Mortgage Credit Certificate(MCC) ProgramManual Available at:http://www.wshfc.org/sf/downloads.html

The MCC is a federal income tax credit.

With the MCC, the qualified homebuyer is eligible to reduce their amount of federal tax liability equal to a portion of the annual interest paid on their mortgage in the form of a special tax credit.

How the MCC Program Works•A qualified homebuyer is eligible to reduce their amount of federal tax liability equal to a portion of the annual interest paid on their mortgage as a special tax credit.

•The amount of the credit is equal to 20% credit rate on the MCC multiplied by the annual interest paid.

•The lender takes into consideration the effect of the MCC when determining the total amount of household income available for the monthly housing payment.

•All potential applicants should contact a qualified tax preparer.

Value of a Tax Credit vs. Tax Deduction $200,000 mortgage x 6% interest = $12,000 annual interest $12,000 times 20% credit = $2,400

w/MCC w/o MCC Tax CreditTax Credit Tax Deduction

Total Income (married, joint filing) $60,000 $60,000Standard Deduction (9,700) (- 0 -) Itemized Interest (- 0 -) (12,000)Exemptions (2) (6,200) (6,200)

Total Taxable Income $44,100 $41,800

Federal Income Tax Liability 5,904 $5,559MCC Credit (2,400) (- 0 -)

Taxes Paid $ 3,504 $ 5,559

MCC No MCC

Interest Rate 6.0% 6.0%

Term 30 years 30 years

Monthly P & I $1,199 $1,199

MCC Rate 20% 0

Monthly Credit $200 0

“Effective” P & I $999 NA

Effective Interest 4.38% NA

Effective Interest Rate $200,000 Loan Amount

$2,400 Annual Credit/12 = $200 per month

BENEFITS

Homebuyer

Tax Credit is more valuable than a deductionCan still deduct remaining 80% of interest paidIncreases homebuyer’s take home pay - file amended W-4Can qualify for a larger mortgage loan

$200 monthly benefit = $33,358 of additional loan funds

Valid for the life of the loan, as long as the borrower remains owner-occupant of the residence

Credit may be reissued after refinancingOne-time fee of $650Unused credit carry-forward up to 3 years

Lenders

•Any loan officer is eligible to offer the program.

•Bank funding the loan must sign a participation agreement prior to participating.

•Loans can be brokered to a participating lender or sold on a correspondent basis. Please check with a participating lender prior to proceeding.

•Uses lender’s first mortgage product including FHA, VA, Fannie Mae, Freddie Mac, and all loan types listed on page 2.1 of House Key manual.

•Additional revenue for lenders

Income Limits

Maximum Annual Household Income Limits Non-Targeted Targeted

County 1-2 persons 3+ persons 1-2 persons 3+ persons

Island $75,000 $87,000 $90,000 $95,000

Pierce/San Juan $75,000 $87,000 $75,000 $87,000

King/Snohomish $90,000 $97,000 $90,000 $97,000

All Other Counties $65,000 $75,000 $75,000 $75,000

Eligible Borrowers

IRS Tax Code Compliance:

• Owner Occupancy • First Time Homebuyer

See section 3 of House Key manual for further information

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Household Size

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Includes all occupants who reside in the household including children, significant others, roommates, etc.

Income Calculation

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You must include income from all persons 18 years of age and over who will be residing in the home.

Non Occupant Co-signers are not allowed.

Annualized Income

Future Projected Income for one year following loan closing (anticipated income)

Includes ALL sources of income Includes raises

See Section 3 of House Key manual.

Acquisition Cost LimitsMaximum acquisition cost limits of a single-family residence must not exceed the following:

County Non-Targeted TargetedClark/Island $330,000 $360,000

Jefferson/Pierce/Snohomish $370,000 $395,000

King/San Juan $450,000 $475,000

Kitsap/Whatcom $300,000 $335,000

Skagit $285,000 N/A

All other counties $270,000 $290,000

Property RequirementsProperty Requirements

•The property cannot contain more than one self-sufficient unit

•Cannot have more than one service meter supporting the entire property

•Cannot have excess land value - less than two acres

•No more than 15% of the residence may be used for trade or business purposes

See Section 4 of House Key manual

Homebuyer Education

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All borrowers on the note and deed of trust must attend a Commission sponsored homebuyer education seminar prior to reservation of MCC.

First Mortgage Guidelines•MCCs are available with all loan types listed on page 2.1 of the House Key manual. They are also available with fixed or adjustable rate conventional conforming (i.e., Fannie Mae or Freddie Mac saleable), FHA, VA, or Rural Development mortgages.

