OHFA Point of Contact

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2 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 Question" or Next Module. If you proceed without finishing a module, the course will stop until you complete the previous module. If needed, click "Exit" and go to the previous module to finish it.

3 If you have any questions about OHFA Homeownership Programs and Products please contact Erin Higgins or Tom Walker. Operations Manager Erin Higgins OHFA Point of Contact Business Development Manager Tom Walker

4 Mortgage Tax Credit Program

5 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.

6 $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!

7 The percentage of the annual tax credit you can claim is based on the location and/or status of the property: 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:

8 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.)

9 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 10 Annual Interest x % = Yearly Credit $5,000 20%-Non-Target $1,000 25%-Target 30%-REO 40%-OHFA $1,250 $1,500 $2,000

11 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.

12 Two Options to Apply the Credit 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.

13 Mortgage Tax Credit Basic & Plus 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.

14 Mortgage Tax Credit Basic & Plus Mortgage Tax Credit-Basic Homebuyers must meet OHFA income and purchase price limits. Must be a first-time homebuyer.

15 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.

16 Program 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. 16

17 Mortgage Tax Credit Basic & Plus Fees Mortgage Tax Credit-Basic-$500 per loan paid to OHFA by the lender, which may be assessed to the borrower.

18 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.)

19 MTC Example Realtor Johnny B. Selling made $63,000 in real estate 1099 income. He owes approximately $7,300 in taxes. 19 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!

20 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.)

21 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.

22 How this can help a lender help their homebuyer.

23 Stacking the Programs 23 Mortgage Tax Credit Plus 2.5% Down Payment Assistance First-Time Homebuyer Program

24 MTC Mortgage Tax Credit Plus OHFA Advantage $1,500 or $2, % Your Choice! Down Payment Assistance First-Time Homebuyer Program

25 MTC Mortgage Tax Credit Plus OHFA Advantage $1,500 or $2, % Down Payment Assistance First-Time Homebuyer Program GRANTS FOR GRADS

26 MTC Mortgage Tax Credit Plus OHFA Advantage $1,500 or $2, %Your Choice! Down Payment Assistance First-Time Homebuyer Program-HEROES

27 Please note that the mortgage tax credit can t be used in conjunction with RenovateOhio (FHA 203(k)). 27

28 Recapture Tax No 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.

29 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.

30 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

31 Claiming the Credit at the End of the Tax Year 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.

32 Example $5,000 mortgage interest with a 20% non-target area credit rate =$1,000 credit. This is a dollar for dollar tax credit!

33 You 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

34 Claiming the Credit During the Tax Year 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).

35 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 $100,000 Amount of your mortgage $100,000 = 1 Homebuyer is eligible to claim all of the interest. (Based on the credit rate of 20%, 25%, 30%, or 40%).

36 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. Certified indebtedness amount on your mortgage credit certificate $100,000 Amount of your mortgage $125,000 Homebuyer is eligible to claim 80% of the interest. (Based on the credit rate of 20%, 25%, 30%, or 40%). =.8

37 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.

38 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. Mortgage Tax Credit Rate of 20% $100,000/$125,000 = 80% $7,500 x.80 = $6,000 $6,000 x.20 =$1,200

39 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.

40 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.

41 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 = No more than $2,000 can be carry forwarded. 40%-OHFA

42 Additional OHFA Information Requirements for MTC Basic Requirements for all OHFA Homebuyer Programs OHFA Website Links OHFA Point of Contact

43 MTC Basic Requirements (Using the lenders first mortgage product.) Homebuyers must meet OHFA income and purchase price limits. Must be a first-time homebuyer.

44 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

45 Requirements For All Homebuyer Programs 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.

46 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.

47 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 owneroccupied to receive the Mortgage Tax Credit.)

48 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.

49 Borrower Documentation Divorce paperwork (If applicable). Copy of diploma or official transcript for Grants for Grads. Please see term-sheets for Heroes documentation.

50 First-Time Homebuyer Program 50 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 First-Time Homebuyer Program-Continued 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 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.

52 Please direct your clients to this user friendly website. They can find information on OHFA Homebuyer Programs and the home buying process.

53 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 Business Development Manager Tom Walker

54 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!

55 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.