With mortgage rates soaring and inventories still near historical lows, would-be homebuyers are looking for any way to lower their costs. But many are overlooking an opportunity that would have the federal government pick up as much as $2,000 per year in payments.
A Mortgage Credit Certificate (MCC) offers a long-term tax break to buyers, but there are a few hurdles to clear first. It’s a program that’s largely targeted to first-time buyers and there are limits on both income and home prices.
MCCs are hardly new. They’ve been around nearly 10 years in some states. But awareness of them is fairly low—and they’re not available in every state. The payoff can be big if you are eligible, though, since it provides a federal tax credit for 30% of the annual interest paid on mortgage (up to $2,000) as long as you own the home and are paying off that mortgage.
MCCs can be issued by either the lender or the loan broker, but they’re not a loan product, per se. The restrictions on income and house price vary from state to state and the borrower must be a first-time buyer or can not have had an ownership interest in a principal residence in the past three years.
Many also require some form of pre-purchase homebuyer education from the buyer. You won’t need perfect credit, though. Some states accept a credit score as low as 640.
And, no, you can’t refinance your home and get an MCC. The certificate must be acquired at the initial closing. However, the FDIC notes, “if a borrower currently has an MCC, and decides to refinance into a new mortgage, many programs allow the borrower to apply to receive a new MCC issued against their refinanced mortgage.”
There is, often, a one-time fee associated with getting an MCC, but that’s applied at the time of closing, so it doesn’t result in notably higher monthly costs. Fees vary by state, but are usually no more than $1,000, and can be waived or reduced in some instances.
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