Mortgage Tax Credit• Upon successful completion of the course, your certificate

will be available in the “Achievements” section on the left side toolbar.

• Please turn up the volume on your speakers as there are multiple videos within the course.

• You must completely go through each module/video/survey and take the tests to finish the course.

• To continue through each module please click "Next Question" on the bottom of the page or “Next Module” in the upper right section of the page. If you proceed without finishing a module, the course will stop until you complete the previous module. If needed, click "Exit" in the upper right section of the page and go to the previous module to finish it.

OHFA’s Mission Statement

“We open the doors to an affordable place to call home.”

The Ohio Housing Finance Agency (OHFA) facilitates the development, rehabilitation and financing of low- to-moderate income housing.

The Agency's programs help first-time homebuyers, renters, senior citizens, and others find quality affordable housing that

meets their needs.

If you have any questions about OHFA Homeownership Programs and Products please

contact Erin Higgins or Tom Walker. Operations ManagerErin Higgins Ehiggins@ohiohome.org 614-752-7049

Business Development ManagerTom Walker Twwalker@ohiohome.org 614-466-9920

OHFA Point of Contact

Mortgage Tax Credit Program

• Homebuyers can lower their federal tax liability through OHFA’s Mortgage Tax Credit Program. The program allows homebuyers to take a direct tax credit for a portion of their mortgage interest for the life of the mortgage.

• The mortgage tax credit is intended to help homebuyers afford homeownership.

• $2,000 maximum credit per year for the life of the mortgage. (No dollar amount limit on the 20% credit rate.)

• The mortgage tax credit is in addition to the IRS home mortgage interest deduction!

• 20% credit for non-target areas [Areas not designated as economically distressed by the U.S. Department of Housing and Urban Development (HUD)].

• 25% for target areas (An economically distressed area designated by HUD).

Target Area Search Engine: http://ohiohome.org/Geodata/

The percentage of the annual tax credit you can claim is based on the location and/or status of the property:

• 30% for Real Estate Owned (REO) purchases. (Any property purchased from HUD, Fannie Mae, Freddie Mac or a financial institution that acquired the property through foreclosure.)

• 40% for OHFA loans- If a homebuyer uses an OHFA loan (OHFA first mortgage product), they can receive up to a 40% tax credit. They are also able to combine multiple programs and products together when using an OHFA loan. Examples will be provided later in the course.

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Mortgage Tax Credit Example

$5,000 $1,000

Annual Interest x % = Yearly Credit

20%-Non-Target

25%-Target

30%-REO

40%-OHFA

$1,250

$1,500

$2,000

Eligibility-Overview• Can be used with all OHFA first-time buyer

loan programs/products.

• Borrower must have earned taxable income each year to offset the mortgage credit. (If a homebuyer already has a low tax liability, this credit might not help them because this can only be used as a credit, not a refund.)

• Must be requested at time of loan application.

1. End of the year tax credit. (Not a refund.)

2. Adjust the W-4 withholding so the homebuyer pays less taxes out of each paycheck throughout the year.

Two Options to Apply the Credit

Mortgage Tax Credit-Basic-Homebuyers are able to receive the 20%, 25%, or 30% credit if they are using the lenders first mortgage product. Lender must still be an OHFA approved lender.

• Lender sets interest rate.• Required to submit commitment package

within 60 days.• 1 hour homebuyer education class is not

required.

Mortgage Tax Credit Basic & Plus

• Homebuyers must meet OHFA income and purchase price limits.

• Must be a first-time homebuyer.

Mortgage Tax Credit-Basic

Mortgage Tax Credit Basic & Plus

Mortgage Tax Credit-Plus-Can combine with multiple OHFA programs and products and receive maximum 40% tax benefit.

• Required to submit commitment package within 25 days.

• 1 hour homebuyer education class is required.

• Must meet all OHFA eligibility guidelines detailed later in this presentation.

Basic & PlusMTC-Basic (Used with enrolled lender’s first mortgage product)

Non-target areas = 20%Target areas = 25%REO’s = 30%MTC-Plus (Can combine with multiple programs and products and receive maximum 40% tax benefit)

OHFA Loans = 40%

• Mortgage Tax Credit-Basic-$500 per loan paid to OHFA by the lender, which may be assessed to the borrower.

Mortgage Tax Credit Basic & Plus Fees

• Mortgage Tax Credit-Plus-$500 per loan when the lender delivers the loan to the OHFA Market Rate Program. The lender may retain $250 of the loan fee and must remit $250 to OHFA.

• *Lender is not required to charge/retain $250 of the $500 loan fee if they prefer not to charge their client this portion of the fee.)

Mortgage Tax Credit Basic & Plus Fees

20MTC Example• Realtor Johnny B. Selling made $63,000 in

real estate 1099 income. He owes approximately $7,300 in taxes.

