RPF0305-Mortgage_Credit_Certificates
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00:00:29.800 | You know that old debate that comes into play when we talk about the value of mortgages,
00:00:39.080 | the whole thing of, "Well, if you have interest on a mortgage, it's not fully deductible.
00:00:43.280 | It's just a deduction.
00:00:44.280 | It's not a credit."
00:00:45.680 | You know that argument?
00:00:46.680 | Well, let's add some fuel to the fire today by busting that one just a little bit.
00:00:54.680 | Can't do it completely.
00:00:56.320 | But today, let's talk about how you can actually get a full tax credit for some of your mortgage
00:01:03.240 | interest.
00:01:20.160 | Welcome to the Radical Personal Finance Podcast.
00:01:22.040 | My name is Joshua Sheets and I'm your host.
00:01:23.640 | Thank you for being with me today.
00:01:25.100 | Today we talk about mortgage credit certificates.
00:01:27.040 | You know, I recently sold my house and this was one of the ones that really frustrated
00:01:31.320 | me.
00:01:32.320 | It frustrated me that I never found out about this one.
00:01:33.720 | It cost me a couple thousand bucks a year.
00:01:36.920 | So if you own a house, prepare to be frustrated.
00:01:40.000 | But if you don't own a house, pay attention to today's show and I may be able to save
00:01:43.600 | you a couple thousand bucks a year.
00:01:52.080 | So glad that you are here with me on Radical Personal Finance.
00:01:54.320 | I try to keep the show interesting and engaging on a daily basis.
00:01:58.120 | So I try very hard to – well, I try to keep the content varied.
00:02:03.360 | And I've slacked a little bit on the technical content in the past few weeks.
00:02:07.440 | You'll have to forgive me for that.
00:02:09.160 | It's just I haven't been able to get it done.
00:02:11.080 | It's coming back.
00:02:12.080 | Today we're going to dip our toes into the technical content by talking about mortgage
00:02:15.340 | credit certificates.
00:02:16.600 | Now if you're one of those who gets intimidated by the discussion of technical financial planning
00:02:21.840 | content, don't worry.
00:02:24.640 | The way I'm going to do this show is first I'm going to lay out for you the benefit
00:02:28.560 | of what a mortgage credit certificate is.
00:02:33.000 | Basically it's a straight tax – I can do this in two sentences.
00:02:35.880 | A mortgage credit certificate is a straight tax credit where a certain amount of your
00:02:40.440 | mortgage interest up to 2,000 bucks is directly, directly reducing your income tax liability.
00:02:49.760 | So what you can do is instead of sending the US federal government $2,000, up to $2,000,
00:02:54.960 | you can just simply send that to your mortgage company in interest.
00:02:57.720 | That's why I led with my little teaser talking about how this is actually a direct mortgage
00:03:02.360 | credit.
00:03:03.360 | It's not a deduction.
00:03:04.360 | It's not subject to whatever your current tax rate is.
00:03:07.600 | It's an actual mortgage credit.
00:03:10.400 | And it's one of the coolest programs that I never found out about before buying a house.
00:03:14.280 | So I'm going to give you – what I'm going to do is I'm going to give you up front
00:03:16.760 | the big picture of what it is like I just did.
00:03:18.760 | I'm going to tell you in today's show some of the major details and then for those
00:03:23.120 | of you who are very detail-oriented, I'll give you some of the little specifics and
00:03:27.120 | restrictions that you might need to know.
00:03:29.600 | So that's the course of today's show.
00:03:31.120 | So I always try to give a little bit of financial value in my show and today it could be $2,000
00:03:36.800 | of savings on your taxes, which to give you some incentive and some reason to do that,
00:03:41.720 | let's do some quick math.
00:03:42.840 | I always like to make things relevant.
00:03:47.400 | And here's what I want you to know.
00:03:48.400 | When you're paying attention – so key tip number one, when you take a monthly number
00:03:52.440 | or an annual number of savings, always take that and immediately convert it into your
00:03:56.520 | head of how much money you would be able to avoid saving if you were able to reduce that
00:04:05.200 | expense.
00:04:06.200 | So what I'm going to do is since I'm going to save you up to $2,000 today of tax savings,
00:04:14.080 | let's multiply 2,000 times 25.
00:04:17.080 | This is a little inverse trick of the 4% rule.
00:04:19.720 | So we take any kind of annual expenditure, we multiply it by 25 and that's how much
00:04:23.440 | money we would need in financial independence to cover that income.
00:04:27.000 | So $2,000 times 25 equals $50,000.
00:04:30.880 | And so with that $50,000, I'm going to save you – you don't have to save – I'm
00:04:34.840 | going to save it to you in that you don't have to save the money to be financially independent.
00:04:40.440 | So real financial value here.
00:04:42.400 | Before I get to all the details to explain how this works and how you can apply this
00:04:45.600 | to your life, I want to take care of sponsors.
