Tax creditoffers more home-buying power
BY LISA SCONTRAS
Finally, here comes a tax credit that doesn’t require you to be a millionaire to qualify.
If you’re a family of three or more with a combined household income of less than $114,240 and looking to buy a home for less than $723,417, you may be eligible for the Mortgage Credit Certificate program. The MCC program is specially conceived to help you qualify for a home loan by essentially crediting tax dollars toward your monthly payments.
In addition to income and purchase price limits, the MCC requires that applicants not hold ownership interest in a principal residence within the previous three years. MCC funds are aimed at helping first-time homebuyers reduce their federal income tax obligation and put more money into their pockets making it easier to qualify for a loan. The program recognizes the tax savings is significant and may help people realize their dream by purchasing a home they might not have been able to afford in any other way.
“It may not make a person buy a more expensive home, but it makes the expense of the home more affordable knowing that your interest costs are going to be reduced because of the federal tax credit,” says Leonard Fernandes, assistant vice president of the mortgage banking department at First Hawaiian Bank. “First Hawaiian Bank is pleased to be one of the few participating
lenders where Mortgage Credit Certificates are available, and we’ve already helped several very excited first-timers to qualify for this program.”
Owning your own home has long been a tremendous tax shelter, with mortgage interest offering a substantial deduction. But with the Mortgage Credit Certificate program, owners can take 20 percent of their annual mortgage interest and deduct that amount from the total taxes owed for a much larger tax savings. Here is how it works:
Let’s say you have a loan amount of $300,000 with an interest rate of 4 percent for 30 years. Your monthly principal and interest payment would be $1,432.25 and total interest paid on that mortgage for the year would add up to $11,903.84.
Under the MCC program, 20 percent of that annual interest, or $2,380.77, would be your tax credit meaning you could take what you owe the IRS and subtract $2,380.77, according to Fernandes. The remaining 80 percent of your annual mortgage interest would continue to qualify as a standard itemized tax deduction.
“And you can do that every year!” he says. “I think most people are surprised to learn that the MCC is for the full term of the loan. It is not just a one-time tax credit, but it is a credit that they can measure the benefits to them for the full term of the loan.”
And if the amount of your tax credit exceeds your tax liability, the unused portion could be carried forward for up to three years to offset future tax liability.
“It’s a great program that more people should know about,” says Fernandes.
This lesser-known tax credit is only available through participating mortgage lenders, of which First Hawaiian Bank is one, and is only available while funds last.
“The last time these MCC funds were made available was in July of 2010, and those funds lasted until mid-December that year,” says Fernandes. “New funds were just made available again on Jan. 27. First
Hawaiian Bank is able to submit conditional commitment packets to the Hawaii Housing Finance and Development Corporation (Hawaii’s issuer of MCCs).”
Today’s low-interest rates already make it easier for buyers to qualify for a loan. “Using the same example of a loan amount of $300,000 with a 30-year fixed rate loan at 4 percent, the monthly principal and interest payment would be $1,432.25,” says Fernandes. “That same purchase with a 5 percent loan would cost $1,610.46 per month a difference of $178.21 a month or $2,138.52 a year. Over the course of the 30 years, the buyer would pay an additional $64,155.60 with the higher rate.
“It’s a win-win right now because interest rates are already low, so your payments will be lower. And now with Mortgage Credit Certificates, you can use money that would have gone to pay your taxes and put that toward your payment as well,” he adds. “FHA programs allow customers to purchase homes with as little as 3.5 percent down. And mortgage insurance programs are available to qualified buyers with as little as 3 percent down.”
Since the MCC program potentially leads to thousands of dollars saved a year, it is well-worth learning more about. Talk to a mortgage consultant at First Hawaiian Bank and find out what programs will help you qualify for a home loan.
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