Routt, Grand counties split $7.1 million for mortgage credit program
May 2, 2010
Steamboat Springs — The Colorado Housing and Finance Authority is collaborating with Routt and Grand counties to promote first-time homeownership through a $7.1 million program that allows qualified first-time buyers to deduct more interest from their income at tax time.
Rachel Basye, the authority's director of marketing and strategic development, estimated that about 50 homebuyers in the two counties would benefit from the Mortgage Credit Certificate Program. However, she said if demand exceeded that, her agency would come up with additional funds to issue more credits.
The net effect of the program is to allow homebuyers to qualify to borrow more money in order to get into their first homes.
"There's a great opportunity here for first-time homebuyers," Basye said. "This is an effective program because they can leverage a more expensive or larger home, which is particularly appealing in resort communities. And they can use the additional income to make their mortgage payment."
Lindsey Royce, an associate professor of English at the Alpine Campus of Colorado Mountain College in Steamboat Springs, said the Colorado Housing and Finance Authority made a big difference when she bought her home just outside the city.
When negotiations with the seller stalled, her banker refigured her income with a mortgage credit certificate and closed the gap.
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"I looked in Stagecoach, Clark and Steamboat but didn't expect to be able to buy in Steamboat," Royce said. "I found a fabulous place with beautiful views and bought it within a week."
Her banker is Carolyn Meadowcroft, of Vectra Bank in Glenwood Springs. Her Realtors were Caroline Wellford and Steve Elkins, of Prudential Steamboat Realty.
The goal of putting more buyers into their first homes is accomplished by allowing them to claim the first 20 percent of their mortgage interest deduction dollar for dollar on their tax forms. The full deduction is greater than the portion of their mortgage interest the Internal Revenue Service allows homeowners to deduct. And they still are eligible for the normal deduction on the remaining 80 percent of the interest they paid.
The source of the tax credits is bonding capabilities extended to the counties by the federal government. The two counties redirected the permission to sell bonds to CHFA to take advantage of its expertise to take the bonds to the market. The counties will not incur bonded indebtedness in the process, Basye said.
Mary Alice Page-Allen, asset and program manager for the Yampa Valley Housing Authority, said the credit certificates draw strength from the willingness of lenders to regard the annual tax savings as income.
"Lenders add it to a person's monthly income," she said. "It improves a borrower's debt-to-income ratio," allowing the person to afford more real estate.
In an era when first-time buyers must marshal every advantage they can to qualify for a home, Page-Allen said, the program is one of a number of tools they can use.
She used the hypothetical example of a first-time buyer in Routt County applying 5 percent down on a $300,000 home. That leaves the person borrowing $285,000 at 5.25 percent. The buyer could expect to pay $15,000 in interest during the first year (when almost none of the monthly mortgage payment is applied to principal). The Mortgage Credit Certificate Program could save buyers $3,000 in taxes at the end of the year, effectively putting $250 back into their monthly mortgage payment — enough, perhaps, to cover the buyer's escrow payments or homeowners' association dues.
It's difficult to generalize about the spread between the dollar-for-dollar deduction and the regular mortgage interest deduction because every taxpayer's unique financial situation changes the figures. That's why CHFA recommends that prospective participants seek the advice of an accountant to fully understand how the Mortgage Credit Certificate Program could help them, Basye said.
The full deduction on the 20 percent remains available for 20 years, as long as the borrower continues to occupy the house as his or her primary residence, or until the home loan is refinanced, Basye said.
In addition to being first-time homebuyers, other requirements for program participants include a credit score of at least 580 and income and home purchase price limits that vary with the county of residence and the census tract the homebuyer lives in.
Homebuyers must close on their purchase within 60 days of receiving a reservation in the program.
People refinancing into a long-term fixed-rate mortgage from an adjustable-rate mortgage that originated between Dec. 31, 2001, and Jan. 1, 2008, might also be eligible for the certificate program.
There also is a program to qualify military veterans for the credit certificates, Page-Allen said.
Homebuyers, mortgage lenders and Realtors are invited to visit http://www.chfainfo.com to learn more about how to use the mortgage credit certificates.