00:04:47.760 | Two sponsors today.
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00:04:50.560 | Paladin Registry is my solution that I went out and found for you guys when you were asking
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00:05:07.320 | find a good financial advisor.
00:05:09.040 | I had this in a personal phone call with a family member of mine who their husband had
00:05:13.840 | passed away several years ago and they called me up and were asking me, "How do I find
00:05:17.280 | a good financial advisor?"
00:05:18.280 | Well, I'll do that show maybe tomorrow.
00:05:20.920 | Who knows?
00:05:21.920 | But I'll do that show for you, some of the tips that I gave her about how to actually
00:05:25.560 | work with a financial advisor.
00:05:27.040 | But what you should know is that to this family member, I specifically said you need to start
00:05:33.000 | at RadicalPersonalFinance.com/Paladin.
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00:05:41.520 | This is the best place to start.
00:05:42.800 | Now, just because you go to RadicalPersonalFinance.com/Paladin doesn't mean that you're automatically
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00:05:50.080 | I hope you do, but it's not necessarily automatic.
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00:06:12.000 | Now, it's up to you to find the right personality fit.
00:06:14.480 | It's up to you to find the advisor who speaks your language.
00:06:18.040 | But if you're looking for a good financial advisor, start your search at RadicalPersonalFinance.com/Paladin.
00:06:23.320 | If you type that in a web browser, what it will do is it will flip you forward to a landing
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00:06:32.140 | to Paladin and they will put some advisors in contact with you.
00:06:36.560 | So RadicalPersonalFinance.com/Paladin.
00:06:38.800 | Very quickly, sponsor day number two today is Trade King.
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00:07:41.260 | All right, mortgage credit certificates.
00:07:43.900 | Let's repeat again what the value is of a mortgage credit certificate.
00:07:50.740 | First you should know that the mortgage credit certificate program is state specific.
00:07:54.920 | So the state specific nature of it means that I'm going to talk about Florida, but you
00:08:01.100 | will have to research this for your specific state.
00:08:04.220 | I'm not sure that all states are currently operating these programs and the rules are
00:08:10.740 | different with each state.
00:08:12.420 | I was not able to verify and I didn't take the time to go through and read all of the
00:08:16.140 | data from all 50 states.
00:08:18.300 | However, this program was enacted under a 1984 federal tax law.
00:08:23.900 | So that is available on a federal basis.
00:08:26.640 | This applies to your federal income taxes.
00:08:29.400 | So it's available on a federal basis, but your state might have different rules than
00:08:32.900 | my state.
00:08:33.900 | So I'm going to use Florida.
00:08:34.900 | I have a lot of friends in Florida, so hopefully this will benefit my Florida friends.
00:08:39.800 | But you need to check out the details in your state.
00:08:42.980 | So in Florida, I'm just going to read right from the Florida Housing Mortgage Credit Certificate
00:08:49.060 | Frequently Asked Questions.
00:08:50.540 | A Florida housing mortgage credit certificate allows the home buyer to claim a tax credit
00:08:56.780 | for 50% of the mortgage interest paid per year, capped at $2,000 annually.
00:09:04.380 | It is a dollar-for-dollar reduction against their federal tax liability.
00:09:13.620 | So define some terms.
00:09:15.580 | A tax credit.
00:09:16.860 | We always know a tax credit is probably going to be more valuable than a deduction, especially
00:09:22.220 | when it's a tax credit that's specifically applicable to the tax liability that you owe.
00:09:29.220 | The way that your normal mortgage interest deduction works is like this.
00:09:33.960 | Let's say that you have – you're going through and you're putting together your
00:09:38.500 | deductions.
00:09:39.500 | Assume for a moment that you're going to itemize your deductions.
00:09:42.900 | That's one of the things.
00:09:43.900 | So you list out what are all of your different itemized deductions.
00:09:47.180 | Might be – let's just say focus with your mortgage interest.
00:09:50.940 | Assume in a moment that you have a mortgage payment of $1,000 a month.
00:09:54.580 | That's $12,000 per year.
00:09:56.220 | Assume of your $12,000 per year mortgage payment, assume half of that, $6,000, is your interest
00:10:05.940 | that you're paying on the loan.
00:10:07.980 | So you owe – you have $12,000 of mortgage payment, $6,000 of that is interest.
00:10:13.100 | If you're going to itemize your deductions, which most people don't, but if you're
00:10:16.580 | going to itemize your deductions, you report that income as a – that mortgage interest
00:10:22.620 | expense as a deduction amount.
00:10:26.620 | What it allows you to do is it allows you to offset $6,000 of your income.
00:10:32.940 | Now this is where – when I teased you at the front with talking about the difference
00:10:35.500 | between a credit and a deduction, this is why I'm teasing it because there is no 100%
00:10:41.060 | deduction for interest normally except what I'm telling you today.
00:10:44.560 | There is no deduction like that.
