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First-Time Homebuyer Tax Credit​

Mortgage Credit Certificates 

If you are a first-time homebuyer and you haven't heard of this tax credit that may be available to you, you're not alone.  After reading this, you will understand how to use a Mortgage Credit Certificate, or MCC, to save thousands on future taxes. You'll also learn why it's one of the biggest secrets that most homebuyers aren't aware of.


First-time homebuyers (or those who haven't owned in the last 3 years) may be eligible for an MCC based on meeting federally established income and sales price limits.


MCCs are available with conventional fixed-rate, FHA, VA, Rural Development and privately insured mortgages. Applications are accepted on a first-come, first served basis by a statewide network of participating lenders (and we're one of the few)

What Is An MCC?

A mortgage credit certificate allows first time home buyers to exchange a portion of your mortgage interest deduction for a dollar for dollar tax credit.

MCCs provide a tax credit to reduce the amount of federal taxes owed by a percentage of the annual mortgage interest paid each year. The remaining annual interest may be claimed as a mortgage interest deduction on the homebuyer's federal tax return. ​

Mortgage credit rates are based on the loan amount.

  • 20% MCC for loans of $150,001 or greater: no cap

  • 30% MCC for loans of $100,001 to 150,000: $2,000/year cap

  • 50% MCC for loans of $100,000 or less: $2,000/year cap 

Who's Eligible

The first requirement is that you must be a first-time homebuyer or that you haven't owned a home in the past 3 years.


You must also meet the income and sales price limit for the area where you are purchasing.  When you find a home you're interested in buying, simply contact us to learn whether the address is located in a "target" or "non-target" area so you'll know which column to use.​

How To Calcualte An MCC Tax Credit

Ok, hopefully I didn’t lose you there. As all things related to the tax code, it’s a little complicated.

If you were following along, we are using a loan amount of $125,000, and for the mortgage credit certificate, the credit percentage is 30%. (See above)


Here’s the formula for calculating your tax credit:

  • Multiply your principle loan balance by your interest rate.  This is amount of mortgage interest you will pay over 12 months.  Example: $125,000 x 4.5% (interest rate) = $5,625

  • Multiply the annual interest deduction by the MCC percentage.  Example: $5,625 x 30% MCC credit = $1,687.50

  • Your tax-deductible mortgage insurance is reduced by the mortgage credit of $1,687.50

  • You are now left with a mortgage interest deduction of $3,937.50 ($5,625 – $1,687.50 credit)

  • You now have a credit of $1,687.50 to offset any taxes that you may owe.


NOTE:  Tax credit may not exceed actual taxes owed, and can be carried forward for up to 3 years.  Please consult your local MCC expert and tax specialist for actual numbers.

Tax Credit vs Tax Deduction

The mortgage interest you pay when you make your mortgage payment each month is a tax deduction.  Most States will also allow your property taxes as a tax deduction.


A tax deduction reduces the amount of income used when calculating the amount of Federal income taxes owed.  With enough tax deductions, you can change tax brackets to have all of your income taxes at a lower rate than if you would not have taken the deduction.


A tax credit is applied directly toward any outstanding tax liability you owe.  In the above scenario, let’s say your total Federal taxes owed for the past year $7,500, and you normally would have received a couple of hundred dollars as a tax refund.


NOTE:  Tax credit may not exceed actual taxes owed, and can be carried forward for up to 3 years.  Please consult your local MCC expert and tax specialist for actual numbers.

Why Have You Not Heard About It?

We take some of the blame for not doing a better job of getting the information out there. That stops NOW! 

We as the lender cannot make money off of an MCC, and it does require a little more paperwork on both you and the lender.  Other inexperienced loan officers and call center lenders are not going to have the first clue about what a mortgage credit certificate is and how to get one.

We can help!  

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