The Mortgage Credit Certificate program (MCC) is back in 2022, helping first-time and repeat homebuyers in select areas own a home. Buying a home can be financially challenging, especially in the current competitive market. Thanks to the state Housing Finance Agencies (HFAs), you can get a tax credit based on the interest you'll be paying on the mortgage. This life-saving program application is open in certain states but with a few changes, which will be discussed below.
What Is the Mortgage Credit Certificate Program?
Lenders who work with the state HFAs provide MCCs to qualified borrowers. Once you've obtained an MCC, you'll be eligible to claim a nonrefundable federal tax credit equivalent to a percentage of the annual interest charged on your mortgage. You can claim these tax credits after filing your perennial tax returns with the IRS. Another alternative is to cut your federal income tax withholdings on the W-4 through your company if you don't want to wait until then. This way, you will receive the benefits every month.
Who Is Eligible for the Mortgage Credit Certificate Program?
The criteria governing the MCC program differs from state to state. Obtaining it is contingent on a few essential elements, including:
- Your income
- Where you want to live
- Household size
- Price of the home you want to buy
Other considerations include:
1. Property price, borrower income, loan amount limits
The program has limits on mortgage size, income, and sales price since the program is geared toward low- and moderate-income buyers. The limitations, however, differ by state.
2. First-time buyer
You must not have purchased a primary home in the last three years. However, this condition doesn't apply if you are:
- A veteran.
- An active-duty military.
- Purchasing a house in qualifying census tracts or remote development regions as specified by the HUD or your state government.
3. Self-occupancy conditions
You have to make the house you've chosen your primary residence.
4. House Ownership and Mortgage Counseling
Many HFA programs demand you to take homebuyer training before purchasing. The course is about mortgage application and home-buying procedures.
How to Apply for the Mortgage Credit Certificate Program
Suppose your county is offering the MCC program, and you qualify. In that case, you will register for the program when applying for a mortgage with the lenders in your area. Choose a participating lender who has received approval from your state's HFA.
Applying for MCC doesn't exclude you from using other homebuyer programs. Please remember to claim the credit on your yearly tax return to earn any benefits or potential tax savings once you get the MCC.
Three Things to Consider When Applying for an MCC
It's crucial to research the expenses and hazards of applying for an MCC to determine whether the benefits are worthwhile. Other things to consider are:
MCCs can only be used in conjunction with purchase loans. You can't register for MCC to refinance your home. If you already have one and wish to refinance, several states may permit you to request that your certificate be reprinted for the new loan.
The FHA charges the MCC as a one-time cost to the loanee. If the MCC is issued in conjunction with an HFA first-lien mortgage program, they will bypass or lower the cost. Fees vary depending on the state. Your lender who produces the certificate will also bill you, but it is usually limited to a certain amount.
3. The Internal Revenue Service (IRS)
The IRS will charge you a portion of your tax credit if:
- You sell the house within 9 years of purchase. IRS won't charge if you sell the property after nine years.
- You currently make more money than when you first bought the house.
- You earn a profit from selling the property.
The IRS can recover up to 6.25% of the initial principal loan balance, or 50% of your gain from the sale.
How Will You Benefit from the Mortgage Credit Certificate Program?
The MCC tax credit makes mortgage repayments more affordable by balancing what you spend on interest as long as the property is still your primary residence. The dollar-for-dollar tax credit reduces the burden of loan repayments. In some cases, an MCC will help you get a loan that you wouldn't otherwise be approved for by lowering your net monthly mortgage payment. Unlike other homebuyer loan programs, FHA doesn't restrict you from using the MCC with other mortgage financing programs.
Need a Participating Lender?
At First Savings Mortgage, we offer excellent financing and outstanding customer service in the Washington, D.C. metro area and beyond. We've been around for years and are the state's largest privately held lender. We also help our consumers in locating a loan officer in their area. Don't hesitate to contact us to learn more about our services, including help on how to apply for an MCC.
Please note, by refinancing your existing loan, your total finance charges may be higher over the life of the loan.