USDA Loans and Mortgage Tax Credits allow you to buy a home with no down payment, and receive additional tax benefits when filing your taxes. If you meet the qualifications for the USDA Home Loan in NC, you might also qualify for the Mortgage Tax Credit Program or (MCC)! The NC Mortgage Tax credit allows you UP TO $2,000 a year in dollar for dollar savings!
To qualify for a USDA Home Loan in NC, you must meet the following guidelines:
- Have the ability to personally occupy the dwelling.
- Be a citizen of the United States or be admitted for permanent residency.
- Non-occupant co-borrowers are not permitted.
- Generally, borrowers must sell their existing home – although, if it is a Company Directed Relocation, and you can not logically commute, you may be able to keep the existing home.
- Meet the Household Income Limits for the County you are buying a home in.
- Purchase a home located within the USDA Loan “Footprint.”
- Contract Employees must generally have 2 full years of employment within the same line of work to be eligible for a USDA Home Loan in NC.
- Debts with more than 6 monthly payments remaining must be included in qualifying ratios.
- Student loan payments must be included in ratios even if loans are currently in deferment
- Self employed borrowers require two-year history with 1040’s, and a current P&L.
- Disability and Social Security benefits – 3 year continuance documented with award letter or 2 months bank statements, grossed up 125%
- For an Automated Approval – we need 2 credit scores of at least 640.
USDA Loans and Mortgage Tax Credits
The USDA Loan Underwriters allow us to consider the Mortgage Tax credits as a benefit when we are qualifying you for a mortgage loan.
Suppose you qualify for USDA Loans and Mortgage Tax Credits, and obtain a 30-year, 4% fixed-rate mortgage of $97,000 for the purchase of an existing home (not new construction). The first year’s interest payment is approximately $3,880.
If your federal income tax liability is $1,164 or more after you have taken all other Section A of you tax return credits and deductions, you receive the entire benefit of the Mortgage Tax Credit of $1,164. In figuring your taxes, you also claim a deduction for the remaining 70% of your mortgage interest.
If your federal income tax liability is less than $1,164—for example, $800—your tax is reduced by only $800 that year. However, the remaining credit can be claimed on tax returns for the next three years, if tax liability increases.
This is a great program for first time home buyers, and the maximum sales price and income limits are exactly the same as the $15,000 Grant Program of $245,000! A “two-fer!”
How USDA Loans Benefit From Mortgage Tax Credits
So if the numbers above seem confusing, let’s look at it this way. Let’s say you are our typical client and you qualify for USDA Loans and Mortgage Tax Credits. Here’s what happens.
You have a tax credit benefit of let’s say $1901, once all of the calculations are done. That’s $158 a month ($1901 divided by 12). The USDA Home Loan NC Underwriters allow us to deduct $158 a month from your PITI payment when qualifying you. In essence, you will qualify for more than $20,000 in a larger home.
Will you actually have that money come off of the mortgage payment? No. But you can and should amend your W4 so that you bring home an additional $158 a month. That’s the spirit of the program – you pay less taxes, so that you can afford a slightly larger home that you can grow into.
So let’s say the tax credit is $1901 a year for 10 years. You’ve saved more than $19000!!!
Again, broken record here – not all banks offer these programs, and you can not get the Tax Credit from one bank and your mortgage from another. These programs work together to help you qualify for a slightly larger home.
Another important point to remember – you MUST apply for and receive approval for the MCC Tax Credit PRIOR to closing on your home. Let’s say you qualify for USDA Loans and Mortgage Tax Credits, but your lender doesn’t tell you about the MCC Tax Credit… the day after you close, you call NC Housing and want to apply for the program – you qualify. Sorry to be the one to tell you, however this is for First Time Home Buyers. The day you close and get the keys to your home, you are no longer a First Time Home Buyer.
To receive this benefit for the years you occupy the home, this MUST be part of the mortgage process. If you are in NC, we offer this program, we are one of the Largest MCC Lenders in the State, and we will be very happy to help!