First Time HomebuyerMortgage Advice
You’ll find lots of general (but still good) advice as you search the web to prepare for buying your first home (and the mortgage that you will need to purchase it).
Common suggestions include researching neighborhoods, starting to save money for a down payment and closing costs, choosing a real estate agent to work with, being cautious about taking on new debts, exploring various types of mortgages such as $0 down if you’re a veteran, $0 down if you are looking in an area that qualifies for USDA Rural Housing (assuming your total household income falls within allowable guidelines), various low down payment programs from Fannie Mae and Freddie Mac (some of which also have income limits), or FHA may be the best option for you if you’re credit is a little bruised. You’ll also read about all the warnings about the difference between pre-qualification and pre-approval, which generally speaking is that in a pre-qualification you are asked questions but your documents are not reviewed, while in pre-approval the mortgage company reviews your documents. Pre-approvals though come in two different flavors. In one type the loan officer reviews your documents and issues the pre-approval, in the other an actual underwriter reviews your documents and issues the pre-approval. The latter is obviously the better option as no matter what the loan officer says or thinks, your file will ultimately be reviewed by an underwriter who has the final say. I don’t mean to disparage loan officers as many are real professionals who understand mortgage guidelines as well as the best underwriters. At the end of the day the underwriter is just reviewing the loan officer’s work and even a pre-approval from an underwriter is still subject to final scrutiny when you are actually asking for the money. Your real estate agent can be a good source of lender referrals as if you don’t end up obtaining your financing, the real estate agent doesn’t get their commission. So they are very careful to refer people they have a lot of confidence in, but even their referral doesn’t guarantee success. Many times loan officers will court real estate agents hoping to get referrals from them and will settle for being in “2nd position”. They wait there and get promoted to “#1” when the #1 blows a deal and the initially “pre-approved” mortgage doesn’t close. When speaking with a loan officer you need to use your intuition and decide if you are working with a professional who closes 100% of the loans they set in motion or if they are a loan officer who is a little careless/less experienced and therefore has a certain percentage of loans that “fall out” due to their mistakes or oversights. Even if you think you have your financial house in great order (high credit score, low debts, plenty of money in the bank, good steady jobs, etc.) there are mortgage guidelines that can trip you up. Here is a sample of questions a careful loan officer will ask you when taking your application: 1) Other than normal sick and vacation days, have you been away from your job for any reason over the past two years (injury, caring for a relative, extended illness, etc.)? 2) Do you have any pending job absence or relocation planned (sabbatical, plant closing, etc.)? 3) If you are buying a condominium, is there a formal Homeownership Association (some smaller projects don’t have one)? 4) Have you made any deposits into your bank account over the past 90 days that you can’t verify the source (a friend paid you back money you informally lent them, you have a small side cash business, you won some money at a casino)? 5) Are there any items on your credit report that aren’t yours or aren’t accurately reported (especially if you have a parent with the same name or you have a “common” name it’s very possible for someone else’s credit items to get placed on your report)? 6) Are you letting the seller lease the property back from you after closing or for any other reason are you not moving into the property within 60 days after closing (there are requirements for how soon you need to move into a home you are buying as your primary residence)? 7) Is the seller making any repairs to the property prior to closing (you may receive an “appraisal waiver” which means you do not have to pay for an appraisal, however if there are repairs being made to the property the underwriter can invalidate the waiver and require an appraisal, which can either delay your closing or cause the deal to blow up if the value does not come in at the price you are paying). 8) Other than a garage or moveable storage shed, are there any outbuildings or mobile homes on the property (it doesn’t happen often but it happens and it can result in your loan being denied)? 9) In the jurisdiction where you are buying your home, does the sale of the property create an automatic change in the real estate taxes (if so you will have to qualify with the higher property tax amount). 10) If you are buying a multi-family home and need the rent from the other unit(s) to qualify, do you have any prior experience with rental property management (if you don’t some programs either won’t allow you to use the income to qualify or will limit the amount of that income you can use to qualify)? The bottom line is that you should feel that you are being thoroughly questioned about your overall financial circumstances. It’s okay if the loan officer asks you to fill out the application online, but after that there should be a very detailed discussion about your situation. It’s also okay if someone other than the loan officer conducts this interview, but you should hold that person to the same standards. Once a loan officer gets beyond closing around 5 loans a month, they need to bring on assistants to manage their volume. There’s nothing wrong with that, but it’s certainly possible for someone they hire to need more time getting ramped up or to not be as knowledgeable as they initially appeared. Make sure that in the loan officer’s attempt to increase the size of their business that you aren’t a “learning experience” for them as they build their team. Thank you to my new friend from Rhode Island who created this article and has been involved in the mortgage industry for many year.
