Tag Archives: first time buyers

Federal Tax Credit has Expired but Denver Offers One Even Better!

Denver Real Estate News

Home buyers who plan to purchase in the City and County of Denver need to know about the Mortgage Credit Certificate (MCC) offered by Denver.  Not everyone can qualify, but those that do stand to gain a significant benefit.

Here’s the scoop…Denver Mortgage Credit Certificate

The Mortgage Credit Certificate (MCC) is a program offered to qualified buyers that will allow them to receive an annual federal income tax credit equal to 20% of the annual interest they pay on the mortgage loan.  This differs from the standard interest deduction in that, it is a dollar for dollar reduction in taxes owed by the borrower.

Borrowers have a choice…

They can choose to adjust their W-4 withholding and receive the value of the credit – this gives them more buying power sooner.  Or they can submit the credit certificate with their 1040 form at the end of the year.  Either way this means HUGE savings for a borrower!

There are some other stipulations…

There is a limit on the amount of money available in the program.  Currently (on June 1, 2010) there was $14,000,000 still available.  NOTE: this program is not new.  It’s been available for at least 15 years.  Normally when the program runs out of money it gets refunded by the U.S. Gov.

The Mortgage Credit Certificate is  for First Time Home Buyers

First Time Home Buyers are described as anyone who has not owned a home in the last 3 years.  This fact is validated when the borrower submits their three years of tax returns.

Income Limitations are Generous!

Occupancy

Borrower is required to purchase as primary residence.  Non-owner occupant co-mortgagors are allowed (Mom & Dad!) provided that combined income does not exceed income limitation (that could nix it!).  The non-occupying co-mortgagor is not required to be a first time home buyer.

Process

There is a submission process that the lender must go through.  It takes a minimum of 4 weeks to complete.  The buyer MUST complete a Homebuyer Education course certificate, obtained through a HUD approved agency.  The process can be completed in conjunction with the mortgage loan, so it’s NOT an additional 4 weeks.

Costs

There is a fee (non-refundable) to make application in the amount of $75.00 plus .15% of the mortgage amount for the MCC Issuance Fee paid to the City and County of Denver.  Most reliable lenders will be able to tell borrower in advance of paying this fee if there is a very good chance to obtain the certificate.

Recapture Tax

In some cases when the borrower goes to sell the property he may be subject to a “recapture tax.”  If a recapture tax is owned it is computed and paid to the IRS for the tax year in which the home is sold.  For the average buyer in thiws program, it’s unlikely they will be required to pay because their income is lower than that allowed without penalty.

A recapture tax is due only if:

  • the borrower sells his home in under 9 years
  • the borrower receives a “gain” on the sale of the home and the borrower’s income has increased significantly over the 9-year (typically more than 5% per year)
  • a recapture tax is due, it will be based upon the lesser of 6.25% of the original loan amount or one half of the gain on the sale of the home.

Let’s Look at an Example (this is for explanation purposes only!)

Assuming a borrower could qualify for the mortgage and the mortgage credit on a home purchase of $350,000, with an income of $68,000, interest rate (available today but who knows how much in the future) and a 15% tax bracket.  Here are the numbers.

Using Denver’s Mortgage Credit Certificate a borrower could save $2603 a year, or $216 a month!

Buyers may be interested in knowing what the average home/condo sale price is in the City and County of Denver.  As of July 2010 here are the average home sale prices:

So you can see buying a home in Denver and having a very worthwhile tax credit, is possible!

Now what?  Need a lender to contact?  The nice lady who provided me with the above information is experienced in doing Denver’s Mortgage Credit Certification, she’s done many in the past and is not afraid of tackling the paperwork for you.  (note: many mortgage lenders are not willing to go the extra mile, qualified to do it or more importantly experienced in doing so.)  My suggestion would be to give Jaxzann Riggs at The Mortgage Network 3030-394-2121 a call.

If you are interested in seeing homes for sale in Denver, feel free to use my Denver Home Search website.  You can be looking at all the homes for sale in Denver immediately!

If I Were a First Time Home Buyer

If there ever was a perfect climate for a first time buyer to purchase a home, it is now. Why is that? Because there are bargains in both home prices and available financing terms! A combination like this allows a first time buyer to obtain more of a home for their money at less of a price.

Let’s take a look at home values. The Metro Denver real estate market has many neighborhoods offering great values in homes. Some homes are foreclosures or short sales and others are being offered by the owner. It’s very reasonable to expect to get a newer home priced in the low to mid $200′s. A few years ago that was not possible.

Your Pot of Gold at the End of the Rainbow

Your Pot of Gold at the End of the Rainbow

Just recently Uncle Sam offered to lend first time home buyers their down payment for homes up to $250,000 using a tax credit. This means the buyer must initially come up with the down payment, but will be able to deduct it from income taxes.

If the buyer doesn’t actually have the down payment, but has a relative willing to lend them the money, FHA will allow a 2nd lien to be attached to the property. This would allow the buyer to borrow the money from the relative and pay it back within a year.

There are additional rules, the tax credit is for the lesser of 10% of the purchase price or $7,500. It has a 15 year recapture rate. The income restrictions allow the first borrower to earn no more than $75,000 a year. For joint buyers they can make up to $150,000 combined.

This scenario works best with a home purchase of $250,000 or less.

Some buyers don’t have wealthy or helpful relatives but they don’t need to feel left out. The Colorado Housing Finance Authority also known as CHFA can step in and lend a hand.

CHFA makes loans to buyers who do not own any other property. The best thing about CHFA’s loans is the low downpayment. Qualified buyers can get into a home with only $1000 of their own money. Their interest rates are competitive and sometimes slightly higher, but they are the only institution that will allow a buyer to create a mortgage with so little down.

CHFA does have income guidelines, but they are quite generous. The maximum loan amount is $417,000. The biggest catch is the borrow(s) must attend a Home Buyer Education Class BEFORE executing a contract! The Home Buyer Education Classes offered are free and can be taken onsite or online.

If I were a first time home buyer, I’d…

make an effort to investigate my home ownership options. There may never be a time better than the present moment to become a homeowner!

If you would like to discuss your options, please call me. I welcome your call, with no obligation, no high pressure sales pitch. Just information the information you need to know to make a decision. The choice is yours, what would you like to do?

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