• His mortgage tax credit is $2,000 (40% on $5,000 mortgage interest).

• Total taxes now due are $5,300

• If he claimed this credit for the first 10 years on his mortgage, that could be a savings of $20,000 in federal income taxes!

What happens if the borrower refinances or sells the property?

• Refinance- Borrower has one year to request new tax certificate.

• Home Sold- The tax credit is non-transferable and the original certificate becomes void. (This is a first-time buyer tax credit.)

Required Items to Reissue Certificate • Copy of original certificate or reissued

certificate. • Copy of new note. • Copy of original note. (When they first

received certificate).• Copy of most recent year's federal tax return. • Copy of new settlement statement. • Current telephone number. • $55 reissuance fee. (Cashier’s check or

money order.)• The new certificate must be reissued within

one year of refinancing.

How this can help a lender help their homebuyer….

24Stacking the Programs

Think of the First-Time Homebuyer Program (Conventional or Government) as the meat of the burger and the additional toppings (DPA & MTC) can be added to the loan.

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The Down Payment Assistance product is required when using the Next Home Program.

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Conventional Loan (3% DP Requirement)Purchase Price $100,0005% Down Payment Assistance (DPA) $5,000Subtract the Down Payment and Closing Costs:3% Down Payment -$3,0002% Closing Costs -$2,000_________________________________________________Approximate out-of-pocket funds for down payment and closing costs:

$1,500• This is based on approximate closing costs of $3,500. Closing

costs vary for each lender. Buyer could request the additional closing costs from seller during negotiations to avoid bringing any down payment or closing costs to closing.

• Homebuyers may receive up to a $2,000 mortgage tax credit each tax year.

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Buyer is able to choose how to apply the 5% down payment assistance in any combination they would like.

Example:5% towards down payment and $0 towards closing costs. (i.e., Maybe the seller is paying the buyer’s closing costs.)

On VA and USDA loans ($0 down), the down payment assistance could be used towards closing costs.

How to apply the down payment assistance….

Recapture TaxNo worries…OHFA will reimburse the recapture tax

Effective March 1, 2006, OHFA will reimburse homebuyers for the actual amount of recapture tax paid to the IRS on loans closed on or after the effective date.

Recapture tax may be required if the homebuyer:

1. Sells the OHFA-financed home within the first nine years of the purchase date,

2. Receives a net profit on the sale of the home, and

3. Exceeds the maximum income limit at the time of sale.

*All three provisions must occur at the time of sale for any potential recapture tax obligation to apply.

IRS Publication 530Instructions for Claiming the Tax Credit

Forms Needed to Claim CreditMortgage Tax Credit Certificate Form 1098 Mortgage Interest Statement Form 8396 Mortgage Interest Credit Form 1040 Individual Income Tax Return

• The mortgage tax credit certificate will show the credit rate you will use to calculate your credit. (20%, 25%, 30%, or 40%).

• Only the interest on the certified indebtedness amount qualifies for the credit.

• To claim the credit, complete Form 8396 and attach it to your Form 1040.

Claiming the Credit at the End of the Tax Year

Example$5,000 mortgage interest with a 20% non-target area credit rate=$1,000 credit.

This is a dollar for dollar tax credit!

36You must also reduce your deduction for home mortgage interest on the Schedule A by the amount on line #3 ($1,000). You can’t deduct/credit the $1,000 twice. If you had $5,000 in mortgage interest you would subtract $1,000 and enter $4,000 for line 10.

• Homebuyers will need to calculate their annual credit similar to the previous example. They will then adjust their W-4 withholdings to deduct the taxes out of each paycheck.

• Homebuyers will benefit from receiving more of their income each pay period (and less taxes).

Claiming the Credit During the Tax Year

Calculating the CreditMortgage Not More than the Certified IndebtednessIf your mortgage loan amount is equal to (or smaller than) the certified indebtedness amount on your mortgage tax credit certificate, enter on Form 8396, line 1, all the interest you paid on your mortgage during the year.

Certified indebtedness amount on your mortgage credit certificate________________________________

Amount of your mortgage

$100,000__________

$100,000Homebuyer is eligible to claim all of the interest. (Based on

the credit rate of 20%, 25%, 30%, or 40%).

= 1

Certified indebtedness amount on your mortgage credit certificate

________________________________Amount of your mortgage

$100,000__________

$125,000= .8

Mortgage More than the Certified Indebtedness If your mortgage loan amount is larger than the certified indebtedness amount shown on your mortgage tax credit certificate, you can figure the credit on only part of the interest you paid. To find the amount to enter on line 1, multiply the total interest you paid during the year on your mortgage by the following fraction.

Homebuyer is eligible to claim 80% of the interest. (Based on the credit rate of 20%, 25%, 30%, or 40%).

