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This is a cut/paste from another board I often post on. It's food for thought if your a buyer or representing buyers.
The $8k Federal FTHB tax credit is set to expire November 30th. I believe it will be extended, but that's for another discussion later. The County of Orange has it's own program that hasn't been used for some time. Many have complained (rightly so) that they've written offer after offer and not gotten the home or have been outbid. The lower priced homes today are swarmed with buyers. If you can qualify for this program AND are willing to consider a higher price point, you might be able to seek out homes with less competition. Of course if you are able to get the home that you want without overbidding or scaling up your price, this will still work
This is a broad overview of the County of Orange MCC program. The County of Orange's Mortgage Credit Certificate (MCC) is available to buyers meeting the following criteria:
<strong>1) </strong>They must be a First Time Home Buyer. To qualify as a FTHB, you cannot have owned a home or reported mortgage interest on your past three years of Federal Tax Returns.
<strong>2) </strong>Income limits apply: $111,600 per year for family of two. $130,200 for a family of three or more.
<strong>3)</strong> The purchase must be in a participating city: Anaheim, Brea, Buena Park, Cypress, Garden Grove, Irvine, Lake Forest, La Palma, Mission Viejo, Orange, Placentia, Rancho Mission Viejo, Santa Ana, Stanton, Tustin, Westminster, Yorba Linda, and Unincorporated Areas. RSM is not "unincorporated" but Trabuco Canyon is (AKA Portola Hills)
<strong>4) </strong>You have to obtain your FHA / VA / or Conventional loan through a lender that has been approved to use the MCC program.
<strong>5) </strong>There is a maximum purchase price of $864,177 in target areas and $1,056,216 in non-target areas, but given the income restrictions this isn't going to be a problem.
<strong>6) </strong>Please be aware that this is not 100% free money. MCC's have the potential for a "Recapture Tax". Recapture taxes apply in a very, very narrow set of circumstances. Your income has to siginficantly increase - generally 5% per year. You will have to have sold the home in the first 9 years of ownership to possibly have a recapture tax. It's a sliding scale with the 5th year being the worst time to sell. After 9 years no potential tax. Your property value has to increase significantly. All three of these things have to occur to experience a possible tax. Before getting too far into the process, you should review this aspect of the MCC carefully.
A one time application fee paid to the administrator - a bit less than $300. The MCC is up to 15% of the annual mortgage interest paid (IE: $10,000 per year interest paid = $1,500 MCC credit) There is an option to utilize a monthly payroll tax savings for this MCC instead of receiving it once your taxes are done. (IE: $1,500 annual MCC / 12 = $125 per month approximate reduction in your payroll taxes which could translate into $125 more in your take home pay - always consult a tax professional about any tax questions....)
The MCC credit is for the life of the loan and can be re-issued if you refinance.
The Federal $8k FTHB program can overlay the County of Orange MCC program. <strong>Yay for "double dipping"!</strong>
How can this help buyers? I'll assume a 5.0% 30 year fixed rate, using FHA insured financing with 3.5% down. Taxes assume 1.25% and HOA dues assume $250.00. Reasonable and customary loan, title, escrow, and impound accounts used in both examples. APR's have not been calculated. This is not an offer to lend, but merely an example for discussion purposes.
Purchase Price: $350,000 $400,000
Cash to Close: $23,000 $25,500 (+$2,550)
Payment: $2,613 $2,919 (+$337)
Annual Interest: $19,464
MCC Credit: $2,919
MCC as payroll tax reduction: (-$243)
The payment increase from $350,000 to $400,000 is $337 per month. The MCC credit is $243 per month. The net increase in payment for $50,000 in price is $94.00! A $94.00 net, net increase in the monthly payment for $50,000 higher in price is very low when you compare properties in that higher price limit. Yes, there is an increase in the down payment and closing costs, but not a significant one. Some REALTORS give a credit for closing costs to offset that increase now that their multiple offer buyers have become under contract home owners.
<strong>I am in no way encouraging anyone to "over-buy", nor do I want you to over pay for a home.</strong> Every MCC scenario is unique. Not all details on the MCC are listed above. Not everyone can qualify for an MCC. This is simply another way to approach the price issue buyers are facing here in OC that may not have been considered in a while.
