Through the years, the federal government has periodically offered incentives to first time home buyers in the form of tax credits. Now, while the Federal tax credit for first-time homebuyers has expired, there is another tax credit program that has been around for many years but is not very well-known. It’s called the Mortgage Credit Certificate (MCC) program, and it could offer you a substantial benefit if you qualify.
The MCC program is available through state and local governments. When you apply for your mortgage loan, you also apply for an MCC. If you meet certain qualifications and buy a home in certain geographical areas, the state or local government will issue you the MCC. This will save you money on your federal taxes and may benefit you in obtaining your mortgage loan.
Benefits of being able to take a tax credit pursuant to a MCC program versus tax deduction:
- All home buyers can deduct their mortgage interest from their income to lower their taxable income. A tax credit is an amount subtracted from the tax owed after all deductions have been taken.
- The amount of the tax credit is determined according to a percentage of the interest paid. The remaining percentage can still be used for tax deduction purposes.
- The MCC allows you to deduct the credit amount dollar for dollar from your tax due. For example, if, after all deductions are taken and your tax bill is determined to be $3,400 and your tax credit is determined to be $2,400, you will only owe $1,000 in taxes.
- The tax credit can be claimed every year you maintain your home as your primary residence, as opposed to the old Federal tax credit, which could only be claimed the year you bought the home.
- In some cases, lenders consider the tax credit the homeowner will receive as extra annual income when evaluating loan eligibility factors. This means if your tax credit is $2,400, that amount can be added to your annual income. That may make a difference in whether or not you qualify for a loan in the first place
General requirements for MCC eligibility:
- You cannot have owned a home during the three years prior to the current home purchase. There are some exceptions to this rule. There are target areas where the local government may be offering more incentives for people to purchase homes and they may waive the three year rule.
- The home must be for your primary residence.
- The home must be used as a residence and not as a business.
- Almost every type of home that can be used as a personal residence will qualify, including condominiums and manufactured homes.
You will need to do some initial research on your own. Check with your realtor and/or search online for the state or county where you hope to find a house and add the words “Mortgage Credit Certificate” to find details of the available programs in that area, and perhaps a list of lenders who offer programs based on the MCC.
Keep in mind that there may be a maximum allowable income in order to qualify, or a limit to the maximum price of the home. However, if you do qualify, taking advantage of this type of mortgage tax credit can help out quite a bit.