tax return, filed on or before April 15, 2010;
- file an amended 2009 return; or,
- apply the credit on your 2010 return, filed on or before April 15, 2011.
- Attach documentation of purchase to your return.
For the first time, long-time homeowners who buy a replacement principal residence may also claim a homebuyer credit of up to $6,500 (up to $3,250 for a married individual filing separately). They must have lived in the same principal residence for any five-consecutive year period during the eight-year period that ended on the date the replacement home is purchased.
New legislation, the Worker, Homeownership and Business Assistance Act of 2009, which was signed into law on Nov. 6, 2009, extends and expands the first-time homebuyer credit allowed by previous Acts. The new law:
- Extends deadlines for purchasing and closing on a home.
- Authorizes the credit for long-time homeowners buying a replacement principal residence.
- Raises the income limitations for homeowners claiming the credit.
Under the new law, an eligible taxpayer must buy, or enter into a binding contract to buy, a principal residence on or before April 30, 2010 and close on the home by June 30, 2010. For qualifying purchases in 2010, taxpayers have the option of claiming the credit on either their 2009 or 2010 return.
People with higher incomes can now qualify for the credit. The new law raises the income limits for homes purchased after Nov. 6, 2009. The credit phases out for individual taxpayers with modified adjusted gross income (MAGI) between $125,000 and $145,000 or between $225,000 and $245,000 for joint filers. The existing MAGI phase-outs of $75,000 to $95,000 or $150,000 to $170,000 for joint filers still apply to purchases on or before Nov. 6, 2009.
Homebuyers who purchased a home in 2008 or 2009 may be able to take advantage of the first-time homebuyer credit. The credit:
- Applies only to homes used as a taxpayer’s principal residence.
Reduces a taxpayer’s tax bill or increases his or her refund, dollar for dollar.
Is fully refundable, meaning the credit will be paid out to eligible taxpayers, even if they owe no tax or the credit is more than the tax owed.
The credit is claimed using Form 5405, which you file with your original or amended tax return.