Understanding the Mortgage Credit Certificate for Home Buyers

What is a Mortgage Credit Certificate?
What is a Mortgage Credit Certificate?

Transcript (Unedited)

Well, welcome everyone. Thank you for joining us. My name is Patty and I’m with Community Investment corporation and I’m here with Tom Nova and Hailey to present regarding the mortgage credit certificate program, a tax credit program that’s currently offered through Community Investment corporation. The program is actually been around since 1991. I’ve been administering the program since 1995 and I’ve been working with Tom and his team for decades. I could say at least a decade. So we’ve been administering the program for some time and kind of giving our age away there with the decades.

So again, thank you for joining us. So the mortgage credit certificate program is a tax credit program that reduces homebuyers tax liability and helps them save money. So essentially when we talked to the borrower’s like hey, you’re in the buying of the process of purchasing a home. There’s this text. Credit program that’s available and currently it’s available through the Pima County and the City of Tucson Industrial Development Authority and what it does it allows the buyer to take 40% of their interest as a tax credit up to $2,000.

So essentially if a home buyers loan amount is at least a hundred and twenty-five thousand their credit is going to be $2,000. It’s what we’re seeing pretty much for everyone. They’re capping at the $2,000 limit. So where we’ll talk a little bit later where the tax credit is different from a deduction because anyone that purchases a home can write write off their interest as a deduction. Well, this is something in addition. So it’s a great program to to get out there to your home buyers because right now you’re helping them get into the home, but also once they’re in their home, you’re you’re pretty much giving them explaining this program to them that there’s two thousand dollars every year for the life of their mortgage. So says are the credits can be claimed year after year, as long as the buyer lives in the home and has a mortgage.

It says here. Also if the client doesn’t have a tax liability, so we’ll have this some times where maybe even right now where somebody may have lost their job and they are not going to be claiming taxes next year. Maybe they didn’t earn enough to file taxes or they decide they want to go back to school. And so they’re not going to be filing tax returns if whatever you’re they don’t use the credit. They can actually carry it over and it rolls over for three years. So we’ve had that where somebody went back to school and they weren’t filing tax returns. I wrote three years over so they were rolling over $6,000 and then in the new year they got their mm. So now they were sitting on a $1,000 credit. So that’s something where people also, you know aren’t really familiar with tax credit program. So when we meet with the homebuyers we sit down with them and say hey bring me three years of your tax returns so that I can show you exactly where this is going to benefit you on your tax return.

So here’s an example of how it works. Okay reminder is the home buyer needs Supply prior to closing. So when we’re working with Tom or you know, any mortgage company as long as they submit the clients loan application, they’ve pretty much a applied part of clothing and so we don’t slow down closing there aren’t classes. They have to take no home inspection. Nothing like that. The buyer does everything with us and we get all that done without slowing the buying process. That’s something we don’t want to want to get. Do I know that’s been an issue in the past where we’re trying to I know appraisal has been an issue right now. It’s like we definitely want to keep the process going as smooth as possible. So we definitely stay out of that don’t want to slow anything down. So here how it works in this example. You have this loan amount of a hundred twenty five thousand at 4% interest. This particular person is going to pay $5,000 in just interest alone.

So anyone that holds a mortgage they can write off that interest that $5,000 is deduction. Okay, so we’ll cover that comes going up with this credit does it gives them 40% of their interest are paying so in this example 40% of the $5,000 is a two thousand dollar tax credit.

Hey. So here’s an example on a tax return this particular person their wages are $37,000. And then on 8 you’ll see there where we start talking about deductions the standard deduction right now, you’ll see here for this person is $12,000. So they and the previous slide has paid five thousand dollars in interest. So most people are going to do the standard deduction because they don’t have enough to itemize. So this is where the program gets confusing sometimes is because people Think or even tax preparers will say we’re not going to put your house on your tax returns and they’re usually referring to writing off the interest as a deduction.

So this is where we try to explain to the homebuyers. It’s different from a deduction because you probably will take the standard deduction. Especially you’ll see there. The Mary is 24,000 head of household is 18,000. So right now after you take your deduction in this example now, IRS is saying okay you made 37. We’re going to give you this deduction so we can only tax you on the $6,000 so their IRS is going to say we want from you $3,000. So that’s what that 11 is and and line 15 total if they didn’t have the credit. IRS is saying okay. We want $3,000 from you but on line 16 they had withheld from their their pay stubs 4,300 which is why they got refunded online twenty thirteen hundred dollars because most people are going to say why I get a refund anyway, And that’s usually because they have extra taken out of their pay stubs. And this example if you have that credit kick in if this particular buyer on line 12, they’re saying okay. Now you have this $2,000 credit. We’re going to plug this Credit in again. This is good every year for the life of their mortgage. So now instead of wanting the 3000 from them they want their plug in the two thousand dollar credit. And so now their liability or what iris wants from them is 1047 again they have 4300 withheld so where that’s going to affect it’s going to increase their refund.

So you’ll see there. So now the reef and has increased to 3300 because this credit went in and reduce what IRS wanted from them so long as we’re making wages IRS is going to keep something but people, you know don’t understand until they actually sit down and look at a tax return see this is exactly where it kicks in and this two thousand dollars will be there every year as long as you’re paying interest on this. Mortgage and in this example to increase their refund from 1300 to 3300 which is significant difference. So I know that’s that’s a quick explanation of how it works on a tax return on this next page here. It’ll show over the life of the mortgage this particular person that had a $200,000 mortgage throughout the 30 years. They’re going to have $50,000 worth of credits. Okay, but mm that they’re seen every year and then of course it’s going to go down a little bit towards the end of the year because they’re not paying as much interest because they’re paying down their principle, but mostly people are saying about fifty thousand dollars on average.