00:10:46.080 | So normally the savings, assume for easy math, you're in a 25% effective tax rate.
00:10:51.700 | So if you knock $6,000 off of your – $6,000 off of your income with a deduction, what
00:10:58.180 | it's actually doing is saving you $1,500 of federal income taxes.
00:11:04.420 | This is why it's so important to know that it's generally, from a tax savings perspective,
00:11:12.360 | it can be just as good of an idea to send the money to your mortgage company as it is
00:11:20.500 | for you to send it to the government.
00:11:22.300 | You could – it's a better deal for you to spend – I think I got mixed up there.
00:11:26.660 | I'm broadcasting the show on Facebook Live at the moment, which is kind of interesting
00:11:30.940 | and so that was slightly distracting to me.
00:11:32.980 | It's a new experience for you.
00:11:34.420 | If you'd like to see me, I'm going to start doing this more and more.
00:11:37.500 | Just like the Radical Personal Finance Facebook page.
00:11:39.820 | I feel like I got a little bit tongue-tied there.
00:11:42.020 | I bet the live audience is laughing at me here.
00:11:45.700 | But the $1,500 that you – you're sending the mortgage company $6,000 so that you can
00:11:51.260 | avoid sending the federal government $1,500.
00:11:53.740 | That is the item that's often laid out.
00:11:57.260 | But with this mortgage credit certificate, it's a direct tax credit.
00:12:00.400 | So what you have an opportunity here is you can avoid – you can send $2,000 to the mortgage
00:12:06.100 | company and that's a direct $2,000 reduction from what you would be sending to the federal
00:12:11.820 | government.
00:12:12.820 | So first, the Florida mortgage credit certificate is capped at $2,000 and it's eligible for
00:12:16.820 | 50 percent of the mortgage interest paid.
00:12:19.580 | So there's nothing extra that you have to do.
00:12:22.420 | Now, who's qualified and who's eligible?
00:12:25.060 | This is one of the things that's really useful.
00:12:26.820 | So the idea is that the mortgage credit certificate program is supposed to be helping those who
00:12:31.900 | have low incomes buy houses.
00:12:35.060 | But low income is a relative term.
00:12:38.260 | The way that I found out about this was a few months after I had bought a house back
00:12:41.780 | in 2013, closed on December 31, 2012.
00:12:45.540 | I had to get my homesteading tax exemption done.
00:12:48.500 | My wife and I wanted to get that tax exemption done.
00:12:52.600 | So we went and we took a mattress there to the house and we moved a mattress and a few
00:12:57.060 | boxes and slept in a mattress on the floor so we could homestead the property for the
00:13:00.580 | following calendar year.
00:13:02.540 | But a few months after I'd moved in, I found out about the idea of a mortgage credit certificate
00:13:06.060 | program and I researched it.
00:13:07.620 | I found out that I would have been able to qualify under the terms of that program.
00:13:12.420 | Now the income limitations are not onerous.
00:13:14.740 | I'm going to tell you about Palm Beach County where I live, but in Palm Beach County, if
00:13:19.340 | you have a one to two person household, you need to make less than $78,720 per year.
00:13:25.540 | Or if you have a three plus person household, you need to make less than $91,840 per year.
00:13:32.420 | That's pretty reasonable numbers.
00:13:35.300 | I mean $90,000 a year is almost two times the median income.
00:13:39.140 | It's not poverty living.
00:13:41.260 | So for many of you, this can qualify, especially for many of you like me.
00:13:44.380 | You have a business.
00:13:45.380 | It's only going to be based upon your net profit from your business.
00:13:47.860 | So you can still generate more income and as you're building your business, it's only
00:13:51.700 | going to be based upon the net profit that you actually reported on.
00:13:54.540 | What about the size of the house?
00:13:55.900 | On Palm Beach County, they have two different tiers where I live.
00:13:59.300 | In Palm Beach County, for a non-targeted area, you can purchase a house that's valued at
00:14:05.180 | up to $337,500.
00:14:08.800 | If you live in a targeted area, and each state has these different definitions.
00:14:12.920 | In my state, it's based upon, you can look it up, it's based upon some census tracts
00:14:17.740 | based upon the US census.
00:14:19.300 | If you live in a targeted area, you can buy a house that's up to $412,500 of cost.
00:14:27.720 | So when I started looking at that, I realized, wait, I qualified income-wise and I qualified
00:14:33.980 | value of my house-wise.
00:14:34.980 | I called up literally the head of the Florida Housing Administration and I wound up speaking
00:14:43.340 | to them in the office and I said, "Can I do this retroactively?"
00:14:46.900 | I found out that no, it's not possible to do retroactively.
00:14:50.760 | So this whole program, if you're going to get this tax credit, you've got to know about
00:14:53.440 | it in advance.
00:14:54.940 | You've got to apply for it and get approved in advance.
