KHC S HOMEBUYER TAX CREDIT. Life of Loan Tax Credit

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1 KHC S HOMEBUYER TAX CREDIT Life of Loan Tax Credit

2 What has Changed? The Tax Credit amount is 35% (counties of Christian, Hardin, Jefferson and Kenton) or 45% (all other counties) of annual mortgage interest paid in a calendar year. Up to $2,000 per year. Updated Marketing Materials.

4 New 6-page Home Buyer Tax Credit Pamphlet

5 Home Buyer Tax Credit

6 KHC s Homebuyer Tax Credit A Tax Credit of 35% or 45% mortgage interest paid over a year. A dollar-for-dollar reduction of federal tax liability annually. Up to $2000 per year. Life of the Loan Benefit! $200 fee if through KHC s Secondary Market. DAP, Seller or Borrower can pay this fee. $500 fee for other investor s 30 year fixed mortgage.

7 Borrower Eligibility MRB Guidelines Borrower(s) must meet MRB guidelines: First-time homebuyer in non-targeted counties. All homebuyers in targeted counties. Maximum purchase price of $253,800. Must be borrower s primary residence. MRB Gross Annual Household income limit. Based on county and household size.

9 Household Income Based on Household Size and County of Property

10 First Mortgage Options First Mortgage Options: FHA, VA, RHS, Fannie & Freddie Conventional Programs. KHC Secondary Market Program. MRB not eligible. Other Investor Programs. All loan types must be 30 year fixed rate.

11 Tax Credit to Help Qualify Anticipated credit may be used to help qualify the borrower. Purchase price = $140, year fixed interest rate = 4.0%. Mortgage interest paid in first year = $140,000 X 4.0% = $5,600. Tax Credit Amount = $5,600 X 35% = $1,960. $3,640 is tax deductible. Monthly Amount to help qualify = $1,960 / 12 months = $ $ per month may be added as income and borrower may qualify based on agency or investor guidelines. Based on 35% Tax Credit

12 Example Without Tax Credit

13 $5,600 Tax Deduction Schedule A 1040

14 Tax refund of $290 Page

15 Example-With Tax Credit

16 Claiming the Tax Credit Borrowers claim the credit with their annual Federal Tax Return by using Form Borrower to receive a larger tax refund annually. The borrower may also revise their W-4 withholding form with their employer to reflect the anticipated credit, thus increasing their monthly take home pay. Lender should encourage the borrower to consult a tax advisor.

17 Form 8396 Completed every year for Tax Credit $5, % $1, $1, $1,960.00

18 $3,640 Tax Deduction (75% of $5,600 annual mortgage interest) Schedule A 1040

Page 2 1040 Claim the Tax Credit using FORM 8396 on Page 2 of the 1040

19 Page Claim the Tax Credit using FORM 8396 on Page 2 of the 1040 Tax Refund of $2,210! $1920 higher than the $290 without the tax credit

20 Reserving a Tax Credit

21 Reserving Tax Credit 2 Types Tax Credit with a KHC Secondary Market First Mortgage Program. Stand-Alone Tax Credit. First Mortgage through another investor s 30 year fixed mortgage.

22 AUS When attaching a Tax Credit to a KHC First Mortgage you just click one extra box!

23 Reserving Tax Credit Stand-Alone Upload file. Rate Lock Tab. MCC (Non-KHC 1 st Mortgage).

24 Click on Select Product

26 Click on Select Pricing

28 The rate box is fillable since it is not KHC pricing

29 Underwriting Tax Credit

30 Underwriting Tax Credit With KHC First Mortgage If KHC Secondary Market first Mortgage with Tax Credit. For Correspondent/TPO Lenders, KHC will underwrite both first mortgage and tax credit packages simultaneously. Delegated Lenders will underwrite both first mortgage and Tax Credit. May charge an additional $225 UW Tax Credit Review Fee. Once Approved KHC or Delegated Lender will issue a Commitment Letter for First Mortgage and Tax Credit. First Mortgage and Tax Credit close at same time.

31 Underwriting Tax Credit Stand-Alone Correspondent/TPO Lenders submit a Tax Credit compliance package to KHC. Through KHC s Loan Reservation System. KHC underwrites Tax Credit (unless Delegated Lender). Lender notified via of approval, pended, or denied. Once Approved KHC or Delegated Lender will issue a Commitment Letter.

32 Changes Prior to the Tax Credit Closing After the issuance of the KHC Approval (Commitment Letter) and prior to closing, KHC must be notified of any changes to: Household Income. Marital Status. Ownership Interest. Purchase Price or Loan Amount. These changes may affect eligibility for the Tax Credit program.

33 Tax Credit Closing

34 Tax Credit Closing Tax Credit must close when the first mortgage closes. Tax Credit Closing documents print with first mortgage closing documents through KHC s Loan Reservation System. Executed Tax Credit Closing Documents due within 10 calendar days of closing. KHC reviews all documentation and if nothing is outstanding then the Tax Credit Certificate is mailed to borrower.

35 Tax Credit Closing Documents Closing Documents for Tax Credit with KHC First Mortgage. KHC Closed Loan Checklist. Check for $200. Closing Certification Form. Sellers Certification. Closing Documents for Stand-Alone Tax Credit. Tax Credit Closed Loan Checklist. Check for $500. Closing Certification Form. Closing Disclosure Executed Loan Note. Copy of Lender s Approval for the First Mortgage.

36 Closed Loan Checklist for Tax Credit with KHC s Secondary Market First Mortgage Program

37 Stand-Alone Tax Credit Closed Loan Checklist

38 Federal Recapture Tax

39 Federal Recapture Tax The Federal Recapture Tax does apply to the Tax Credit Program. May apply if homebuyer meets ALL 3 triggers: Sells their home within the first 9 years of homeownership and has a net gain on the sale of their home and household income exceeds allowable income limits as adjusted for each year of homeownership. More than 5% raises in income per year. 99% of the time borrower is NOT subject to Recapture Tax.

40 Offering the Tax Credit

41 Offer the Tax Credit on Every Deal! Over-deliver what the borrower expects. Set yourself apart from other competitors. Increase your referral business. Fee to the borrower is recouped in the first year the tax credit is claimed. Based on NAR s 2016 Profile of Homebuyers and Sellers, First Time Home Buyers median tenure in home is 10 years.

$30,000 $25,000 $20,000 $15,000 $10,000 $5,000 $0 1 st Year: $1,960 5 th Year: $9,371 10 th Year: $17,804 15 th Year: $24,749 Sum of Tax Credit Amount Based on Number of Years Tax

42 $30,000 $25,000 $20,000 $15,000 $10,000 $5,000 $0 1 st Year: $1,960 5 th Year: $9, th Year: $17, th Year: $24,749 Sum of Tax Credit Amount Based on Number of Years Tax Credit Claimed Year 1 Year 5 Year 10 Year 15 Sum of Tax Credit Amount Substantial Savings!! $140,000 Loan Amount at 4.0% Fixed Interest Rate Amortized over 30 years 35% Tax Credit

43 Contact Information Cindy Bradley, Mortgage Production Administrator Phone: ext Jamie Swindler, Mortgage Production Administrator Phone: ext Single Family Hotline: ext. 291

44 Thank You

Kentucky Housing Corporation TPO LENDER TRAINING

Kentucky Housing Corporation TPO LENDER TRAINING KHC Funding Source SECONDARY MARKET Lender Relationship Third Party Originator Lender Originate, process, KHC credit and compliance underwrites for ALL