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Mortgage Tax Credit Upon successful completion of the course, your certificatewill be available in the “Achievements” section on the leftside toolbar. Please turn up the volume on your speakers as there aremultiple videos within the course. You must completely go through eachmodule/video/survey and take the tests to finish thecourse. To continue through each module please click "NextQuestion" on the bottom of the page or “Next Module” inthe upper right section of the page. If you proceed withoutfinishing a module, the course will stop until you completethe previous module. If needed, click "Exit" in the upperright section of the page and go to the previous module tofinish it.

OHFA’s Mission Statement“We open the doors to an affordable placeto call home.”The Ohio Housing Finance Agency (OHFA)facilitates the development, rehabilitation andfinancing of low- to-moderate income housing.The Agency's programs help first-timehomebuyers, renters, senior citizens, andothers find quality affordable housing thatmeets their needs.

OHFA Point of ContactIf you have any questions about OHFAHomeownership Programs and Products pleasecontact Erin Higgins or Tom Walker.Operations ManagerErin HigginsEhiggins@ohiohome.org614-752-7049Business Development ManagerTom WalkerTwwalker@ohiohome.org614-466-9920

Mortgage Tax Credit Program

Homebuyers can lower their federal taxliability through OHFA’s Mortgage Tax CreditProgram. The program allows homebuyers totake a direct tax credit for a portion of theirmortgage interest for the life of the mortgage. The mortgage tax credit is intended to helphomebuyers afford homeownership.

2,000 maximum credit per year for the life ofthe mortgage. (No dollar amount limit on the20% credit rate.) The mortgage tax credit is in addition tothe IRS home mortgage interestdeduction!

The percentage of the annual tax credit you can claimis based on the location and/or status of the property: 20% credit for non-target areas [Areas notdesignated as economically distressed by theU.S. Department of Housing and UrbanDevelopment (HUD)]. 25% for target areas (An economicallydistressed area designated by HUD).Target Area Search Engine: http://ohiohome.org/Geodata/

30% for Real Estate Owned (REO)purchases. (Any property purchased fromHUD, Fannie Mae, Freddie Mac or a financialinstitution that acquired the property throughforeclosure.)

40% for OHFA loans- If a homebuyer usesan OHFA loan (OHFA first mortgage product),they can receive up to a 40% tax credit. Theyare also able to combine multiple programsand products together when using an OHFAloan. Examples will be provided later in thecourse.

11Mortgage Tax Credit ExampleAnnual Interest 5,000x% Yearly Credit20%-Non-Target 1,00025%-Target 1,25030%-REO 1,50040%-OHFA 2,000

Eligibility-Overview Can be used with all OHFA first-time buyerloan programs/products. Borrower must have earned taxable incomeeach year to offset the mortgage credit. (If ahomebuyer already has a low tax liability, thiscredit might not help them because this canonly be used as a credit, not a refund.) Must be requested at time of loan application.

Two Options to Apply the Credit1. End of the year tax credit. (Not a refund.)2. Adjust the W-4 withholding so thehomebuyer pays less taxes out of eachpaycheck throughout the year.

Mortgage Tax Credit Basic & PlusMortgage Tax Credit-Basic-Homebuyers areable to receive the 20%, 25%, or 30% credit ifthey are using the lenders first mortgageproduct. Lender must still be an OHFAapproved lender. Lender sets interest rate. Required to submit commitment packagewithin 60 days. 1 hour homebuyer education class is notrequired.

Mortgage Tax Credit Basic & PlusMortgage Tax Credit-Basic Homebuyers must meet OHFA income andpurchase price limits. Must be a first-time homebuyer.

Mortgage Tax Credit-Plus-Can combine withmultiple OHFA programs and products andreceive maximum 40% tax benefit. Required to submit commitment packagewithin 25 days. 1 hour homebuyer education class isrequired. Must meet all OHFA eligibility guidelinesdetailed later in this presentation.

