CALIFORNIA HOUSING FINANCE AGENCY Mortgage …

1 CALIFORNIA HOUSING FINANCE AGENCY . Mortgage Credit Certificate (MCC). Tax Credit Program LAST REVISED: FEBRUARY, 2018. Mortgage CREDIT CERTIFICATE (MCC). TAX CREDIT PROGRAM. The CalHFA MCC Tax Credit program handbook is provided for informational purposes only. Please refer to the CalHFA program administrator, eHousingPlus' web site directly at Or contact your eHousingPlus Compliance team at Ext. 216. Ext. 206. Ext. 211. 2018 CALIFORNIA HOUSING FINANCE AGENCY | ( ) ii Mortgage CREDIT CERTIFICATE (MCC). TAX CREDIT PROGRAM. Table of Contents I. Program Summary 1. a. Term of Program II. Terms and Definitions 1. III. Eligibility 2. a. Participating Lender Eligibility for the CalHFA MCC Tax Credit program b. Borrower Eligibility Requirements c. Owner Occupancy Eligibility d. Federally Designated Targeted Areas 3. e. Definition of First-Time Homebuyer f. Property Requirements g. Eligible Counties h. Income & Sales Price Limits IV. Underwriting & Compliance 4. a. Transaction Type b.

2 Term c. LTV and CLTV d. MCC Tax Credit Rate e. Example of the Federal Tax Credit advantage of an MCC f. Income Requirements 5. g. Family income includes: h. Family income excludes: i. Underwriting 6. V. CalHFA First Mortgage 6. VI. Subordinate Financing 8. a. CalHFA Subordinate Financing VII. Program Administrator 8. a. Program Administrator b. Required Lender Training c. System Access Process 9. VIII. Processing Procedures 10. 2018 CALIFORNIA HOUSING FINANCE AGENCY | ( ) iii Mortgage CREDIT CERTIFICATE (MCC). TAX CREDIT PROGRAM. Table of Contents (cont.). a. MCC Application Process b. After the Loan Closes c. Additional Documents, when applicable 11. d. CalHFA MCC Tax Credit Processing Time Frame e. Fees 12. f. Closing Document Review / Exceptions IX. Issuance of MCC 13. a. Recapture X. Miscellaneous Items 13. a. MCC Application Cancellations b. Refinancing / Reissuance of a MCC c. MCC Replacement / Lost Certificate 14. d. Record Keeping and Federal Report Filing e.

3 Audit f. Revocation of a MCC shall occur: XI. Underwriters MCC Calculations Guide 15. a. Wages and Salary b. Variable Income c. Self-Employed / Schedule C Borrower(s) 16. d. Child support and/or spousal support payments received by an Applicant XII. Sample Forms 17. XIII. Frequently Asked Questions (FAQs) 18. a. Sale Tools And Marketing Materials 22. 2018 CALIFORNIA HOUSING FINANCE AGENCY | ( ) iv Mortgage CREDIT CERTIFICATE (MCC). TAX CREDIT PROGRAM. Program Summary The CalHFA Mortgage Credit Certificate (MCC) Tax Credit program operates as a federal income tax credit, reducing the Borrowers' potential federal income tax liability. This credit, in effect creates additional net spendable income which Borrowers may use toward their monthly Mortgage payment. This may enable first-time homebuyers to convert a portion (currently twenty percent [20%]) of their annual Mortgage interest into a direct income tax credit on their individual income tax return for the life of their loan.

