Friday, October 20, 2017 / by George Chiriboga
What is a Mortgage Credit Certificate? A Mortgage Credit Certificate allows the homebuyer to claim a tax credit for some portion of the mortgage interest paid per year. It is a dollar for dollar reduction against their federal tax liability.
Note: The Mortgage Interest Credit (MCC) is a non-refundable tax credit, therefore, the Homebuyer MUST have tax liability in order to take advantage of the tax credit.
Who is eligible to receive an MCC? The program is open to those individuals and families who:
- meet income and home purchase requirements;
- have not owned a home as primary residence in the past three (3) years;
- meet the qualifying requirements of the mortgage loan;
- will use the home as their principal/primary residence.
How much of a tax credit can be issued under the MCC program? The size of the annual tax credit will be 40% of the annual interest paid on the mortgage loan. However, the maximum amount of the tax credit shall not exceed $2,000 per year. The credit cannot be larger than the annual federal income tax liability, after all other credits and deductions have been taken into account. MCC credits in excess of the current year tax liability may, however, be carried forward for use in the subsequent three years.
MCC Example: MCCs are issued directly to qualifying Applicants who are then able each year to take a tax credit equal to a specified percentage of the interest paid on their mortgage not to exceed $2,000. The Mortgage Credit Certificate Rate is 30 percent. Thus, an Applicant with a $150,000.00 mortgage (30 year fixed with equal monthly installments of principal and interest) would realize the following savings:
Total Interest Paid First year:
Mortgage Credit Certificate Rate:
Tax Credit Amount:
MCC Program Criteria / Requirements: All mortgage loan types are eligible. The mortgage loan, available through a network of participating lenders, must be underwritten according to FHA, VA, USDA/RHS or conventional loan criteria and will be at prevailing market rates. New and existing single family homes, townhouses, condominiums and manufactured housing (with certain restrictions) are eligible properties. Purchase price and income limits, adjusted by household size apply. The homebuyer must also occupy the property as their principal residence.
Length of Benefit:Each year, the mortgage tax credit will be calculated on the basis of 40% of the total interest paid on the mortgage loan that year. The MCC will be in effect for the term of the mortgage loan, so long as the residence remains the principal residence. In order to maintain the MCC the homebuyer can adjust their withholdings on their W-4 form with their employer and must file IRS Form 8396 with their federal income tax return. The form can be obtained from the IRS web site at www.irs.gov.
Homebuyer Education Requirement: Homebuyer must complete a pre-purchase homebuyer education course prior to loan closing. Get a list of certified homebuyer education providers in your city/county.
Other Costs/Fees: In addition to the regular closing costs associated with the loan, there is a MCC Issuance Fee of $500.00, and a Compliance fee of either $225/$200, due upon closing. Please check with lender for current applicable fees.
Call us about the program above to locate participating lenders in your area. The list includes addresses and contact information.