Basic & PlusMTC-Basic(Used with enrolled lender’s firstmortgage product)Non-target areas 20%Target areas 25%REO’s 30%MTC-Plus (Can combine with multiple programsand products and receive maximum 40% tax benefit)OHFA Loans 40%

Mortgage Tax Credit Basic & Plus Fees Mortgage Tax Credit-Basic- 500 per loanpaid to OHFA by the lender, which may beassessed to the borrower.

Mortgage Tax Credit Basic & Plus Fees Mortgage Tax Credit-Plus- 500 per loanwhen the lender delivers the loan to the OHFAMarket Rate Program. The lender may retain 250 of the loan fee and must remit 250 toOHFA. *Lender is not required to charge/retain 250of the 500 loan fee if they prefer not tocharge their client this portion of the fee.)

MTC Example Realtor Johnny B. Selling made 63,000 inreal estate 1099 income. He owesapproximately 7,300 in taxes.20 His mortgage tax credit is 2,000 (40% on 5,000 mortgage interest). Total taxes now due are 5,300 If he claimed this credit for the first 10 years onhis mortgage, that could be a savings of 20,000 in federal income taxes!

What happens if the borrower refinances orsells the property? Refinance- Borrower hasone year to request new taxcertificate. Home Sold- The tax credit isnon-transferable and theoriginal certificate becomesvoid. (This is a first-timebuyer tax credit.)

Required Items to Reissue Certificate Copy of original certificate or reissuedcertificate. Copy of new note. Copy of original note. (When they firstreceived certificate). Copy of most recent year's federal tax return. Copy of new settlement statement. Current telephone number. 55 reissuance fee. (Cashier’s check ormoney order.) The new certificate must be reissued withinone year of refinancing.

How this can help a lender help theirhomebuyer .

Stacking the ProgramsThink of the First-TimeHomebuyer Program(Conventional orGovernment) as themeat of the burger andthe additional toppings(DPA & MTC) can beadded to the loan.24

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The Down Payment Assistance product isrequired when using the Next Home Program.

29Conventional Loan (3% DP Requirement)Purchase Price 100,0005% Down Payment Assistance (DPA) 5,000Subtract the Down Payment and Closing Costs:3% Down Payment- 3,0002% Closing Costs- 2,000Approximate out-of-pocket funds for down payment and closing costs: 1,500 This is based on approximate closing costs of 3,500. Closingcosts vary for each lender. Buyer could request the additionalclosing costs from seller during negotiations to avoidbringing any down payment or closing costs to closing. Homebuyers may receive up to a 2,000 mortgage tax crediteach tax year.

30How to apply the down payment assistance .Buyer is able to choose how to apply the 5%down payment assistance in any combinationthey would like.Example:5% towards down payment and 0 towardsclosing costs. (i.e., Maybe the seller is payingthe buyer’s closing costs.)On VA and USDA loans ( 0 down), the downpayment assistance could be used towardsclosing costs.

Recapture TaxNo worries OHFA will reimburse the recapture taxEffective March 1, 2006, OHFA will reimbursehomebuyers for the actual amount of recapturetax paid to the IRS on loans closed on or afterthe effective date.

Recapture tax may be required if the homebuyer:1. Sells the OHFA-financed home within the firstnine years of the purchase date,2. Receives a net profit on the sale of the home,and3. Exceeds the maximum income limit at thetime of sale.*All three provisions must occur at the time ofsale for any potential recapture tax obligation toapply.

IRS Publication 530Instructions for Claiming the Tax CreditForms Needed to Claim Credit Mortgage Tax Credit Certificate Form 1098 Mortgage Interest Statement Form 8396 Mortgage Interest Credit Form 1040 Individual Income Tax Return

Claiming the Credit at the End of the Tax Year The mortgage tax credit certificate will showthe credit rate you will use to calculate yourcredit. (20%, 25%, 30%, or 40%). Only the interest on the certified indebtednessamount qualifies for the credit. To claim the credit, complete Form 8396 andattach it to your Form 1040.

