Hi. Emily Farber with Lepic-Kroeger, Realtors in Iowa City, Iowa. Thanks for
joining me today. Today is a video series I've started
called, "lunch with a lender." I'm here with April Holden of Residential Mortgage
Network, and we're going to be talking about a way first-time buyers can save
some pretty serious money when they are looking at purchasing a home. Our topic
today is the mortgage credit certificate-- the MCC.
So, the mortgage credit certificate program is a tax credit program for first-time homebuyers that
allows them to take 50% of the mortgage interest they pay each year, for the life
of the loan, up to $2,000 a year, as a tax credit on their federal income taxes.
That's a credit, not a deduction, so it's above the line and the dollar for dollar savings.
April can you tell us who qualifies for MCC credit?
I sure can. So the qualifications are income based,
and vary based on what county you're living in, but the Johnson County income
limit is $87,000 for 1 to 2 in the household, and it goes all the way up to
$100,050 if they have three plus in the household.
And, if it's a couple and only one person is gonna be (an unmarried couple)
and only one person is gonna be on the loan, we only have to look at that one
individual's income when we're calculating for this limit. So, even
though this is billed as a low-to-moderate income program, it really
doesn't feel like that when you talk about the numbers in that way. It's pretty
generous, yeah. So, if the MCC limited? Do funds run out? So, it is limited. As we were
talking about from a qualification standpoint, to first-time homebuyers. So,
they can't have owned a home in the last three years
as their primary residence, and the funding does technically run out, but so
far they've been able to do quite a few and funds are not we're not really
getting near to the end of that funding round. So, as of right now, funds are
looking good for people being able to have access to this program.
April, do all lenders offer the MCC program? Or, how does a buyer find out if
that's something that they could use to their benefit? So, the program is
administered through the Iowa Finance Authority, so you can go on their website
and find a list of participating lenders. Residential Mortgage Network is obviously
on there, but you do have to be you do have to be a participating lender in
this particular program. So, there's some lender requirements that the Iowa
Finance Authority has. So, you can look on the website before you get pre-approved
for a list or you can ask your lender (me) if they are participating in this
particular program. Tell me a little bit more about the process of a buyer
applying for the MCC credit. So, if you're working with a participating lender
there's really not a lot additional the buyer has to do. The lender will take
care of it, but we basically need instead of just one year of tax returns we need
the host resent three years to prove that that buyer
hasn't been claiming any mortgage interest deductions for those previous
three years. So, not not really a ton of work to do that way. There is an
application fee. So, the
right to the Iowa Finance Authority there's a $500 application fee, but
it's a one-time fee so $500 to get $2000, $2000, $2000... it's kind of worth it. So, you mentioned
that there's a $500 application fee for the MCC. Are there any other
hidden expenses that a buyer would want to know about? There's a $500
application fee that they have to pay upfront when we apply for the actual
mortgage credit certificate to that Iowa Finance Authority. There's also a $250 fee
that's just part of their closing cost that goes to the lender for processing
the mortgage credit certificate for them. So, $750. One time, that's it. One time. Mmkay.
So, I'm interested about that note you made about three years of past income credit.
We are talking about this like it is for first-time buyers, but what if somebody
had owned a house several years ago, sold it for whatever reason, has been renting
for three years, and is now ready to re-enter the homebuyer market? So, we
actually get that question a lot. So, an example would be a couple that we had
that had owned a home in another state and got relocated here for work purposes
and couldn't sell that home. They had owned that home within the most recent
three years but had sold at about a year ago and hadn't hadn't lived in it for
their primary residence. So, in that case they own a home but they still qualified
with this program because it hadn't been their primary residence in the last
three years. So, another example being if you owned a home several years ago, sold
it for whatever reason, and it had been at least three years since you've taken
that mortgage interest deduction... you're a first time homebuyer again.
Interesting. So, the benefits of the MCC seem fairly obvious, April. Are there any
negatives that we need to know about? So, I don't think that there are any
negatives. But, there are income limits like we talked about. So, if you're real
near the income limits and you know you're about to get a big promotion
where you're gonna be over income limits and you plan on selling before the nine
years is up, there is a nine year recapture period. So, if you're over
income limits consistently after you get into it, and you sell before nine years is up,
and you have a significant gain on that sale, you could be subject to
recapture. But, the Iowa Finance Authority told us in our training that they've
only really had that happen one time to someone and all the years they've been
offering the program, so the chances of it happening are rare, but your lender
should really do their due diligence and go through that with you and make sure
that it's going to be the right program for you.
So, when you say "recapture" tell us a little bit more about what that means.
So, recapture is when you do sell that property you would be paying back some
of that benefit that you've gotten. Okay, and so that's a potential outcome if you
sell before nine years. Yes, that's correct. But, you're telling us that you really don't
see that happen very often. No. Even when people sell before
nine years. Now before nine years, especially if the income limits eighty
$87,000 and you currently make $50,000 and your income goes up a
little bit every year and you do have a gain on the sale you're still not over
income limits. So, there's no recapture for you even if you're selling in a few years.
So, the potential for recapture really comes from people who've seen a
significant increase in their income and they sell at a significant profit. Yes.
All right, thanks, April. If you have any further questions about the MCC, April
Holden at Residential Mortgage Network would love to talk to you. I will put her
contact information down below in the description box. Thanks for joining us.
As always, I put out videos every week about all things real estate, feature
stories about the greater Iowa City area, and easy do-it-yourself projects, along
with whatever other crazy stuff I decided to record. Catch you next time!
Thank you!