Mortgage Credit Certificates – Q & A

Understanding mortgage credit certificates can be confusing. Here are some answers to frequently asked questions to help Texas homebuyers better understand this unique form of credit.

What is the Mortgage Credit Certificate program?

The Mortgage Credit Certificate program allows first-time home buyers to use a special federal income tax credit. This program allows buyers credit in qualifying for the tax advantage they’ll receive after they purchase the home.

The amount of the credit is tied to a local formula that every city with an MCC program must follow. An MCC credit totaling $2,000 or more reduces the borrower’s federal tax liability by an amount tied to how much one pays in annual mortgage interest. The borrower’s income and the home’s purchase price must fall within established guidelines.

Call your local housing or redevelopment agency to see if your community has an MCC program. You also may inquire with your real estate broker or the local association of Realtors.

What is a Mortgage Credit Certificate (MCC)?

A Mortgage Credit Certificate (MCC) is a type of tax credit that directly reduces federal taxes paid by qualified homeowners who take out a mortgage loan. The credit applies for up to 30 years after purchasing a home; each year’s tax savings increases with the size of the mortgage.

Who is Eligible for an MCC?

Homebuyers who meet certain eligibility requirements, including income limits and certain property restrictions, may qualify for an MCC. Eligibility varies by state, so potential homebuyers should research local laws before applying.

How Do I Apply for an MCC?

To apply for an MCC, you must first contact your lender or broker to determine if they offer these programs. If they do, the lender must submit an application on your behalf to the state department of housing and community development or whichever agency handles mortgages in your area. Once the application is approved, the lender will issue the MCC to the borrower, allowing him or her to claim the tax savings on their federal tax return.

What Are Some Other Benefits of an MCC?

In addition to tax savings, mortgage credit certificates also provide other benefits. These include greater affordability over time as the value of the mortgage diminishes, more ability to pay down mortgage debt in higher-cost areas, and a greater incentive for lenders to work with lower-income borrowers.

Are there tax credits for first-time home buyers?

A: Many city and county governments offer Mortgage Credit Certificate programs, which allow first-time homebuyers to take advantage of a special federal income tax write-off, which makes qualifying for a mortgage loan easier.

Requirements vary from program to program. People wanting to apply should contact their local housing or community development office.

Here is a list of four general requirements to keep in mind:

  1. Some credit may be claimed only on your owner-occupied principal residence.
  2. There are maximum income limits, which vary by locality and family size.
  3. You must be a first-time home buyer, meaning you must not have had any ownership interest in a principal residence during the past three years. However, this restriction may be waived if you buy property within certain target areas.
  4. Allocations must be available. A local MCC program may have to decline new applications when it runs out of funds.

What are the rules for mortgage credit certificates?

To qualify for a mortgage credit certificate, your income and the home’s purchase price must fall within established city guidelines. These guidelines vary by city but generally only permit people who earn an average income or slightly higher than average income.

A limited number of cities have authorized the MCC program. Contact your municipal housing department for more information.

Where Can I Learn More about Mortgage Credit Certificates?

Speaking directly with a mortgage lender or broker is the best place to learn more. They have the most up-to-date information on MCCs and can answer specific questions about the program and how it could benefit your situation. Additionally, researching online resources such as government websites can provide more detailed information on MCCs and related programs.