I was recently re-introduced to a very little known but wonderful “First Time Home Buyer” program which is available through Indiana Housing called Mortgage Credit Certificates (MCC). MCC’s are an annual federal TAX CREDIT in which eligible buyers can receive up to $2,000 back annually on their taxes based on the qualifications (see how it works below)! THIS IS REAL, NOT A JOKE OR SCAM. The neat thing about MCC’s are there are no requirements on the type of mortgage that you must go through to qualify for it. This means that you can choose the best loan program that fits your situation whether its an FHA, VA, Fannie Mae, USDA or Conventional Financing you can add the MCC. (Note: Currently cannot be used with Indiana Housing Home First Plus Loan program)
So how does it work?
1. MCC’s are strictly based on your annual HOUSEHOLD income, family size, mortgage amount and first time buyer eligibility. This means even if only one spouse or person in your family was used to qualify and obtain the mortgage, if the other spouse or person who is also going to live in the house also earns an income it MUST be added together and still be under the income requirements as a HOUSEHOLD to qualify for the MCC.
2. Current Area Income Requirements are:
Delaware, Blackford, Jay, Madison, Randolph and Henry Counties
1 to 2 persons $60,800 and 3+ persons $69,920. You can review all other Indiana county income requirements by viewing the 2010 Indiana Income Limits document.
3. Amount of credit is based upon your mortgage amount:
Mortgage for $50,000 and less = 35% credit of annual interest paid
Mortgage for $50,001 to $70,000 = 30% credit of annual interest paid
Mortgage for $70,001 to $90,000 = 25% credit of annual interest paid
Mortgage for $90,000 and more = 20% credit of annual interest paid
4. Some examples
If you purchased a home for $90,000 at a 5.0% interest rate with a 30 year term.
Math: $90,000 * 5% = $4,500 * 20% = $900 total federal tax CREDIT
Lets try another, if you purchased a home for $75,000 at 5.375% with a 30 year term.
Math: $75,000 * 5.375% = $4,031.25 * 25% = $1,007.81 total federal tax CREDIT
Remember, you will continue to receive the credit year after year until your mortgage is paid off. (Note: as your mortgage balance drops year after year your tax credit will also slightly decrease each year)
5. The Cost and other notes.
First the cost is usually a one time fee between 0.5% – 1% of the mortgage amount which would be due upon closing. Secondly, you will need to find an approved lender to handle your mortgage which is eligible to do the MCC for you. Not all lenders will process them. Thirdly, since your mortgage file and application will also have to be sent to Indiana Housing for approval along with your lenders normal underwriting procedures you will need to allow an additional 2 – 4 days to close on your home.
Another advantage. If you do not want to wait to receive your tax credit at the end of the year, discuss with your employer or CPA about lowering your withholding taxes from your pay period to receive an instant pay increase with each paycheck! Most lenders can even use the tax credit as additional income to qualify for your mortgage!
If you have further questions about MCC’s or would like to talk to us, please contact us at 765-212-1111 or use the web form below to get in touch with us.