Single Family Mortgage Credit Certificate Program
Frequently Asked Questions
 

 

 


What is an MCC? To top of page
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.

 

What is the difference between a “tax credit” and a “tax deduction”? To top of page
A “tax credit” entitles a taxpayer to subtract the amount of the credit from their total federal income tax liability (or bill). A “tax deduction” is subtracted from adjusted gross income before federal taxes are computed.

 

How does the MCC “reduce” the mortgage interest rate? To top of page
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.
Mortgage Rate Interest Annual 1st YR MCC
Tax Credit
$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.

 

How does the Homebuyer realize the increase in “home-buying power”? To top of page
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.

 

What happens if a qualified homebuyer cannot use the entire amount of the MCC credit for the year in which it applies? To top of page
If the amount of the MCC exceeds the homebuyer’s tax liability reduced by any other personal credits for the tax year, the unused portion of the credit can be carried forward to the next three years or until used, whichever comes first. The Homebuyer will have to keep track of the unused credit by year. The current year credit is applied first and then the “oldest” amount of unused credit applied next.

 

How does a homebuyer apply for an MCC? To top of page
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.

 

What kinds of properties are eligible? To top of page
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.

 

What loans can be used with the MCC? To top of page
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.

 

How long can a Borrower use the tax credit of the MCC? To top of page
A first time homebuyer may use the tax credit provided by the MCC as long as he/she lives in the home as his/her principal residence.

 

What are the purchase price and income limitations? To top of page
Purchase Price Limits
Purchase Price
Non-Target
Target
New or Existing
$276,334
$337,741

Household Income Limits
1 to 2 persons
$69,000
$72,480
3 or more persons
$79,675
$79,675

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