4 The amount of the CalHFA MCC Tax Credit cannot exceed the amount of a Borrower's annual federal income tax liability. Unused portions of the credit may be carried forward for up to three (3) years. The CalHFA MCC Tax Credit can be used with a conventional or government first Mortgage loan. The first Mortgage or any other associated subordinate loans cannot be financed with tax-exempt bond financing. Term of Program CalHFA MCC Tax Credit Certificates can only be issued on eligible loans closed between 05/07/2012 12/31/2018. Terms and Definitions In addition to other terms which are defined first Mortgage and/or subordinate loans. in this program handbook, the following A CalHFA-approved Lender may also be terms are defined as follows: a MCC Participating Lender; however not Administrator's Guidelines means the all Participating Lenders will be CalHFA- Lender guide prepared by the Program approved Lenders Administrator on behalf of CalHFA that pro- Participating Lender or Lender means vides guidance to Participating Lenders a Lender who meets CalHFA's definition of CalHFA or AGENCY means the CALIFORNIA a Participating Lender, has met the mini- HOUSING FINANCE AGENCY mum qualifications, executed the CalHFA.

5 MCC Tax Credit Lender Certification Form CalHFA MCC Handbook or Handbook and CalHFA MCC Tax Credit Participation means this instructional guide prepared by Agreement CalHFA which addresses the program eligi- bility criteria Program Administrator or Administrator means eHousingPlus MCC means Mortgage Credit Certificate, a document issued by the Program Issuer means CalHFA. Administrator on behalf of CalHFA that may Applicant or Borrower means any entitle the Holder to claim a federal income person who applies for a MCC under the tax credit CalHFA MCC Tax Credit program, meets CalHFA-approved Lender means Lenders the criteria for an eligible Borrower as set approved to originate, close and sell AGENCY (continued on next page). 2018 CALIFORNIA HOUSING FINANCE AGENCY | ( ) 1. Mortgage CREDIT CERTIFICATE (MCC). TAX CREDIT PROGRAM. Terms and Definitions (cont.). forth in this program handbook and who is homeowners to deduct the interest they in the process of securing financing for the pay on any loan used to build, purchase or purchase of a primary residence make improvement upon their residence CalHFA Tax Act or Tax Act means the MCC Holder means Borrower(s).

6 Federal tax laws that govern the guidelines MCC Tax Credit Rate means the current required to maintain tax-exempt status rate specified by this program handbook Tax Credit means a deduction in the used for calculating the MCC Tax Credit amount of taxes owed to the Internal Amount Revenue Service MCC Tax Credit Amount means the Mortgage Interest Deduction means a Mortgage interest multiplied by the MCC. common itemized deduction that allows Tax Credit rate Eligibility Participating Lender Eligibility for the All CalHFA MCC Tax Credit CalHFA MCC Tax Credit program Applicants must meet the credit, income and loan requirements of All current CalHFA-approved Lenders CalHFA MCC Tax Credit program are eligible to participate once they have handbook, the Lender, and the executed a CalHFA MCC Tax Credit Mortgage insurer/guarantor Participation Agreement All Applicants must be first-time Lenders that are not currently CalHFA- homebuyers approved may participate in this program if they meet the minimum qualifications and Exception to first-time home- execute the following documents: buyer requirements.

7 CalHFA Mortgage Credit Certificate Home is located in a feder- (MCC) Tax Credit Lender ally designated targeted area Certification Form Qualified veterans pursu- CalHFA MCC Tax Credit ant to the Heroes Earning Participation Agreement Assistance and Relief Tax Act of 2008. The CalHFA MCC Tax Credit Lender Qualifications, the Lender Certification and Owner Occupancy Eligibility the Participating Agreement can be found on the CalHFA Direct Lender web page. All CalHFA MCC Tax Credit Applicants must occupy the prop- Borrower Eligibility Requirements erty as their primary residence within sixty (60) days of closing Each CalHFA MCC Tax Credit Applicant must be a citizen, permanent resident alien or quali- fied alien (continued on next page). 2018 CALIFORNIA HOUSING FINANCE AGENCY | ( ) 2. Mortgage CREDIT CERTIFICATE (MCC). TAX CREDIT PROGRAM. Eligibility (cont.). Property must be owner-occupied Cannot be zoned for 2-4 units for the term of the loan or until the Must meet investor guide- property is sold lines and city/county zoning Federally Designated Targeted Areas ordinances Per investor guidelines If rental Borrowers purchasing a home located in a income from the ADU is used for federally designated targeted area are not credit qualifying, CalHFA will also required to be first-time homebuyers use the gross rental income for the compliance income calculation Definition of First-Time Homebuyer Property must meet the require- For CalHFA purposes a first-time home- ments of CalHFA, the Lender and buyer is defined as a Borrower who has the Mortgage insurer/guarantor not had an ownership interest in any principal residence during the previous Eligible Counties three (3) years The CalHFA MCC Tax Credit is available Property Requirements in various cities and counties within the state of CALIFORNIA .