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 Annual taxes can be complicated, frustrating, or require knowledge that the average citizen simply doesn’t have. Yet, many of us still choose online companies like TurboTax or H&R Block instead of seeking a professional accounting firm or an online CPA. Some are brave enough to try it themselves and simply work through the IRS complexities. But are you missing out on a better refund? What is the best route for you? And, should you use a CPA for your annual taxes? Marketing Popular CompaniesThrough the magic of marketing, many companies like TurboTax convince us that we don’t need to know much about the tax process. Instead, these companies allow us to input our information and be on our way. Although they certainly make the process easier, they are doing us a disservice. We aren’t learning about taxes, and we aren’t receiving the customer service we deserve. If you have a question or concern, you’re either out of luck or must pay more. Losing MoneyThe average citizen doesn’t have a lot to file when it comes to taxes. If you don’t fall into the “complicated taxes” category, then you can get away with using something like H&R Block or even just the IRS website. But, in the process, you could lose money on your refund. In 2018, 80% of filers missed an essential step, which may have affected their rebate. That’s why using a CPA firm that provides customer service, and education, might be worth the expense. CPA and Accounting FirmsAnother route you can take is to file your taxes through an accounting firm. The main perk of using a CPA is that you have access to professionals who live and breathe taxes and are available to help you face-to-face or over-the-phone. And if you miss the convenience of programs like TurboTax, you can use an online CPA like our firm, Sickler, Tarpey & Associates. Our offices are in Tyrone, Pennsylvania, but we work online with clients across the country and the world. Education and Customer ServiceLet’s take TurboTax as an example. If you’re using the paid version for both federal and state taxes, you’re going to pay about $175. That’s a significant fee for an online company that gives you no customer service. To keep our rates competitive, we match that fee at Sickler, Tarpey & Associates, yet we provide education and personalized service. When you use an online CPA firm, you’re not just a number or one of the thousands. You're an essential part of someone's business, and you get one-on-one, individualized attention so you can gain the most from your taxes. Our accounting firm walks you through the process, whether you have one job and no kids or several business partners and many dependents. “Complicated” TaxesWe often like to categorize ourselves into two cases: complicated or straightforward. Someone who’s a simple tax case might be a single person who has one job and rents an apartment. A complicated situation might be a married couple with several children, businesses, and homes. So we assume only “complicated” taxes need a CPA. At our accounting firm, we believe that everyone can benefit from professional help.
Because of this belief, we offer an online CPA at affordable rates (comparable to TurboTax). We don’t want you to be one of the 80% who might lose money on your return. We want the opposite! We help you find other refunds or deductions so that you’re in the best financial situation possible. And, along the way, we want you to understand your taxes so that you can take any necessary steps throughout the year to enhance your finances and taxes.  As an accounting firm, we get a lot of confused individuals who grapple with the difference between tax credits and tax deductions. Many of our clients don’t want to pursue the MCC Tax Credit because they want to focus on deductions. But for many homebuyers, you don’t have to choose; you can benefit from both credits and deductions. Even state-specific MCC programs, like the Texas Mortgage Credit Certificate Program (TDHCA MCC), for example, allow you to benefit from credits and deductions. What are Tax Credits?Let’s start with a basic understanding of tax credits. In simple terms, a tax credit is an incentive on your taxes. If you qualify, you can subtract the amount of the credit from what you owe the state at tax time. Tax credits can also work retrospectively regarding taxes already paid. Tax credits as incentives are popular tactics for homebuyers. The government wants you to buy a house because it’s good for the country and it’s a good investment! So to incentivize you, they give you a credit that reduces the amount of tax you owe. That’s how the MCC Tax Credit program works. What are Tax Deductions?Now let’s look at deductions. A tax deduction is different than credit because it doesn’t reduce the tax owed. Instead, it reduces the amount of income that the government taxes. You can use it to aid in accrued expenses, like when purchasing a home or starting a business. The MCC Tax Credit — and its state-specific programs (each state has its own, like the TDHCA MCC (Texas), CFHA MCC (California), and IHDA MCC (Illinois), for example) — isn’t a deduction. It’s a credit, so it essentially refunds money spent rather than reduces one’s taxable income. Which One: MCC Tax Credit or Mortgage Interest Deduction?Again, there’s no reason to choose — you can benefit from both the MCC Tax Credit and the Mortgage Interest Deduction! Even if you already claim the mortgage interest deduction on your taxes, you can still combine the two benefits. All you have to do is take the amount of the MCC tax credit you received and subtract it from your mortgage interest deduction. We’ll give you an example. Let’s say you paid $5,000 in mortgage interest during the previous year. If you lived in a state where you could claim 50% of your mortgage interest as a credit, you would receive the full $2,000 credit. Therefore, you would subtract $2,000 from your mortgage interest deduction total, claiming $3,000 instead of $5,000. By combining the two benefits using this example, you can:
When To Ask For HelpWe understand that this process can be confusing for many people. That’s why our CPA firm is here to help! If you’re still puzzled by tax credits and tax deductions, or have questions about the MCC Tax Credit, including the state-specific programs like the TDHCA MCC or CFHA MCC — we know, it’s a lot! — then contact us. Our team can do this in our sleep, and we’re here to help you claim as many savings as possible when buying your first home. Let us make this process easy for you!