00:14:59.820 | And I'll talk about that process.
00:15:00.820 | I'm going to add a little bit of time to the process, but it's not very onerous.
00:15:06.600 | So for many of you, that's what you need to know.
00:15:08.380 | Just research it for your state.
00:15:10.180 | Mortgage credit certificate program save you up to a couple thousand bucks.
00:15:14.380 | As long as you live in that house and it's your primary residence, and as long as you're
00:15:18.940 | paying mortgage interest on your loan, this credit will be in force and it can be extremely
00:15:27.100 | valuable for you.
00:15:28.940 | All right.
00:15:30.140 | So let's dig a little bit deeper now.
00:15:32.140 | And if you're the kind of person who just needs that broad overview in the first 15
00:15:35.860 | minutes here, I provided that for you.
00:15:38.140 | Let's go medium level and then we'll go to IRS Publication 530 for those of you who are
00:15:42.140 | hardcore at the end and give you a couple of tips here.
00:15:45.820 | I'm just going to read a couple of paragraphs from the introduction to the Florida Mortgage
00:15:49.940 | Credit Certificate Program, and that'll tell you what they are and how it works.
00:15:56.140 | Let's do some example calculations here.
00:15:59.780 | Mortgage credit certificates were authorized by Congress in the 1984 Tax Reform Act.
00:16:04.020 | So these things have been around for a long time.
00:16:05.940 | And that was what I found so personally frustrating in buying a house.
00:16:09.060 | It was my mortgage broker never told me about it.
00:16:11.500 | My real estate agent never told me about it.
00:16:13.740 | Nobody told me about it.
00:16:14.740 | I had to find out about it myself and I found out about it too late.
00:16:18.140 | So the right time to find out about this is before you've bought a house.
00:16:22.060 | A mortgage credit certificate is a nonrefundable federal income tax credit.
00:16:27.780 | For those of you who aren't tax wonks, let me define that word nonrefundable.
00:16:32.040 | What that means is you cannot use this credit to generate more of a credit than the tax
00:16:39.580 | that you owe.
00:16:40.660 | There are some tax credits that are refundable and there are some that aren't.
00:16:44.420 | The most notable one that's often refundable would be the earned income tax credit.
00:16:49.640 | If you qualify for the earned income tax credit because you have low income but you still
00:16:53.280 | qualify into that program, you can get more money back from the federal government than
00:16:57.460 | you ever paid in in federal income taxes.
00:17:00.440 | So that's what they call a refundable credit.
00:17:02.540 | So it's possible to make more money than you ever paid in taxes.
00:17:07.580 | This is a nonrefundable credit, which means that you either get up to a $2,000 credit
00:17:13.940 | or up to the maximum amount of your tax liability.
00:17:16.980 | If you only had $1,000 of tax liability, you lose the last $1,000 of the benefit.
00:17:23.380 | And those of you who are tax wonks, again, will automatically say, "Is there a carryover?
00:17:26.980 | I don't believe there's a carryover for this tax credit."
00:17:29.800 | The mortgage credit certificate reduces an eligible borrower's federal income taxes and
00:17:34.220 | in effect creates additional income for the borrower to use in making mortgage payments.
00:17:41.100 | That's the key point of this whole thing.
00:17:42.940 | It is calculated in advance and this can help if you are having trouble qualifying for a
00:17:48.500 | mortgage based upon income limits, based upon the amount of the mortgage.
00:17:52.460 | This might help you to be able to purchase a little bit of a bigger house to borrow more
00:17:56.060 | money than otherwise would be eligible to your situation.
00:18:02.180 | That's the whole point of this is to help lower income people borrow more money for
00:18:05.580 | bigger houses.
00:18:07.500 | Florida Housing offers a mortgage credit certificate with a 50% tax credit amount.
00:18:13.020 | Your state may vary.
00:18:14.020 | I've seen some states with 20%, some states with less.
00:18:16.820 | Check your state out and see what the limitations are on your state.
00:18:20.180 | But what that 50% tax credit amount means, it means that up to 50% of the interest that
00:18:27.460 | you're paying on a mortgage is eligible for this credit.
00:18:32.700 | Homeowners with the credit are allowed to use 50% of the annual mortgage interest up
00:18:35.720 | to a maximum of $2,000 as a direct federal tax credit resulting in a dollar for dollar
00:18:41.220 | reduction of their annual federal income tax liability.
00:18:44.380 | This is the awesome part.
00:18:46.240 | The remainder of the homeowner's annual mortgage interest will continue to qualify as an itemized
00:18:52.860 | tax deduction for federal income tax purposes.
00:18:59.400 | You get that?
00:19:01.180 | So what's really cool about this credit is if you have a mortgage that has a lot of interest
00:19:05.340 | on it, you can still use the rest of the mortgage interest that wasn't able to be used under
00:19:12.060 | the terms of this credit.
00:19:13.420 | You can still use all of that as itemizable deductible mortgage interest.