Mortgage More than the Certified Indebtedness The mortgage would be more than the certified indebtedness if a homeowner refinanced their mortgage for a higher amount. Please see the example on the next slide.

Mortgage Tax Credit Rate of 20% $100,000/$125,000 = 80% $7,500 x .80 = $6,000$6,000 x .20 =$1,200

Emily’s mortgage loan is $125,000. The certified indebtedness amount is $100,000. (Homebuyer could have refinanced for a higher mortgage amount, but the initial mortgage amount is only eligible for the calculation.) She paid $7,500 interest this year. Below is the interest to enter on Form 8396, line1. Emily has a 20% tax credit rate.

Emily enters $6,000 on Form 8396, line 1.

In each later year, she will figure her credit using only 80% of the interest she pays for that year.

Carryforward If your allowable credit is reduced because of the limit based on your tax, you can carry forward the unused portion of the credit to the next 3 years or until used, whichever comes first.

Credit rate more than 20% If you are subject to the $2,000 limit because your certificate credit rate is more than 20%, you cannot carry forward any amount more than $2,000 (or your share of the $2,000 if you must divide the credit).

25%-Target

30%-REO

40%-OHFA

= No more than $2,000 can be carry forwarded.

Additional OHFA Information

• Requirements for MTC Basic • Requirements for all OHFA Homebuyer

Programs • OHFA Website Links• OHFA Point of Contact

MTC Basic Requirements

• Homebuyers must meet OHFA income and purchase price limits.

• Must be a first-time homebuyer.

• On all homebuyer programs, applicants must meet OHFA income limits and purchase price limits. (Listed in Lender Online.)

• Credit Score and DTI Requirements

Requirements For All Homebuyer Programs

• Must be an owner occupied 1-4 unit property. No manufactured homes on all loan types.

• FHA-No manually underwritten loans. This includes loans receiving a “refer” through DU/LP as well as borrowers with no credit scores who get no response from DU/LP.

• Conventional loans with LTV > 95% are limited to owner-occupied 1 unit properties, no condominiums or manufactured homes.

Requirements For All Homebuyer Programs

• 1 hour homebuyer education class required. This is completed online and over the phone.

• Must occupy property within 60 days of closing.

• Must be borrowers primary residence.

• Up to 2 acres inside municipal corporations and up to 5 acres outside municipal corporations.

Requirements For All Homebuyer Programs

• When calculating borrower income, only the borrower(s) living in the home and obligated on the promissory note will be used. (i.e., A spouse can be excluded from the loan application if both spouses income put them over OHFA income limits. Borrower on loan application will need to qualify for the loan based solely on their income in this situation.)

• Must occupy the property for the first year. (The property can be rented out after the first year. Please note the property must be owner-occupied to receive the Mortgage Tax Credit.)

Requirements For All Homebuyer Programs

Borrower Documentation

• Tax returns for the last three years. (Tax transcripts are also acceptable.)

• At least two paystubs within the last 60 days OR one recent paystub and a written verification of employment.

Borrower Documentation• Divorce paperwork (If applicable).

• Copy of diploma or official transcript for Grants for Grads.

• Please see term-sheets for Heroes documentation.

53First-Time Homebuyer Program

To qualify for OHFA’s First-Time Homebuyer program, you must meet at least one of the following criteria:

1. Someone who has not had an ownership interest in his/her primary residence in the last three years.Example #1Someone who has never bought a home. Example #2Potential homebuyer owned a home 10 years ago but decided to sell the home and rent an apartment. He/she now wants to buy a home again. OHFA would consider them a First-Time Homebuyer.

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2. Anyone buying in a Target Area- A target area is an economically distressed area designated by the U.S. Department of Housing and Urban Development.

3. Honorably Discharged Veteran- Regardless if they currently own a home or have owned a home in the past three years. If current property owned is not sold before closing, it will be counted as rental income.

First-Time Homebuyer Program-Continued

http://www.myohiohome.org/

Please direct your clients to this user friendly website. They can find information on OHFA Homebuyer Programs and the home buying process.

Thank you for taking this online course! If you have any questions about OHFA Homeownership Programs and Products please contact Erin Higgins or Tom Walker.

Operations ManagerErin Higgins Ehiggins@ohiohome.org614-752-7049

Business Development ManagerTom Walker Twwalker@ohiohome.org614-466-9920

Once the final quiz and survey are completed you will be able to receive your certificate in the “trophy” section. OHFA hopes you have enjoyed this course!

All information in this presentation, brochure, or term sheet is for informational purposes only. OHFA Homeownership Programs and Products are subject to change. Additional eligibility requirements may be required based on borrower specific criteria.

Please review OHFA term sheets for up-to-date guidelines.

Buyers are strongly encouraged to consult a tax professional for advice on claiming the credit. All information presented is for informational purposes only and is not intended to be interpreted as tax advice.