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Help in the Home Stretch : Home Buying: Little-known and imperiled, Mortgage Credit Certificate (MCC) program can still help buyers who act quickly.

March 26, 1995|ANN SUMWALT | SPECIAL TO THE TIMES; Sumwalt is a real estate reporter with Inman News Features in Oakland. and

When he set out to buy his first home, Guillermo Valdez was told over and over by lenders that he could not afford even the modest home he wanted.

"I had gone to different mortgage companies," he said, "and they were giving me a much lower price range that would limit my shopping. They said $100,000, which limited me a lot. (It meant going) from buying a home to buying a condominium or townhouse.

"They said I couldn't qualify for more because I was single and only had one income."

Yet Valdez persevered and today, thanks to a resourceful mortgage broker and a little-known federal program called the Mortgage Credit Certificate (MCC), the 25-year-old is enjoying his new home in Long Beach.

Valdez said the two-bedroom house he purchased in October for $127,000 is spacious and includes extras such as a den, laundry room, large yard and attached garage.

"It beats renting. I don't have to pay anybody else. Anything I invest in this house is mine," he said, adding, "I would have bought a condo or townhome, but I wanted a home of my own."

As a Los Angeles County employee, Valdez earns about $25,000 a year. A former member of the Army Reserves, he financed the purchase with a no-money-down loan from the Department of Veterans Affairs, along with the Mortgage Credit Certificate program recommended by Ron Brown, vice president/FHA and VA underwriter with PMA Mortgage in Long Beach.

"He (Brown) explained the way the MCC worked and used it as a benefit toward my income," Valdez said. "When you're buying a home, everything helps."

Just like Valdez, first-time home buyers who need an extra boost can turn to the Mortgage Credit Certificate to increase their purchasing power. While the MCC receives scant attention compared to other popular home-buying programs, it is known among lenders for providing enough assistance to help buyers with a stable, moderate income to obtain a larger mortgage and, sometimes, allowing an applicant to qualify who otherwise would not.

The MCC is a federal tax credit that allows a buyer to use money that otherwise would have gone to pay income taxes to help pay his or her mortgage. It was authorized by Congress in the Tax Reform Act of 1984 as an alternative to mortgage revenue bond-backed financing, with the intent of providing financial assistance to buyers of single-family homes.

In 1985, California adopted legislation authorizing local bond-issuing agencies to make Mortgage Credit Certificates available throughout the state. The program has been administered locally by cities and counties.

Currently, the program is in a state of flux, so qualified home buyers may need to move quickly to take advantage of remaining funds.

The California Debt Limit Allocation Committee in Sacramento, which distributes MCC funds to communities throughout the state, recently evaluated its effectiveness in comparison with other programs competing for bond allocations, such as the loans issued by the California Housing Finance Agency (CHFA). The committee is taking steps to cut back on future allocations.

"A benefit analysis showed single-family mortgage revenue bonds were more beneficial than MCCs," said Don Maddy, acting executive director of the debt limit committee. "The main criteria was how many families are getting one. We also wanted to see how many construction jobs are being created and most MCCs--80%--go to people who are buying resale houses."

In addition, Maddy said, the committee needs to decide "if it's worth it to help fewer households but to reach the higher-cost areas instead."

Many locally administered MCC programs still have allocations but stand to be phased out if the funds are not replenished. Debt limit committee members decided in a Feb. 23 meeting to halt future appropriations but postponed a vote on the issue to give local housing program proponents a chance to respond.

"It makes it a lot easier for you to qualify for a loan. It makes several thousand dollars' difference," said Charles Taylor, assistant director of redevelopment for the Los Angeles County Community Development Commission and administrator of the county's MCC program.

The MCC allows home buyers to take up to 20% of the total interest they will pay annually on a mortgage loan as a direct credit against their income tax. The adjustment increases their spendable income, or take-home pay, and subsequently increases the borrower's ability to afford a mortgage payment.

Unlike a tax deduction that is subtracted from the gross income before federal income taxes are calculated, an MCC entitles the holder to subtract the dollar amount of the credit from his or her total federal income tax bill, said Brown, who helped Valdez at PMA Mortgage.

For example, Brown said a home buyer with an 8% fixed-rate $150,000 mortgage could expect to pay more than $12,000 in interest during the first year of the loan. With the 20% MCC credit, up to $2,400 (20% of $12,000) could be taken as an annual tax credit when filing the income-tax return.

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