00:19:19.780 | Or if that doesn't benefit you, you can still use your standard deduction just like most
00:19:25.700 | people do even though they have mortgages.
00:19:29.860 | Most people still use the standard deduction.
00:19:33.100 | Please note that the maximum credit allowed in any year is the lesser of 50% of the annual
00:19:37.580 | mortgage interest or $2,000.
00:19:40.140 | So let's go through one of their examples they give right here in the Florida documents.
00:19:43.440 | For example, a borrower with a loan amount of $100,000 at an interest rate of 4% for
00:19:48.340 | 30 years pays approximately $4,000 of interest in the first year of the mortgage loan.
00:19:53.760 | With a 50% mortgage credit certificate, this borrower receives a direct federal income
00:19:58.520 | tax credit of $2,000, 50% times $4,000.
00:20:03.400 | And the borrower treats the remaining $2,000 of mortgage interest paid as an itemized tax
00:20:09.180 | deduction.
00:20:10.540 | Under another example, a borrower with a loan amount of $100,000 at an interest rate of
00:20:14.580 | 5% for 30 years pays approximately $5,000 of interest in the first year of the mortgage
00:20:19.940 | loan.
00:20:21.060 | With a 50% mortgage credit certificate, this borrower receives a direct federal income
00:20:25.740 | tax credit of $2,000, which is a lesser of 50% times $5,000, $2,500, and $2,000.
00:20:33.620 | The borrower treats the remaining $3,000 of mortgage interest paid as an itemized tax
00:20:38.960 | deduction.
00:20:40.320 | The annual benefit to the borrower will be the lesser of the credit amount or the amount
00:20:44.160 | of federal taxes owed after all other credits and deductions have been taken.
00:20:49.040 | The benefit cannot exceed the borrower's federal income tax liability for the year.
00:20:53.260 | However, it is the carry forward.
00:20:55.200 | Here we go.
00:20:56.200 | I was wrong.
00:20:57.200 | However, if the borrower is unable to use all of the maximum available MCC tax credit
00:21:02.320 | in any year, the unused portion of the tax credit can be carried forward three tax years
00:21:08.940 | or until used, whichever comes first.
00:21:13.060 | The MCC will provide the borrower with a federal tax credit for the life of the mortgage loan
00:21:17.840 | as long as the borrower occupies the property as his principal residence.
00:21:22.720 | Should the borrower cease to occupy the property as his primary principal residence or should
00:21:27.180 | the borrower refinance the mortgage loan related to the MCC, the MCC is revoked.
00:21:33.480 | So this can be very useful to you and I'm glad that I found that little statement there.
00:21:38.600 | I had read it earlier, but I apologize for getting confused.
00:21:41.120 | When you can carry this forward for three years, this is an extremely valuable tax credit.
00:21:45.800 | Let me not overstate it.
00:21:47.840 | It's only a $2,000 tax credit.
00:21:49.720 | This is a potentially valuable tax credit, not extremely, but potentially valuable for
00:21:53.960 | some people, some of you to use in your property.
00:21:59.080 | The key is, is it available?
00:22:01.600 | On the Florida documents, they update this every year and they say the program will run
00:22:05.080 | through December 31, 2016 or until such time as all allocation has been expended.
00:22:11.200 | So depending on your state and your state's documents and your state's budget, you will
00:22:17.240 | have to dig into this and find out if they still have funding available.
00:22:25.920 | When I spoke with the guy who was the head of the Florida Housing Administration a couple
00:22:29.240 | years ago, he said they were having a lot of trouble advertising it.
00:22:35.720 | He couldn't get people to pay attention to the program.
00:22:37.480 | So chances are it's possible that in your state this might still be available.
00:22:41.880 | A couple of comments on borrower income before we dig too deep into the weeds.
00:22:48.760 | First thing you should know is I think these borrower income limits are relatively generous.
00:22:53.120 | Again, in Palm Beach County where I live in Florida, and they're based upon the county,
00:22:57.320 | but in Palm Beach County where I live, which is a higher cost of living county, it's either
00:23:02.400 | $80,000 a year for a one to two-person household or $91,000, $92,000 a year for a three-plus
00:23:08.560 | person household.
00:23:09.720 | I think that's – I wouldn't consider that to be low income.
00:23:13.520 | Other counties that have lower earnings, the lowest that I see right off the bat is there
00:23:17.680 | are some counties that are as low as say $57,000 of income or $66,000 depending on which option
00:23:25.920 | there is.
00:23:27.120 | So the important thing is this is – some income sources are counted in this that aren't
00:23:33.760 | often counted in other types of calculations, but your assets are not counted.
00:23:42.040 | These are always the two little tricks that I teach here on Radical Personal Finance is
00:23:47.040 | many programs, especially government programs, are calculated based upon income.
