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Mortgage Credit Certificate Program (MCC)
Sonoma
Provides assistance to first time homebuyers for the purchase
of owner-occupied single family homes, duplexes, townhomes
and condominiums.
The MCC program can help you qualify for a mortgage loan by
increasing your buying power of your current income.
A Mortgage Credit Certificate provides an IRS federal income
tax credit. The federal income tax advantage provided by MCC
for a home buyer who keeps the same house in Sonoma will be
equal to 15% of the mortgage interest paid annually on a dollar
for dollar basis. This means the total of 15% of your mortgage
interest is deducted directly from your annual tax debt. The
remaining 85% of your mortgage interest is taken as a deduction
from your gross income in the usual manner an MCC reduces
the amount of federal income tax owed, thus increasing the
qualified home buyer's spendable income to help qualify for
a loan or to make the monthly mortgage payments
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Effective interest
rates with & without an MCC
|
|
Without MCC
|
With MCC
|
| First Mortgage Amount |
$250,000 |
$250,000 |
| Mortgage Interest Rate |
7% |
7% |
| Term |
30 years |
30 years |
| Monthly Mortgage Payment-Principal |
$205 |
$205 |
| Interest |
$1,458 |
$1,458 |
| Mortgage Credit Certificate
Rate |
N/A |
15% |
| Monthly Credit Amount |
N/A |
$219 |
"Effective" Monthly
Mortgage
Payment |
$1,663 |
$1,444 |
| "Effective" Interest
Rate |
7% |
5.66% |
Effect of a Mortgage Credit
Certificate
|
Example
|
| First Mortgage Loan Amount |
$185,000 |
| First Mortgage Interest Rate |
7.5% |
| Mortgage Interest Paid (1st year) |
$13,875 |
| Mortgage Credit Certificate Rate |
15% |
Annual MCC Amount (Line 3 x Line 4) |
$2,081 |
| Monthly Credit Amount (Line 5 +12) |
$173 |
Note that the MCC program applies only to
the borrower's federal tax liability. State taxes are not
affected
Comparison of a Tax Credit
to Tax Deduction
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Example
|
|
MCC Tax Credit |
Tax Deduction |
| Total Income |
$40,000 |
$40,000 |
| Mortgage interest Deduction |
($11,794) |
($13,875) |
| Less Standard
Deductions |
($9,800) |
($9,800) |
| Other Deductions |
($2,000) |
($2,000 |
Total Taxable Income |
$16,406 |
$14,325 |
Federal Income Tax Liability |
$2,496 |
$2,123 |
| MCC Tax Credit |
($2,081) |
$0 |
| Taxes Paid |
$415 |
$2,123 |
The borrower may adjust his or
her federal income tax withholding to receive the benefit
from the credit on a monthly basis. In this case, the home
buyer will refile a W-4 form with his or her employer reflecting
the MCC credit.
Sonoma Income Requirement (15%
tax credit)
| 1 person |
$35,000 |
2 persons |
$40,600 |
| 3 persons |
$45,650 |
4 persons |
$50,700 |
| 5 persons |
$54,800 |
6 persons |
$58,850 |
| 7 persons |
$62,900 |
8 persons |
$66,950 |
| 9 persons |
$71,250 |
10 persons |
$72,910 |
Sonoma Income Requirement (10%
tax credit)
| 1 or 2 person (s) |
$63,000 |
| 3 or more persons |
$72,910 |
Sonoma Purchase Price Requirements
| New Units (never previously
occupied) |
$288,400 |
| Existing units (resale) |
$275,000 |
First-Time Home buyer Requirements
Except in a Targeted Area, the MCC Applicant cannot have had
an ownership interest in a Principal Residence at any time
in the last 3 years
RECAPTURE
Provision for potential recapture. If you sell your home within
the first nine years after purchase, there is a provision
for the potential recapture
of a portion of the MCC credit you've received. The maximum
recapture tax is the lesser of: 6.25% of the largest principal
amount of the mortgage loan or 50% of the gain on the sale
of the home.
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