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Single Family Mortgage Credit Certificate
Program
Frequently Asked Questions
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What is an MCC? |
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The MCC operates as an IRS tax credit. The MCC tax credit (20 percent
of annual mortgage interest paid) reduces the federal income taxes of
qualified Borrowers purchasing qualified homes, thus having the effect
of subsidizing their payments. |
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How does the MCC “reduce” the mortgage interest rate?
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A Borrower with a 6.5% fixed rate 30-year mortgage of $100,000 would
make $6,500 in interest payments during the first year of the
mortgage. By using a 20% MCC, up to $1,300 (20% of $6,500) of the
payments would be allowed to be taken as a “tax credit” toward that
buyer’s federal income tax liability of $1,300 or more after all other
deductions and credits.
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Mortgage |
Rate |
Interest |
Annual 1st YR MCC
Tax Credit |
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$100,000 |
6.5% |
$6,500 |
$1,300 |
The MCC will reduce the amount of federal income taxes otherwise
due to the federal government from the Borrower. The MCC is not
refundable. The benefit to the homeowner cannot exceed the amount of
federal taxes owed for the year, after other credits and deductions
have been taken into account. The tax credit can be carried forward
three tax years or until used, whichever comes first. The Borrower may
consider adjusting his or her federal income tax withholding (W-4) so
as to benefit on a monthly basis from the MCC. By taking this action,
the Borrower will have more disposable income to make mortgage
payments. |
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How does the Homebuyer realize the increase in “home-buying power”?
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The homebuyer may consider adjusting his/her federal income tax
withholding to receive the benefit from the credit on a monthly basis.
In this case, the homebuyer will re-file a W-4 form with his/her
employer reflecting the MCC credit. By taking this action, the number
of exemptions will increase, reducing the amount of taxes withheld and
thereby increasing the disposable income.
The homebuyer also has the option to wait until the end of the year
and realize the tax credit savings when filing the Federal Income Tax
returns. |
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How does a homebuyer apply for an MCC? |
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The Homebuyer applies for the Mortgage Credit Certificate with a MCC
Administrator at the same time he/she makes a formal application for a
mortgage loan. The homebuyer should have a signed purchase offer in
hand to buy a house and be ready to supply credit information,
employment data and other information to the Lender.
There is no allocation of Mortgage Credit Certificates by the
Lender. After an application is filed, the Lender will arrange with
the MCC Administrator to reserve an allocation for an MCC assisted
mortgage loan. This reservation (MCC Commitment) will hold the MCC
while the Lender and the MCC Administrator are processing the
application. |
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What kinds of properties are eligible?
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An MCC can only be used for new or existing single-family homes
including single family detached homes, condominiums, duplexes,
townhouses or manufactured houses. Triplexes and four-plexes do not
qualify as eligible structures. |
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What loans can be used with the MCC?
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MCCs can be used with conventional, fixed-rate or adjustable rate
loans; FHA and VA loans; and privately insured loans. MCCs are not
available with (tax-exempt) bond backed loans such as the Mortgage
Revenue Bond program that can carry a below-market fixed interest
rate. |
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