00:23:53.360 | If you have developed the skill of frugality and you're able to live a really great lifestyle
00:23:58.880 | on a low amount of income, often you can qualify for programs based upon your income even if
00:24:07.920 | you have hundreds of thousands or millions of dollars of assets.
00:24:11.080 | It's one of the very valuable things to pay attention to.
00:24:14.280 | The second thing is when is it's only based upon your gross income, based upon your personal
00:24:18.520 | income.
00:24:19.520 | So when you combine the flexibility of having control over your expenses and being able
00:24:24.720 | to qualify for programs based upon income and when you combine that with control over
00:24:29.320 | your income through a business, then you wind up being able to take advantage of these programs
00:24:35.600 | from time to time as you are able to find them.
00:24:39.160 | Now you will have to read the requirements in your state.
00:24:43.340 | You have to report your income.
00:24:45.200 | You have to do it on your tax returns and you have to demonstrate that to the lender
00:24:49.380 | at the time, they're required to look into all of your different income sources.
00:24:54.440 | I'm going to read that list to you because it's valuable for you to know at least the
00:24:58.200 | Florida list.
00:24:59.200 | So you have to report all of your income.
00:25:03.920 | But as you and I both know, in a business you can choose when you make your capital
00:25:07.680 | investments.
00:25:08.920 | So if you're planning to buy a home and you'd like to take advantage of this, you might
00:25:12.100 | choose to make your capital investments in your business at an advantageous time so that
00:25:17.280 | that reflects in the lower income when you need it to qualify for a program like this.
00:25:24.320 | So let's go through a couple of details of the state of Florida.
00:25:26.880 | In Florida, some of the unique things are to qualify.
00:25:31.440 | Number one, you must possess an ownership interest in and occupy the residence as a
00:25:36.440 | principal residence within 60 days after loan closing.
00:25:39.720 | No rental properties.
00:25:41.160 | The borrower must notify the lender and Florida Housing if he or she ceases to occupy the
00:25:45.400 | property as the primary residence.
00:25:47.760 | At that time, the MCC will be revoked and the borrower will no longer be permitted to
00:25:52.000 | claim the federal tax credit.
00:25:54.280 | The borrower must not have owned a principal residence located within or outside the state
00:26:00.120 | during the three-year period ending on the date the warranty deed is executed.
00:26:06.160 | A mobile or manufactured home, new or existing, whether or not on a permanent foundation,
00:26:10.800 | meets this definition of a principal residence.
00:26:13.720 | So when I decided to sell my house, unless I come across the deal of the century, which
00:26:17.640 | is just so great that I'll ignore this, I determined that I wouldn't own a house for
00:26:21.280 | at least three years.
00:26:22.320 | So that we'll see.
00:26:23.320 | Who knows?
00:26:24.320 | But I might want to buy another house.
00:26:26.360 | If I buy another house, I'll try to get this program in place.
00:26:28.720 | But you can't have owned a house within the past three years.
00:26:32.000 | There are two exceptions to that.
00:26:34.600 | There are two exceptions to the three-year non-ownership requirement.
00:26:37.640 | The residence that's purchased is purchased in a targeted area.
00:26:41.440 | So again, you check this list.
00:26:42.640 | It shows you the tracts based upon the US Census count.
00:26:45.600 | And you can look in your state to see where are those different tracts.
00:26:49.320 | Number two, the borrowers are veterans who purchase a home using the proceeds under a
00:26:53.920 | one-time exception allowance.
00:26:56.040 | So if you are a veteran, you can avoid that three-year rule.
00:26:59.840 | That might be valuable for some of you.
00:27:02.760 | As far as veteran, here are the definitions of a veteran.
00:27:05.240 | A veteran is defined as a person who served in active duty in the United States Armed
00:27:09.200 | Forces or Reserves and who was discharged or released under conditions other than dishonorable.
00:27:14.520 | It can be valuable for you.
00:27:18.880 | The borrower must meet the household income limits for the program and lenders must calculate
00:27:23.200 | income by using the procedures of this section.
00:27:26.440 | And here's where it gets a little bit unique because of all the different types of income
00:27:29.320 | that are included.
00:27:31.240 | Household income is defined as the gross annual income of the mortgagors, those signing the
00:27:36.400 | warranty deed, and any other person who is expected to live in the residence being financed,
00:27:41.400 | including income received by any household member who is 18 years of age or older, except
00:27:46.400 | a full-time dependent student, even if they will not be secondarily liable on the mortgage.
00:27:53.440 | The income calculations for the program household compliance are different than the calculations
00:27:57.600 | of income for credit underwriting purposes.
00:28:00.260 | The MCC program requires that the income of all persons residing in the household, related
00:28:05.560 | or unrelated, 18 years of age or older, must be included in the calculation of the household
00:28:10.480 | income for program purposes.
00:28:12.800 | Unlike income that is averaged for credit underwriting, the program is concerned with
00:28:16.840 | actual current income from all sources.