My .02c
Soylent Green Is People.
The $8k Federal FTHB tax credit is set to expire November 30th. I believe it will be extended, but that's for another discussion later. The County of Orange has it's own program that hasn't been used for some time. Many have complained (rightly so) that they've written offer after offer and not gotten the home or have been outbid. The lower priced homes today are swarmed with buyers. If you can qualify for this program AND are willing to consider a higher price point, you might be able to seek out homes with less competition. Of course if you are able to get the home that you want without overbidding or scaling up your price, this will still work
This is a broad overview of the County of Orange MCC program. The County of Orange's Mortgage Credit Certificate (MCC) is available to buyers meeting the following criteria:
<strong>1) </strong>They must be a First Time Home Buyer. To qualify as a FTHB, you cannot have owned a home or reported mortgage interest on your past three years of Federal Tax Returns.
<strong>2) </strong>Income limits apply: $111,600 per year for family of two. $130,200 for a family of three or more.
<strong>3)</strong> The purchase must be in a participating city: Anaheim, Brea, Buena Park, Cypress, Garden Grove, Irvine, Lake Forest, La Palma, Mission Viejo, Orange, Placentia, Rancho Mission Viejo, Santa Ana, Stanton, Tustin, Westminster, Yorba Linda, and Unincorporated Areas. RSM is not "unincorporated" but Trabuco Canyon is (AKA Portola Hills)
<strong>4) </strong>You have to obtain your FHA / VA / or Conventional loan through a lender that has been approved to use the MCC program.
<strong>5) </strong>There is a maximum purchase price of $864,177 in target areas and $1,056,216 in non-target areas, but given the income restrictions this isn't going to be a problem.
<strong>6) </strong>Please be aware that this is not 100% free money. MCC's have the potential for a "Recapture Tax". Recapture taxes apply in a very, very narrow set of circumstances. Your income has to siginficantly increase - generally 5% per year. You will have to have sold the home in the first 9 years of ownership to possibly have a recapture tax. It's a sliding scale with the 5th year being the worst time to sell. After 9 years no potential tax. Your property value has to increase significantly. All three of these things have to occur to experience a possible tax. Before getting too far into the process, you should review this aspect of the MCC carefully.
A one time application fee paid to the administrator - a bit less than $300. The MCC is up to 15% of the annual mortgage interest paid (IE: $10,000 per year interest paid = $1,500 MCC credit) There is an option to utilize a monthly payroll tax savings for this MCC instead of receiving it once your taxes are done. (IE: $1,500 annual MCC / 12 = $125 per month approximate reduction in your payroll taxes which could translate into $125 more in your take home pay - always consult a tax professional about any tax questions....)
The MCC credit is for the life of the loan and can be re-issued if you refinance.
The Federal $8k FTHB program can overlay the County of Orange MCC program. <strong>Yay for "double dipping"!</strong>
How can this help buyers? I'll assume a 5.0% 30 year fixed rate, using FHA insured financing with 3.5% down. Taxes assume 1.25% and HOA dues assume $250.00. Reasonable and customary loan, title, escrow, and impound accounts used in both examples. APR's have not been calculated. This is not an offer to lend, but merely an example for discussion purposes.
Purchase Price: $350,000 $400,000
Cash to Close: $23,000 $25,500 (+$2,550)
Payment: $2,613 $2,919 (+$337)
Annual Interest: $19,464
MCC Credit: $2,919
MCC as payroll tax reduction: (-$243)
The payment increase from $350,000 to $400,000 is $337 per month. The MCC credit is $243 per month. The net increase in payment for $50,000 in price is $94.00! A $94.00 net, net increase in the monthly payment for $50,000 higher in price is very low when you compare properties in that higher price limit. Yes, there is an increase in the down payment and closing costs, but not a significant one. Some REALTORS give a credit for closing costs to offset that increase now that their multiple offer buyers have become under contract home owners.
<strong>I am in no way encouraging anyone to "over-buy", nor do I want you to over pay for a home.</strong> Every MCC scenario is unique. Not all details on the MCC are listed above. Not everyone can qualify for an MCC. This is simply another way to approach the price issue buyers are facing here in OC that may not have been considered in a while.
My .02c
Soylent Green Is People.