Save Money With The Mortgage Tax Credit Certificate

The Mortgage Tax Credit Certificate (MTC) is offered through the State of Ohio Housing Finance Agency (OHFA). It can reduce a first-time home buyer's tax liability by allowing them to claim an annual federal tax credit for their mortgage interest. As long as a home buyer meets the qualifications for the MTC program, they can deduct anywhere from 20% to 40% of their mortgage interest annually, up to $2,000. The mortgage tax credit deduction is a dollar for dollar savings, not just a deduction. The borrower's remaining mortgage interest can still be deducted on their federal tax return as an itemized deduction (as long as they qualify for the deduction). The qualifications for this program include: household income restrictions, sales price limitations, and they cannot have had any home ownership in the past three years. The income and sales price restrictions can vary depending on the location of the property.

The following is an example of the tax benefit of the MTC program. This example is based on a $100,000 mortgage with a 4% 30 year fixed interest rate. The interest expense would be roughly $4,000 for the first year. Let's assume that the buyer qualifies for a 30% mortgage tax credit. Based on this scenario, the borrower would qualify for a credit of $1,200 (30% of the $4000 mortgage interest expense).

In the above example, the home buyer would have an additional savings of $1,200 the first year of homeownership. The home buyer will remain eligible for the mortgage tax credit for the remainder of their mortgage as long as they are within the income limitations of the program and the house remains owner occupied. As an additional benefit to the MTC program, the mortgage lender can use the monthly savings as part of the home buyer's income to qualify for a mortgage. The drawback to this program is the recapture tax. If the home buyer rents out the property or the house sold for a profit, a recapture tax can be charged. Although, the State of Ohio has a reimbursement program to assistance the home buyer, if the recapture tax is levied against them.

To qualify for this program, home buyers must meet OHFA's Mortgage Tax Credit product guidelines and any income and purchase price restrictions. These limits vary by county and can be found on OHFA's website. Home buyer(s) must also meet one of the following requirements to be eligible for the MTC program:

• First-Time Home Buyer Status - Anyone who has not owned or had an ownership interest in a primary residence in the last three years.

• Purchase a Dwelling in a Target Area - The U.S. Department of Housing and Urban Development (HUD) has designated economically distressed areas that are eligible for the mortgage tax credit regardless of past home ownership.

• Veteran - All honorably discharged veterans.

The property must be the home buyer's primary residence for every year they claim the MTC or they will lose their eligibility to claim the mortgage credit. This program can be used in combination with any of the following mortgage types: conventional, FHA, VA, or USDA. The mortgage must also be a fixed-rate loan.

If you are considering the MTC program or any of the other home buyer programs offered by the State of Ohio, you should contact OHFA at 888-362-6432 or a participating mortgage lender to answer any questions you may have regarding their programs and to find out which program is the most beneficial to you and your financial situation. It is also in your best interest to contact your CPA or tax preparer to determine any potential tax ramifications that you may encounter by participating in the MTC program. For additional details regarding this program, please refer to the IRS Publication 530.

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