Example 5,000 mortgage interestwith a 20% non-target areacredit rate 1,000 credit.This is a dollar for dollar tax credit!

36You must also reduce your deduction for homemortgage interest on the Schedule A by the amounton line #3 ( 1,000). You can’t deduct/credit the 1,000twice. If you had 5,000 in mortgage interest youwould subtract 1,000 and enter 4,000 for line 10.

Claiming the Credit During the Tax Year Homebuyers will need to calculate theirannual credit similar to the previous example.They will then adjust their W-4 withholdingsto deduct the taxes out of each paycheck. Homebuyers will benefit from receiving moreof their income each pay period (and lesstaxes).

Calculating the CreditMortgage Not More than the Certified IndebtednessIf your mortgage loan amount is equal to (or smallerthan) the certified indebtedness amount on yourmortgage tax credit certificate, enter on Form 8396, line1, all the interest you paid on your mortgage during theyear.Certified indebtedness amount onyour mortgage credit certificate 100,000 Amount of your mortgage 100,0001Homebuyer is eligible to claim all of the interest. (Based onthe credit rate of 20%, 25%, 30%, or 40%).

Mortgage More than the Certified IndebtednessIf your mortgage loan amount is larger than thecertified indebtedness amount shown on yourmortgage tax credit certificate, you can figure thecredit on only part of the interest you paid. To find theamount to enter on line 1, multiply the total interest youpaid during the year on your mortgage by the followingfraction.Certified indebtedness amount onyour mortgage credit certificate 100,000 .8Amount of your mortgage 125,000Homebuyer is eligible to claim 80% of the interest.(Based on the credit rate of 20%, 25%, 30%, or 40%).

Mortgage More than the Certified IndebtednessThe mortgage would be more than the certifiedindebtedness if a homeowner refinanced theirmortgage for a higher amount. Please see theexample on the next slide.

Emily’s mortgage loan is 125,000. The certifiedindebtedness amount is 100,000. (Homebuyer couldhave refinanced for a higher mortgage amount, but theinitial mortgage amount is only eligible for thecalculation.) She paid 7,500 interest this year. Belowis the interest to enter on Form 8396, line1. Emily hasa 20% tax credit rate.Mortgage Tax Credit Rate of 20% 100,000/ 125,000 80% 7,500 x .80 6,000 6,000 x .20 1,200

Emily enters 6,000 on Form 8396, line 1.In each later year, she will figure her credit usingonly 80% of the interest she pays for that year.

CarryforwardIf your allowable credit is reduced because ofthe limit based on your tax, you can carryforward the unused portion of the credit to thenext 3 years or until used, whichever comesfirst.

Credit rate more than 20%If you are subject to the 2,000 limit becauseyour certificate credit rate is more than 20%,you cannot carry forward any amount morethan 2,000 (or your share of the 2,000 if youmust divide the credit).25%-Target30%-REO40%-OHFA No more than 2,000can be carry forwarded.

Additional OHFA Information Requirements for MTC Basic Requirements for all OHFA HomebuyerPrograms OHFA Website Links OHFA Point of Contact

MTC Basic Requirements Homebuyers must meet OHFA incomeand purchase price limits. Must be a first-time homebuyer.

Requirements For All Homebuyer Programs On all homebuyer programs, applicants must meetOHFA income limits and purchase price limits.(Listed in Lender Online.) Credit Score and DTI Requirements

Requirements For All Homebuyer Programs Must be an owner occupied 1-4 unit property.No manufactured homes on all loan types. FHA-No manually underwritten loans. Thisincludes loans receiving a “refer” throughDU/LP as well as borrowers with no creditscores who get no response from DU/LP. Conventional loans with LTV 95% are limitedto owner-occupied 1 unit properties, nocondominiums or manufactured homes.