Notice Regarding Proposal to Implement Mortgage Credit Certificate (MCC) Program
NOTICE IS HEREBY GIVEN that the Dakota County Community Development Agency (the “CDA”) proposes to implement a program (the “Program”) to provide Mortgage Credit Certificates (“MCCs”) to qualified persons purchasing eligible homes in Dakota County, Minnesota (the “County”). The terms of the MCCs and the Program will be subject to the provisions and limitations of Section 25 of the Internal Revenue Code of 1986, as amended (the “Code”), and applicable Treasury Regulations. No sooner than 90 days following publication of this Notice, the CDA intends to issue MCCs according to the guidelines summarized below. This notice is published pursuant to Section 25 of the Code and Treasury Temp. Reg. §1.25-7T.
An MCC reduces the amount of federal income tax a qualified homeowner pays by providing a non-refundable, federal tax credit during the life of the homeowner’s mortgage loan. After all other credits and deductions are taken into account, the value of the MCC is applied directly to a homeowner’s remaining tax liability. An MCC under the Program entitles the homeowner to an annual federal income tax credit equal to between 10% and 50% of the annual yearly interest paid or accrued on the homeowner’s qualified mortgage loan; provided however, that if the MCC credit rate exceeds 20% the annual amount of the tax credit may not exceed $2,000. The amount of the credit may not exceed the homeowner’s total tax liability for a specified year, but excess credit may be carried forward for up to three subsequent tax years. Use of an MCC will reduce the annual deduction for home mortgage interest on the homeowner’s federal tax return. The CDA reserves the right to adjust the MCC credit rate or make allocations to specific sectors of the housing industry or to conform to market demand or future tax legislation.
The CDA anticipates that the requirements for a homeowner to be eligible to receive an MCC will be as follows:
- Principal Residence Requirement. The homeowner must occupy the financed home as his or her principal residence, beginning on a date that is within 60 days after the MCC is issued. In general, “principal residence” means an eligible home which the homeowner will own and will occupy as his or her principal residence throughout the term of the MCC. If at any time the borrower who is the holder of an MCC ceases to occupy the home as his or her principal residence, the MCC will be revoked so that the tax credit may no longer be taken.
- Income Limit. The maximum annual gross income for a homeowner to qualify for an MCC under the Program is 100% of median income for the County for households of one- or two-persons (currently $94,300) and 115% of median income for households of three or more persons (currently $108,400). In general, the combined gross income of: (i) all homeowners; (ii) any homeowner’s spouse intending to permanently live in the home being financed; and (iii) any co-signer of the note (whether or not an owner of the home or a homeowner) intending to permanently live in the home being financed; is used to determine income for purposes of this limit. In general, “gross income” means all income received on an annualized basis.
- First-Time Homebuyer Requirement. Each homeowner must be a first-time-homebuyer, defined as someone who has not had an ownership interest in his or her principal residence during the three-year period prior to the date the MCC is issued. Qualified veterans are exempt from the first-time homebuyer requirement.
- Purchase Price Limit. The purchase price of an eligible home cannot exceed limits established under federal and state law (currently $304,050 for a single-family home). For purposes of this limit, the purchase price includes amounts to be paid in cash or in kind for the home, as well as costs to complete an unfinished home and the capitalized value of ground rent (where applicable).
- Eligible Home. Homes eligible for purchase under the Program include new or previously occupied townhomes, condominiums or detached single family homes or an existing duplex located in the County. Mobile homes, trailers, unimproved land, investment or rental property, and vacation homes are not eligible homes under the Program.
- New Mortgage Requirement. With certain exceptions, MCCs may only be issued in connection with new mortgage loans and not in connection with the refinancing of a home. This limitation does not apply to certain temporary financings or construction loans.
Current federal tax law may require a payment to the federal government of a “recapture” tax if the homeowner sells or otherwise transfers his or her home to someone else within nine years after the MCC is issued and if the homeowner’s income had substantially increased during this period.
The CDA reserves the right to adjust the purchase price and income limits for the Program to reflect changes in federal and state guidelines, housing market conditions, and other factors. The CDA further reserves the right to adjust, modify or amend the Program requirements and guidelines at its sole discretion and without further notice.
METHODS BY WHICH MCCS ARE TO BE ISSUED
Until the total credit amount for the Program is exhausted, a qualifying homebuyer may apply for an MCC through a participating lender at the time of mortgage loan application. A list of participating lenders is available from the CDA on its website (www.dakotacda.org). There is no allocation of MCCs by lender. An applicant may also obtain a loan from a lender not on this list if the lender agrees to participate in the Program.
MCC applications will be accepted on a first‑come, first‑served basis. The applicant must meet the credit and underwriting criteria established by the participating lender which provides the mortgage loan. Applicants may be charged a processing fee as determined by the CDA, in addition to other normal loan charges. The applicant must sign all documents and affidavits which are needed to demonstrate eligibility for an MCC, and the regulations, rulings and interpretations issued by the Internal Revenue Service shall control in the event of a conflict with other requirements. The CDA publishes on the program website (http://www.ehousingplus.com/available-programs/minnesota/dakota-cda/) a Program Manual describing in greater detail the eligibility requirements for an MCC and the method for a prospective homeowner to make application for an MCC.
MCCs cannot be used with CDA-financed mortgage loans subsidized by mortgage revenue bonds or other tax-exempt obligations but can be used with mortgage loans sold on the secondary market.
LENDERS Invited to Participate in the Program
Banks, savings and loan associations, mortgage companies and other financing institutions are invited to participate as lenders under the Program. Any lender who wishes to participate will be required to sign a participation agreement, which outlines the lender’s loan review and reporting responsibilities, and may be required to pay such fee or fees as the CDA may require. The CDA will make a list of participating lenders available to the public upon request, and such list will be posted on the CDA’s web site (www.dakotacda.org). There is no allocation of MCCs by lender.
Further information regarding the Program and its requirements, for prospective borrowers as well as lenders, may be obtained by contacting the following person:
Dakota County Community Development Agency
1228 Town Centre Drive
Eagan, MN 55123