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Loan qualification made easy


Despite what you read about the down economy, the good news is that two-thirds of Americans own their own homes. Which means that over the next 30 years, they will be building equity and will ultimately own their homes free and clear.

But if qualifying for a loan is putting a crimp in your home-buying plans, take heart new funds aimed at helping buyers purchase a home in 2012 have just been made available.

“Under the Mortgage Credit Certificate (MCC) program, homebuyers who meet income qualifications can reduce their federal income tax obligation and use more income to help qualify for a loan,” says Marie Imanaka, president of Wells Fargo Home Mortgage of Hawaii. “These funds are limited, but they provide eligible firsttime homebuyers an innovative way to make the dream of homeownership a reality.”

Administered by the state Housing Finance and Development Corporation, homebuyers can qualify for a federal income tax credit equal to 20 percent of their annual mortgage interest, which adds up to thousands of dollars a year in tax savings. The remaining 80 percent of the annual mortgage interest continues to qualify as an itemized tax deduction.

MCC’s are only available through participating lenders one of which is Wells Fargo Home Mortgage of Hawaii and can be used in conjunction with a conventional FHA or VA loan.

Low-interest rates have already made qualifying for a loan easier, which together with tax incentives and low down-payment loan programs have enabled more people to buy their first home. In fact, the percentage of sales that involve first-timers in Hawaii is now 40 percent.

“Since housing is a component of the economy, the government continues to support and encourage homeownership,” says Imanaka.

For buyers whose biggest challenge is coming up with enough down payment funds, VA and FHA loans are good options.

Veterans Administration loans are available to certain members of the armed services and provide up to 100 percent financing.

Non-veterans may qualify for the Federal Housing Administration’s FHA loans, which provide 96.5 percent financing to buyers who commit to being owner-occupants. The remaining 3.5 percent down payment may come in the form of a gift to the buyer from a family member, while non-owner occupied co-borrowers are allowed to help you qualify as well. According to Imanaka, mortgage insurance is required and condominiums must be FHA approved in order to qualify.

Adjustable rate mortgages for FHA and VA loans are incredibly low right now at 2.75 percent. These low rates are fixed for five years, but qualifying at the low rate may make the difference and helping buyers to qualify.

“Normally I don’t encourage ARMS, but with the rate at 2.75, and depending on your risk tolerance, these rates might be worth considering,” Imanaka adds.

With MCC funds limited and rates low, buyers should not put off meeting with a Realtor to assess their situation. Rather, they should find out what options are available and get a list of what they need to do to get started.

“Everyone’s situation and goals are unique, so it’s best that you talk to a professional and find out if homeownership is right for you,”

Imanaka says.

How does the Mortgage Credit Certificate work?

Here is an example of how an MCC can make home buying affordable for you:

* You obtain a mortgage loan of $300,000 at 4.25 percent for 30 years with monthly principal and interest payments of $1,476 and an MCC credit rate of 20 percent.

* In the first year, you pay $12,652 in interest on your mortgage loan. Because you have an MCC, you receive a federal income tax credit of $2,530 (20 percent of $12,652). If your income tax liability is $2,530 or greater, you will receive the full benefit of the MCC tax credit. If the amount of your tax credit exceeds the amount of your tax liability, the unused portion can be carried forward (up to three years) to offset future income tax liability.

* The remaining 80 percent of mortgage interest, or $10,122, qualifies as an itemized income tax deduction.

* To receive the immediate benefit of your MCC tax credit, you can file a revised W-4 withholding form with your employer to reduce the amount of federal income tax withheld from your wages and increase your take home pay by $211 per month (your annual tax savings of $2,530 divided by 12).

* By applying the increase in your takehome pay of $211 toward your monthly mortgage payment of $1,476, your effective monthly payment would be $1,265 ($1,476 minus $211).

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