•MCCs NOT available if the first mortgage is a House Key loan.

•Lenders will establish all underwriting criteria, including interest rate, down payment requirement, term, fees, points, and closing costs based on the mortgage loan type.

•Participant Lenders may charge up to a $100 MCC processing fee at closing.

Recapture Tax

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The recapture tax provision applies.

ALL Three Things Must Happen :•Sell - 9 Years•Net Capital Gain •Income Over Federal Limit

Please see Section 5 of House Key manual.

Recapture Forms

Borrower signs:•Application - Recapture Provision Notice of Potential Recapture Tax on Sale of Home (MCC 13.5)

•Closing - Recapture Provision Notice of Potential Recapture Tax on Sale of Home (MCC 13.8)

Steps!

Step 1 Borrower completes a Commission sponsored homebuyer education seminar

Step 2 Buyer and Seller to sign and execute purchase and sale agreement

Step 3 Borrower makes application with a loan originatorAdditional forms/items needed at loan application:•Homebuyer Education certificate for each borrower that will be on the loan•Tax returns for prior three years•Recent pay stubs within 45 days of closing•Notice of MCC Fee Guidelines (MCC13.3)•Notice of Potential Benefits Provided by a Mortgage Credit Certificate (MCC13.4)•Application Recapture Provision (MCC13.5)•Mortgagor Affidavit (MCC13.6)•MCC Tax Credit Worksheet (MCC13.1)

Step 4 Loan originator to reserve MCC allocation on line or using Reservation Form (MCC13.9) if sending to another lender on broker or correspondent basis

Steps!

Step 5 Process/underwrite mortgage loan according to first mortgage guidelinesSubmit Pre-Closing Checklist (MCC13.2) for preliminary compliance review and

approval

Step 6 Close mortgage loan and wire $650 MCC Fee to CommissionAdditional forms/items needed at loan closing:•Seller Affidavit (MCC13.7)•Closing Recapture Provision (MCC13.8)•Re-executed Mortgagor Affidavit (MCC13.6), if necessary

Step 7 Send MCC Post Closing Checklist (MCC 13.13) and required documents to the Commission

Step 8 If approved, the Commission will deliver original MCC to MCC Holder and send a copy to the Participant Lender

Use of the MCC

•The MCC holder should consider adjusting his or her federal income tax withholding to receive the benefit from the credit on a monthly basis.

•The MCC holder may file a new W-4 form with his or her employer reflecting the MCC credit savings.

•A letter will be sent to the MCC holder with the Mortgage Credit Certificate explaining how to claim the MCC.

MCC ReissuanceMCC Reissuance

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We can reissue under certain circumstances:

•The reissued MCC must be completed within one year of refinance;

•The reissued MCC must be for the same residence as listed on the MCC;

•The reissued MCC replaces the existing certificate;

•The certified mortgage amount on the reissued MCC doesn’t exceed the outstanding balance of the mortgage amount prior to refinancing. MCC holders may refinance for an increased mortgage amount but will only receive the MCC credit to interest incurred from the existing balance of the original mortgage;

•The reissued certificate credit rate cannot exceed the certificate credit rate specified in the existing Certificate; and

•The reissued MCC does not result in an increase in the credit in any taxable year.

•A $375.00 non-refundable application fee must be included in a reissuance request.

Participant Lender ReportingParticipant Lender Reporting

Participant Lenders shall file an annual report with the Internal Revenue Service on IRS Form 8329

Participant Lender shall retain on its books, records and have available a summary of loans which includes the following information for 6 years:

•The name, address, and Social Security number of each MCC holder.•The name, address, and federal taxpayer identification number (91-1874730) of the Commission.•The date the loan was closed, the date the MCC was issued, the certified indebtedness amount, the credit rate under the MCC, and the amount of MCC issued.

Participant Lenders are subject to the penalty provisions of Section 6709(c) of the Code. These provisions apply to the failure of Participant Lenders to file IRS Form 8329 and shall survive the termination of this MCC Program or any resignation of the Participant Lender.

How Do I Become a Participant Lender?

All loan originators are eligible to offer MCCs to their borrowers.

The lender approving and funding the loan is required to sign the MCC Participation Agreement prior to offering the MCC program to customers located at http://www.wshfc.org/sf/index.htm.

The agreement details the Participant Lender’s responsibilities, including reports provided to the IRS.

There is a $500 participation fee.

Where is the MCC Program Manual Located?

http://www.wshfc.org/sf/downloads.html