A little bit about how the program works get. I’m sorry where you can benefit from the program the geography it’s available anywhere in Pima County and the City of Tucson. I see a question here. Do we go are we going back to questions? Because I just saw one about refinance. I’ll just answer it. I’ve got an answer it I saw pop up a question about a refinance if they do refinance they actually just submit some new paperwork to us just some closing paperwork. So their regular forms of they’re going to be saying that clothing and we issue them a new certificate to that refinance. So yes refinancing is okay. Okay. So the geography again anywhere in Pima County and City of Tucson and it’s actually been extended. It’s pretty much everywhere. It’s Statewide America. Was the one that’s the only one that’s kind of not playing fair right now, but we have gone into Chandler things like that, but it is available Statewide.

There’s some what they call target areas target areas are considered economically distressed. So they’re out throughout town if you happen to be purchased in a Target area. You don’t have to be a first-time homebuyer the income and purchase price limits are higher and we’ll show you that on the next slide. So there are some benefits. To purchasing in a targeted area. So some samples certain areas is like Prince and stone the city of South Tucson. That’s all considered Target. So there’s on our website. If you’re buying certain census tracts that are considered Target. There’s a few more benefits to buying into Target area, but pretty much all your areas are going to be in a non Target area.

So the eligibility there’s mainly three things we’re looking for for sure. They have to be a first-time buyer or not only in the last three years or if they’re buying in a Target area. They do not have to be a first-time buyer or if they’re veterans. They do not have to be a first-time homebuyer. And then we work with all home types. Okay. So manufactured condos we get this all the time and then also all loans a any loan FHA USDA conventional FHA and Any lender? Okay, so we work with all mortgage companies.

Right Haley, and then so the next thing we’re looking at is your household income limits. So first time buyers one of our first things we’re looking at and then income limit your non-target again is most your areas for family of 1 to 2 is 67 9 for a family of three or more 78,000. So those are kind and generous and then if you’re buying a Target area, then the limits get higher. Okay. So family a woman to to is 81 and three or more is 95 and then lastly is our purchase price limit. So that is for in your non target areas for new or existing 283 348 and then you’ll see if you’re buying a Target area. The purchase price limits are higher, but mostly you’re looking first time buyer and or not know last three years and you’re non-target limits. There are a couple fees to get into the program. So there’s a one-time initial program fee. So if it can be collected at closing, that’s great. If you have their seller contributing towards closing costs any kind of incentive one time.

We were working with Katie Holmes. The Builder was playing for the program fee. Otherwise, we can offer a payment plan especially since they’re not claiming this until their start filing taxes next year. So for instance right now, if you have anybody closing in this year, they’ll actually we can make a six month payment plan because they’re not going to start claiming the credit until January of next year and then I put here for salt salt is our sister agency. They have some new construction homes also and if you’re purchasing one of their homes, they are paying for the program feel so and then there’s a what there’s an annual renewal fee. But technically this isn’t going to kick in until they start seeing that $2,000 benefit. We need with the buyers and we show them this is how you can this is how you benefit. This is where it would go in your tax returns, but when I talked about earlier if they go Back to school and they’re not going to be claiming the credit that they don’t pay that $100 renewal fee.

So it’s a case-by-case every year and then we also actually offer free tax preparation. So because we definitely want to make sure people are taking advantage of the program because people are not familiar with the program even tax preparers, even though it’s been around since 1991. It’s something we want to make sure people are taking advantage of the program and we’re not going to be having them pay that renewal fee unless they for sure are claiming that credit.

Again, here’s another example of increasing the buyers loan eligibility. So this is where your lenders kick in and do a great job at doing it. So in the example here, we showed you how the program works and how the credit is $2,000. But what your mortgage lender can do is they can consider this two thousand dollars as additional income. So you’ll see here that two thousand divided by 12 is 166 a month. Your lender can add that to the clients loan application to help get them approved. So whether It’s if their ratios are off, maybe they have student loans or their car payments too high if they plug this in maybe they now qualify or maybe they qualify for $195,000. They can plug in this this extra credit now they can shop for a $200,000 house, you know, it increases their buying power. So this is something that you know, it’s also beneficial to your home buyers. And for some reason they don’t qualify.

Maybe your lender can plug this in and say maybe this is going to work and this is all we need to get them qualified now and then for your buyers at the very bottom, we write we put there is because they’re going to be getting this credit like we showed you on that text. We return their refund is higher. Sometimes we say, okay, if you’re having a hard time making your payment’s our if the lender uses money to be able to buy more house, maybe they want to take more money home on their paychecks to be more comfortable making their mortgage payment so we can explain to them now that you’re going to have this Our credit you’re going to not need as much money taken out of your pay stubs. So sometimes whole town goes, you know to your employer and the example down here in this $2,000 credit. If you’re paid bi-weekly, that’s about you know, almost $80 a paycheck. So sometimes we’ll say talk to your employer. You can go out and take home $80 more per paycheck because you’re going to have this credit that’s going to offset what IRS wants from you or if they want to leave it the way it is it will just increase their refund.

Okay. So that was like a quick explanation main thing we’re looking for with the tax credit program first time buyer or not owned in the last three years income limit purchase price limits right. Now. The application process is done. All via email usually will meet with the clients show them on their tax return where they qualify how it benefits them on their tax return if they qualify do the application right now. We’re just if they can email us or tax returns will review it over the phone or similar to this. This via zoom and then we also go over the application and the application does need to be notarized. But if they do the review of me, I can still notarize it for them since our form and we still are been able to run business from home, which is I’m very grateful for and I’m not slow down the process in any way.