00:28:20.520 | Lenders should consider reviewing the income for the last four to six weeks to determine
00:28:24.080 | gross income, as well as compare this income on the previous tax returns for consistency.
00:28:29.920 | Lenders should not be averaging income.
00:28:32.400 | Gross monthly income is the sum of current monthly gross pay plus any additional income
00:28:38.400 | from all sources, continuation of which is probable based on foreseeable economic circumstances.
00:28:45.040 | Once a lender has determined total gross monthly income for everyone over the age of 18 that
00:28:48.800 | will be residing in the property, the lender will then multiply this figure by 12 to determine
00:28:53.560 | the combined total household income for program purposes.
00:28:57.040 | Here is the other income that is included for this calculation.
00:29:02.460 | The lender should also ask the borrower for specific other income.
00:29:06.040 | Examples are alimony annuities, auto allowance bonuses, child support commissions, disability
00:29:11.460 | or death benefits, dividends, education benefits used for subsistence interest, income received
00:29:18.300 | from business activities or investments income received from trusts, inheritances if received
00:29:23.440 | on a continuous basis, insurance policies if received on a continuous basis, net rental
00:29:29.000 | income, overtime, pensions, public assistance, recurring monetary contributions regularly
00:29:36.520 | received from persons not living in the unit, royalties, shift differential sick pay, social
00:29:42.840 | security benefits, special pay and allowances of a member of the armed forces excluding
00:29:47.420 | hazardous duty pay, tips, and veteran administration compensation, workers' compensation.
00:29:54.140 | Those sources of income are all included.
00:29:57.120 | What is excluded?
00:29:58.840 | The following types of income can be excluded in determining a borrower's income eligibility.
00:30:03.980 | The amounts of educational scholarships paid directly to the student or to the educational
00:30:08.520 | institution, amounts paid by the government to a veteran for use in meeting the costs
00:30:13.300 | of tuition, fees, books, and equipment, amounts that are specifically for reimbursement of
00:30:18.960 | business and/or educational expenses, one-time sign-on bonus, lump sum additions to family
00:30:25.520 | assets such as inheritance, insurance payments, including payments under health and accident
00:30:31.000 | insurance and workers' compensation, capital gains and settlement for personal or property
00:30:35.520 | losses, payments received for the care of foster children, sporadic or irregular gifts,
00:30:41.760 | payments that are specifically for or in reimbursement of the cost of medical expenses, and severance
00:30:46.520 | pay.
00:30:47.720 | So it's a little bit tedious to go through those lists, but for some of you, based upon
00:30:51.640 | looking at your specific situation, you might be able to find some options that work.
00:30:59.080 | In addition, a couple of things, cosigners are not permitted in this program.
00:31:02.640 | Non-occupying co-borrowers are not permitted in Florida Housing's MCC program, and eligible
00:31:09.320 | borrowers must attend a six- to eight-hour face-to-face homebuyer education class.
00:31:15.280 | There are some requirements on the type of property.
00:31:17.920 | All of them are fairly standard, fairly reasonable standards that are applied.
00:31:25.200 | They all make sense.
00:31:26.680 | The key thing with this is if you want to participate in this program, you must do it
00:31:33.000 | in advance, and you must work with a lender who is a participating lender in the program.
00:31:39.720 | So this will require some homework from you in advance.
00:31:43.880 | Eligible borrowers apply for the program with participating lenders by completing a standard
00:31:47.960 | mortgage application.
00:31:49.600 | The Florida Housing Compliance Review is conducted after the lender has approved, closed the
00:31:54.200 | mortgage loan, and the borrower has executed all necessary closing documentation.
00:32:00.160 | If the loan meets the applicable MCC compliance guidelines, the lender's underwriter issues
00:32:05.760 | an approval.
00:32:08.020 | So pay attention, share this with other people, and make sure they know before the fact.
00:32:14.720 | I think it'll take a little bit longer.
00:32:17.240 | You got to pay attention.
00:32:18.240 | You got to work with a certain lender.
00:32:20.080 | But hey, for $2,000 a year of savings, $2,000 that I can spend on something else, I'm willing
00:32:25.460 | to do that.
00:32:27.080 | There are some other details.
00:32:28.360 | I was going to go deeper into the weeds, but in just looking at my notes here, I think
00:32:32.040 | I'm going to stop this deep dive.
00:32:34.120 | I will link to the Florida programs in the show notes for today's show, but you need
00:32:38.440 | to look to your own state and read your own state's documents.
00:32:42.100 | There is some information in publication 530 from the IRS.
00:32:45.400 | That's the publication that talks about all the deductions surrounding and available with
00:32:51.240 | housing.
00:32:52.240 | So you can find more details about that.
00:32:53.780 | But I think that's deep enough.
00:32:54.780 | There is a recapture.
00:32:55.880 | You have to stay in the house for at least eight years, otherwise there can be a recapture
00:33:00.920 | of some of this benefit.
