Homebuyers in South Carolina have been slow to discover the new Mortgage Credit Certifi- cate tax incentive, and that's a shame.
This is a federal tax credit that can rebate 30 percent of the interest paid on a mortgage loan, for as long as the person owns the home, up to $2,000 a year. Live in your new home for 10 years, and that's up to $20,000 right back in your pocket.
It's not a tax deduction, which reduces taxable income and is less valuable. It's a tax credit, reducing the amount of federal tax owed by up to $2,000 every year.
The thing is, you can get a mortgage credit certificate, or MCC, only during the loan process when you buy a home. You can't get one after buying a home, or when refinancing.
Most S.C. homebuyers would qualify for an MCC, but the number who have acquired one is appallingly low. That's probably because the MCC wasn't available in South Carolina until late last year, and information is still filtering out to real estate agents, banks and buyers.
How bad are the numbers?
As of early March, just eight people in the tri-county area had obtained an MCC. (If you are one of those savvy eight, I'd love to talk to you about your experience).
Statewide, just 43 people had taken advantage of it. Clearly, the state Housing Authority, lenders and real estate professionals, have more work to do to educate buyers.
It's not like it's hard to qualify. In Berkeley and Dorchester counties, a single person or a couple could earn up to $74,640, and buy a home costing up to $255,000, and be eligible for an MCC. For a family of three, the income limit rises to $87,080.
Qualify, and you get the credit as long as you own the home.
The program is technically for first-time homebuyers, but in Berkeley, Dorchester and most S.C. counties, you count as a first-time buyer as long as you don't own another "principal residence" when you complete the purchase of the one you're buying.
In a smaller number of counties that aren't "targeted" by the MCC program, including Charleston and Greenville, the rules are more strict. Buyers must not have owned a "principal residence" during the past three years, and income limits are lower: $62,200 for a family of one or two, $71,530 for a family of three.
For those who qualify, what this all means is that you can buy a home, lock in a mortgage with a historically low interest rate, and then get nearly a third of the interest rebated yearly as a tax credit. To get the money back even faster, a person could adjust their tax withholding at work to reflect the tax credit, increasing their take-home pay.
So, is there a catch? There could be one, but it would be hard not to come out ahead.
If you sell the house after less than nine years, and your income has increased to the point where you would no longer qualify for an MCC, and you make a profit selling the house, you would have to give some money back to the government. That amount is the lower of half the capital gain on the house or 6.25 percent of the original loan amount.
For example, if a person were to borrow $200,000, then get a $2,000 tax credit for eight years, then sell the house and claim a large capital gain at a time when their income is too high to qualify for an MCC, the very most they could have to repay is $12,500 (6.25 percent of $200,000), which is $3,500 less than they received in tax credits.
So, how does a person get a mortgage credit certificate?
Meet the qualifications, arrange your loan with a participating lender - it must be a 30-year mortgage loan - and pay a processing fee of between $500 and $700. That's it.
While not all lenders participate, the current list includes large banks and credit unions such as Wells Fargo and S.C. Federal Credit Union, mortgage financiers such as Lucey Mortgage and Shelter Mortgage, and the mortgage arms of homebuilders including Pulte and Ryland.
For more details about the mortgage credit certificate, visit www.schousing.com.
Reach David Slade at 937-5552