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

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the previous module. If needed, click "Exit" and go to the

previous module to finish it.

If you have any questions about OHFA

Homeownership Programs and Products please

contact Erin Higgins or Tom Walker.

Operations Manager

Erin Higgins

Ehiggins@ohiohome.org

614-752-7049

Business Development Manager

Tom 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.

10

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.

• There could be an interest rate increase for

the mortgage tax credit plus program.

• Must meet all OHFA eligibility guidelines

detailed later in this presentation.

16Program Review

MTC Basic (Can be used with any loan including non-OHFA

loans. The lender still needs to be an OHFA-approved lender.)

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 under the MTC program.)

OHFA Loans = 40%

*There could be an interest rate increase for the mortgage

tax credit plus program.

• 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

19MTC 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….

23Stacking the Programs

First-Time Homebuyer Program

2.5% Down Payment Assistance

Mortgage Tax Credit Plus

2.5% Your Choice! Down Payment

Assistance

First-Time Homebuyer Program

MTC Mortgage Tax Credit Plus

OHFA Advantage $1,500 or $2,500

2.5% Down Payment Assistance

First-Time Homebuyer Program

GRANTS FOR GRADS

MTC

OHFA Advantage $1,500 or $2,500

Mortgage Tax Credit Plus

2.5 %Your Choice! Down Payment

Assistance

First-Time Homebuyer Program-HEROES

MTC

OHFA Advantage $1,500 or $2,500

Mortgage Tax Credit Plus

27

Please note that the mortgage tax credit

can’t be used in conjunction with

RenovateOhio (FHA 203(k)).

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 530

Instructions for Claiming the Tax Credit

Forms Needed to Claim Credit

Mortgage 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!

33You 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 Credit

Mortgage Not More than the Certified Indebtedness

If 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__________

$100,000

Homebuyer 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

(Using the lenders first mortgage product.)

• Homebuyers must meet OHFA income

and purchase price limits.

• Must be a first-time homebuyer.

Requirements for MTC Plus

• On all homebuyer programs, applicants must meet

OHFA income limits and purchase price limits.

(Listed in Lender Online.)

• Credit Score and DTI Requirements

• Must be an owner occupied 1-4 unit property.

• 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.

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.

50First-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 #1

Someone who has never bought a home.

Example #2

Potential 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.

51

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 Manager

Erin Higgins Ehiggins@ohiohome.org

614-752-7049

Business Development Manager

Tom Walker Twwalker@ohiohome.org

614-466-9920

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.