00:33:03.640 | So this is not something that you'll want to do if you are just going to live there
00:33:07.440 | a few years.
00:33:09.000 | But if you want to live in a house and have some extra money, discount your taxes, man,
00:33:16.280 | I'll do that.
00:33:17.280 | I think there are some intelligent ways that you can use to adjust this.
00:33:23.720 | And $2,000 a year of extra cost is a not insubstantial amount of money to put things over in favor
00:33:30.760 | of owning the house.
00:33:32.160 | One of the questions that I had when thinking about it was considering is there a way – can
00:33:37.240 | you refinance the property from time to time?
00:33:40.320 | The answer is yes, you can refinance it.
00:33:42.760 | But you have to refinance the property and seek approval before the refinance.
00:33:47.600 | It's possible that the new loan wouldn't be approved before – at least in Florida.
00:33:52.920 | It's possible that if the new loan weren't approved for the program, then you could lose
00:33:57.440 | it.
00:33:58.440 | So you would want to be careful with that.
00:33:59.680 | As with anything, read the fine print.
00:34:01.840 | But I guess for me, this one is important to me simply because I was always frustrated
00:34:05.280 | that no one told me.
00:34:06.280 | It seems like – and at the time, I was a financial planner.
00:34:08.240 | I was a – I don't know, a CFP.
00:34:10.120 | I should know about this stuff.
00:34:11.960 | I didn't know about it.
00:34:12.960 | So I've told all of the people that I can think of some ways to save money on their
00:34:16.960 | house and do people – does it work out in all situations?
00:34:19.960 | No.
00:34:20.960 | But check into it in your situation and see if you can find some radical and intelligent
00:34:26.360 | way to make this work.
00:34:30.880 | So I hope that's useful.
00:34:31.880 | I know we didn't get too technical with all of that.
00:34:34.480 | But for those of you who have been missing these – the Wednesday financial planning
00:34:38.040 | shows, they're coming.
00:34:40.800 | I'm working on them.
00:34:41.800 | I appreciate each and every one of you listening.
00:34:44.240 | Couple of quick notes.
00:34:45.840 | One is I have put this video out on Facebook for today's show.
00:34:51.880 | I think I'll do more of that in the future.
00:34:54.040 | I've wanted to do this and put them out on Periscope but I just didn't get a lot
00:34:59.200 | of traction there with Periscope.
00:35:01.160 | So I do like this Facebook because Facebook is much more integrated now that Facebook
00:35:04.840 | is going live with their Facebook Live feature.
00:35:07.320 | It's a cool option.
00:35:08.560 | I like that I can chat and I can see who's watching.
00:35:11.320 | Then you all can comment down the road.
00:35:13.360 | You can see how I do the show.
00:35:14.360 | I'll do more of this stuff in the future.
00:35:15.960 | Today I'm just recording.
00:35:16.960 | But if you'd like to do that, come on over to the Radical Personal Finance Facebook
00:35:20.840 | page.
00:35:21.840 | Go to Facebook.com/radicalpersonalfinance.
00:35:22.840 | Number two is when I hang up the phone here in about 25 minutes, I'm getting ready
00:35:27.960 | to launch our Q&A call for the Friday Q&A show.
00:35:33.240 | That's one of the benefits available to patrons.
00:35:35.480 | So if you'd like to support the show and if you'd like to interact with me personally,
00:35:38.260 | you can partly do that in the comments on a Facebook Live video.
00:35:41.420 | You can always email me, joshua@radicalpersonalfinance.com.
00:35:44.500 | But also consider becoming a member of the patron program.
00:35:47.160 | I've been working on reworking that, making it much simpler and providing benefits that
00:35:51.640 | I can deliver on.
00:35:53.220 | You can find the two major benefits that I've settled on is access to our Radical Personal
00:35:57.360 | Finance Irregulars Facebook group.
00:35:59.960 | That's become a community.
00:36:00.960 | It's about 80 people right now.
00:36:02.440 | Just an awesome community of people interacting, answering questions for one another.
00:36:06.680 | That has been a really awesome community.
00:36:09.280 | There are people there that are smarter than me.
00:36:11.600 | So you can gain access to that.
00:36:13.720 | Many of the members there say it's their favorite thing about what I do just to gain access
00:36:16.960 | to the diversity of thought there.
00:36:19.080 | People who are listeners of the show, knowledgeable in these things.
00:36:22.000 | Also you get access to the Friday Q&A calls.
00:36:25.320 | So if you're not supporting the show as a patron, consider coming over to radicalpersonalfinance.com/patron.
00:36:30.360 | Love to have you there and you get some of those benefits and hopefully that can be valuable
00:36:33.800 | for you.
00:36:34.800 | Radicalpersonalfinance.com/patron.
00:36:35.800 | Be back with you all soon.
00:36:37.800 | [Music]
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