Savvy City Homebuyers Use TaxSmart

In a recent blog I discussed the virtues of the City of Chicago Mortgage Bond Program, a housing assistance program designed to help the first-time buyer purchase a primary residence, and allow low to moderate income home buyers to purchase a home in Target Areas within the city limits.  The other program available to city home buyers is TaxSmart, a mortgage credit certificate (MCC) that can yield an additional 20% reduction of interest paid on an owner occupied home for qualified buyers.   This is a federal income tax credit of up to $2,000 per year in conjunction with a purchase loan originated through an approved lender such as Chicago Bancorp.   The benefits of TaxSmart are good for as long as the lien is outstanding.  

The U. S. Census Bureau divides the city into tracts, and these are further subdivided for program qualification and can be found throughout Chicago.   Low to moderate income housing tracts have been identified as Target Areas and are located throughout Chicago.   The city wants to maintain a growing population within the city limits, thus the entire town is in what™s known as a Non-Target Area, designed to attract qualified first-time buyers to any neighborhood.

To put the focus on those families who would benefit the most by funding, a Federal Recapture Tax is in place to deter those with a œfree money mentality.   Said in other way, the program seeks to avoid three things: selling a home within 9 years; a borrower earning a much higher income since the closing date; recouping significant capital gains early.   Most borrowers will never meet all of these requirements; therefore, they will never pay recapture tax.

It™s important to note that the borrower may not combine the Bond Program with TaxSmart.   It™s one or the other. Only a participating lender can help you qualify for these programs and discuss what makes sense for you.   If you have an adequate down payment and plan to stay in the home for many years, TaxSmart probably makes the most sense.

Due to its popularity, availability is on a first come, first served basis.   Getting pre-approved two months prior to the anticipated closing date is strongly recommended, so apply early.   Borrowers can qualify for the bond program by satisfying the following guidelines:  

  • You must be a first time homebuyer, and have not owned a home in the last 3 years, or you purchase a home in a Target Area
  • Your total gross household income must be considered low to moderate by federal law and is adjusted by the number of legal residents in your household; for example, in a Target Area, a one person household can earn up to $72,384 per year
  • Your purchase price is limited again by federal mandate and is dependent upon the number of units (1-4) and if it falls in a Target Area or not; for example, a one-unit residence in a Target Area can sell for no more than $398,315
  • You must occupy the home as a principal residence within 60 days of closing
  • The residence must be 4 or fewer units to qualify, within the city limits
  • First-time borrowers must receive pre-purchase counseling from an approved source prior to final approval

This is only a summary of the requirements under this program, and the city of
Chicago reserves the right to change the parameters concerning income and purchase price limits periodically.   Applications and additional information are available through your participating mortgage banker.  

© 2008 Michael S. Amers

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