 So you’re a first-time homebuyer, and you’re ready to make that big purchase — congratulations! Buying your first home is an exciting time that you should enjoy as much as you can. However, anxiety or confusion around money often clouds excitement. We want to help, so we’re highlighting a few tax credits that assist and support first-time homebuyers. What Are Tax CreditsFirst, let’s determine what exactly tax credits are and how they can help you. Tax credits work as incentives and are specific amounts of money that individuals can subtract from taxes that they owe the government. They decrease the exact amount of tax one owes, which differs from deductions, which reduces taxable income. If you don’t owe too much on your taxes, then that tax credit becomes money that the government pays you. First-Time HomebuyersIf you’re buying your first home, there are a few tax credits and programs that you can use to reduce your overall costs. Unfortunately, the well-known tax credit enacted by President Obama in 2008 is no longer available (it closed in 2010). However, there are a few others you can pursue. MCC Tax CreditWe’re going to start with the MCC Tax Credit because our firm specializes in it. The MCC Tax Credit varies from state-to-state, so to understand exactly how much money you can save will depend on where you live. However, the value of this credit can be as high as 50% of the mortgage interest that you pay each year, meaning that you can save up to $2,000 per year for your entire home loan. For a 30-year mortgage, that’s $60,000 worth of savings! Keep in mind that the MCC Tax Credit, much like many state and federal incentives, enforce some requirements and limits. With this credit, restrictions vary depending on where you live and include caps on annual income and home prices. Mortgage Interest DeductionThe mortgage interest deduction isn’t a tax credit, nor is it specific to first-time homebuyers. However, it’s a favored incentive that allows homeowners to subtract the interest they pay on any home loan from their taxable income. These loans could be used for purchasing, building, or improving any residence. And as a bonus, those that use the MCC Tax Credit can simultaneously claim up to $3,000 for the mortgage interest deduction! State ProgramsMany states have individualized programs that offer incentives for those buying their first home. It takes a little digging, but almost every state offers some sort of assistance. Keep in mind that many of these programs focus on specific cities, counties, or regions. These programs range from tax credits, deductions, low-interest loans, and more.
For example, in Hawaii, the County of Kaua’i Home Buyer Loan Program offers low-interest rates on loans for eligible buyers. In Oakland, California, the city provides a Mortgage Assistance Program. This program helps first-time homebuyers bridge the gap between their financials and the price of their home. It does this by providing funds to help with closing costs and down payments. Those are just two examples of the numerous state programs available. A little research will help you find what initiatives your state, city, or county provides. And if you need any assistance, you can always contact us, as we’re a professional accounting firm that does it all!  Are you on the market for a new home? If so, you’ve probably searched for tax credits for first-time homebuyers to help save money on your big purchase. Perhaps you’ve even read about the MCC Tax Credit. Understanding tax credits can be complicated, which is why we’re here to explain how it works and how it can help you. Tax Credits for First-Time HomebuyersFirst-time homebuyers rejoice! There are a few tax credits and programs that help you get started on purchasing your first home. Many work as incentives that save you money with federally funded and state-to-state programs. If you’re a first-time homebuyer, there are several options to help you take this big step. One of the tax credits for first-time homebuyers is called the MCC Tax Credit. It’s not as popular as some of the other programs out there, so not many homebuyers know it. Because it’s a bit complicated, let’s take a look at precisely what the MCC Tax Credit can do for you. MCC Tax Credit: $2,000 Cash Back AnnuallyThe biggest perk of the MCC Tax Credit is that it offers first-time homebuyers up to $2,000 cashback every year for up to 30 years. That’s a savings of up to $60,000 for your entire mortgage! To obtain this credit, all you have to do is simply apply for the MCC Tax Credit Certificate before buying a first time home. If it gets confusing, our CPA firm is here to help you every step of the way. Defining “First-Time” HomebuyerOf course, there are some restrictions to this program. To start, you must be a first-time homebuyer and obtain the certificate before purchasing your home. Unfortunately, if you just bought your house last week, you can’t take advantage of the MCC Tax Credit. What exactly is a “first-time homebuyer,” and do you qualify? Here are the conditions:
Other QualificationsThere are some other qualifications within the MCC Tax Credit Program. This program is state-by-state, so you’ll have to look at where you’re planning to purchase your home to determine caps on home prices and incomes. As an example, our offices are in Blair County, Pennsylvania. In our area, to qualify for the tax credit, you must fall into these limits:
Blair County is a more deprived area of the state, so these limits are as expected. Remember, qualifications in your area will be different. The Big CaveatIt’s not that big, but it is essential to know. The MCC Tax Credit works with a percentage that differs from state-to-state. That’s why the credit is stated as up to $2,000. Some homebuyers may not qualify for the entire amount. However, if you meet the general requirements, you’ll undoubtedly receive some money back in your taxes each year.
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AuthorRandy Tarpey CPA Archives
March 2021
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