8 Please refer to the MCC. Sales price of the home cannot Resource Database for details exceed CalHFA's sales price limits established for the county in which Income & Sales Price Limits the property is located The following reference materials disclose Accessory Dwelling Units (ADU), income and sales price limits by county: Guest houses, granny units, and in-law quarters are eligible 1. Income Limits Must be zoned for Single Family 2. Sales Price Limits Occupancy 2018 CALIFORNIA HOUSING FINANCE AGENCY | ( ) 3. Mortgage CREDIT CERTIFICATE (MCC). TAX CREDIT PROGRAM. Underwriting & Compliance Transaction Type MCC Tax Credit Rate Purchase transactions only The CalHFA MCC Tax Credit Rate is cur- rently twenty percent (20%). The an- Term nual Mortgage interest times 20% is the amount of the tax credit available to the The term of the CalHFA MCC Tax Credit Borrower(s) for income tax purposes. The matches the term of the first Mortgage ;. amount of the tax credit may not exceed however, the CalHFA MCC Tax Credit will the Applicants' total tax liability for a spec- expire on the date the first Mortgage loan ified year; however any excess MCC credit is paid in full or refinanced and is revoked exceeding the Applicant's total tax liability on the date the residence ceases to be the for a given year may be carried forward Applicants' primary residence for up to three (3) subsequent tax years.

9 LTV and CLTV Lender should advise Borrower(s) to seek advice from their qualified tax preparer Follow the applicable underwriting guide- lines of the Lender and Mortgage insurer/. guarantor (continued on next page). Example of the Federal Tax Credit advantage of an MCC. Loan Amount $ 200,000. Mortgage Rate First year's Mortgage interest $ 10,000. MCC Credit Rate 20%. MCC Tax Credit amount $ 2,000. No MCC With MCC. Taxable Income $ 50,000 $ 50,000. Mortgage interest deduction $ 10,000 $ 8,000 *. Taxable Income $ 40,000 $ 42,000. Federal tax liability @ 15% $ 6,000 $ 6,300. Subtract MCC amount $ 2,000. Net Taxes Owed $ 6,000 $ 4,300. Annual tax savings due to MCC credit $ 1,700. * $10,000 of Mortgage interest minus $2,000 MCC Tax Credit amount equals $8,000 Mortgage interest deduction 2018 CALIFORNIA HOUSING FINANCE AGENCY | ( ) 4. Mortgage CREDIT CERTIFICATE (MCC). TAX CREDIT PROGRAM. Underwriting & Compliance (cont.). Income Requirements Due to federal regulations, CalHFA is re- quired to compile all information regarding Lenders are required to calculate income to Borrower's income qualify Borrower(s) for the MCC Tax Credit program approval using investor guidelines.

10 Family income includes: The Lender's underwriter must certify the Borrower's income pursuant to Federal Tax Gross Pay Pensions Law compliance requirements Overtime Veterans QUALIFYING INCOME Administration (VA). Bonuses compensation Qualifying income is the income used by the Lender to determine that the Commissions Active Duty Military Borrower(s) have the ability to meet Part-time HOUSING Allowance their monthly payment obligation. The employment Lender will continue to adhere to the Gross rental or requirements of their internal under- Dividends leased income writing guidelines, Mortgage insurer, Deferred income Interest and this program handbook. This income may differ from the income Annuities Welfare payments used by the Administrator to determine Child support Social Security compliance with Federal Tax Law. payments benefits Program compliance income must include income from all sources even Human assistance / Disability payments if it is not used as qualifying income.