Is a conventional mortgage or FHA loan better?
What is an FHA loan? How does it compare to a conventional mortgage? We’ll explain all the major differences so you can decide which is best for you.
The housing market continues to maintain the momentum gained over the last few years. And according to the Realtor Association of the Sioux Empire, current housing trends look to continue in 2020. High rental rates and historically low mortgage rates are causing some to reconsider signing a lease towards home ownership with a home loan.
The government is also continuing to encourage people to buy with programs like the First-Time Homebuyer Program that make homeownership more affordable. This program is also part of a national tax policy and gives first-time homebuyers a great incentive to enter the market.
Not sure if you would benefit from this program? Below we have answered your top questions about South Dakota’s First-Time Homebuyer Program.
The South Dakota Housing Development Authority is offering homebuyers the option of getting a Mortgage Credit Certificate (MCC) when they buy their first home through South Dakota’s First-Time Homebuyers Program.
Mortgage interest has been tax deductible for some time, but this MCC credit is different. It is a tax credit—a dollar-for-dollar reduction of your taxed income. So a $2,000 tax credit through the program could save you $2,000 in taxes. This is different than a tax deduction, which only lowers your taxable income.
Homebuyers who take advantage of the MCC could see their income tax liability reduced by as much as $2,000 per year for every year they have their loan. Hypothetically, if a person’s tax refund is $2,500 for a given year, that refund could be as high as $4,500 with the MCC tax credit.
While the upside of the program is tax liability reduction, there are some trade-offs. Opting for the MCC can add as much as $750 to your bottom-line closing costs when purchasing a home. The interest rate goes up .375% if you purchase using the MCC, too.
It comes down to math. If you’re weighing the pros and cons of the MCC, ask your mortgage banker to run the numbers to determine the short- and long-term costs and benefits.
Only first-time homebuyers can apply, but there is one exception. The government considers anyone who has not owned a home in the past 3 years to be a first-time homebuyer. If you owned a home previously, but sold it more than three years ago, you may be eligible for first-time homebuyer status.
All borrowers must be first-time homebuyers. The only exception to this rule is if there is a non-occupant co-borrower—a co-signer for the loan who won’t be living in the house. This is rare.
While there is no known deadline, there is a finite amount of funds available for this program. As a general rule, the sooner you apply, the more you’ll increase your odds of getting in on it.
Weigh the pros and cons before you decide. While this program can be beneficial for many buyers, it is not for everybody. First, ask yourself how long you intend to have the loan. This will determine the number of years the tax credit will benefit you. Also, think about your current tax burden. If you pay very little in taxes now, the MCC may not benefit you.
Have questions about the program or home ownership? Our mortgage team is here to provide friendly expertise. It’s what we do best. Contact us today.
Please consult with your tax advisor regarding your tax eligibility.
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