people discussing certificate

Mortgage Credit Certificate (MCC): How It Can Help You Afford Your Mortgage Payments

Victoria Araj4-minute read

November 29, 2022

Share:

If you’re a first-time home buyer looking for ways to save money on your mortgage, then you may want to see if you qualify for a mortgage credit certificate (MCC). This federal tax credit is distributed by your state or local government and allows you to deduct a portion of your mortgage interest.

An MCC can be a great way to save money on your mortgage, but the terms of the program vary depending on where you live. And there are a few drawbacks you’ll want to consider before signing up.

What Is A Mortgage Credit Certificate (MCC)?

When you take out a mortgage, not only are you expected to pay off the principal of the loan, but you have to make interest payments. This interest is a fee charged by the bank for loaning you the money. An MCC is a way to get some of the money back that you paid in interest.

An MCC is a federal tax credit given by the IRS to low-income borrowers, and it’s typically reserved for first-time home buyers. When you receive an MCC, you can claim a deduction of up to $2,000 on the mortgage interest you paid on your home.

If you qualify, this credit will reduce the amount you owe in federal taxes for the year. However, an MCC only really helps you if you paid a substantial amount of money in interest. If your interest payments are relatively low, an MCC won’t help you as much.

Who Is Eligible For A Mortgage Credit Certificate

Applying for an MCC may sound like a no-brainer, but unfortunately, not everyone is eligible for the program. The IRS has pretty strict guidelines on who can qualify to receive an MCC.

First, you must be a first-time home buyer and meet certain income and living constraints. The program is reserved for low to moderate-income home buyers, and you can’t earn more than the median income in your state. According to the National Council of State Housing Agencies (NCSHA), in 2020, 68% of MCC borrowers earned the median income or below.

You also must meet the income and purchase price restrictions, and the home must be used as your primary residence. In addition to the IRS guidelines, each state has its own restrictions regarding eligibility.

Do You Have To Apply For An MCC?

You’ll apply for an MCC when you take out the mortgage on your home, so you should start thinking about this from the beginning. As you’re looking for homes, check to see if the program is offered in your state.

If so, your state or local authorities should be able to tell you whether or not you qualify. And you’ll want to check to ensure that your lender is approved to offer mortgages with an MCC.

Take the first step toward the right mortgage.

Apply online for expert recommendations with real interest rates and payments.

How Do Mortgage Credit Certificates Work?

If you qualify to receive an MCC, you’ll receive an “MCC percentage.” This is a rate set by the Housing Finance Agency (HFA), and it ranges anywhere from 10% – 50%.

Mortgage Credit Certificate Example

For instance, let’s say you take out a $200,000 mortgage at a 4% interest rate. For that first year, you’ll pay $8,000 in interest. If you receive a 20% MCC, then you’ll receive a $1,600 tax credit. The remaining annual interest is deducted from your gross income.

Mortgage

$200,000

Interest Rate

4%

Annual Mortgage Interest

$8,000

MCC Percentage

20%

MCC Credit

$1,600

Is The Mortgage Credit Certificate Worth It?

Let’s take a look at some of the pros and cons of using a mortgage credit certificate.

MCC Pros

An MCC can make it easier for low-income borrowers to purchase a new home. The most obvious advantage being you could receive a substantial tax credit. Once approved, the credit will remain available for every year you’re a qualified homeowner, and there is no long-term cap on how much you can save.

Most states don’t require that borrowers have perfect credit in order to qualify for an MCC. For instance, some states will accept a credit score as low as 640. And most states make the application process fairly easy, so you can qualify and get started right away.

MCC Cons

The only real downside to applying for an MCC is that not everyone will qualify. For instance, there is a maximum home sale price of $250,000. So, if you live in a high-income area, you may not qualify.

How To Claim The MCC Tax Credit

You must claim the MCC tax credit every year on your federal tax returns. To do this, you must complete the Mortgage Interest Credit: IRS 8396 form.

Mortgage Credit Certificate FAQs

What does a mortgage credit certificate look like?

An MCC is a federal tax deduction you can claim on the annual mortgage interest paid. Eligible borrowers can earn a mortgage interest credit certificate of up to $2,000.

Will I still qualify if I refinance?

If you decide to refinance your home, you could run into some problems with your MCC. Many times, borrowers can have the MCC reissued as long as the new loan balance is lower than the previous balance.

Where is the mortgage credit certificate number?

Your mortgage credit certificate number is the number issued by the agency that qualified you for the program.

The Bottom Line: A Mortgage Credit Certificate Can Help You Afford Your Mortgage Payments

The mortgage credit certificate program is a great way for low to moderate-income borrowers to save money on their annual mortgage interest. Assuming you qualify for the program, you could save up to $2,000 per year in interest. First-time home buyers should check to see if they qualify for a mortgage credit certificate, as it can help to reduce the financial strain that buying a home can cause and make homeownership more affordable.

If you’re ready to begin the home buying process, the Home Loan Experts at Rocket Mortgage® can help. Start your mortgage application online today to see what your options are.

Take the first step toward the right mortgage.

Apply online for expert recommendations with real interest rates and payments.

Victoria Araj

Victoria Araj is a Section Editor for Rocket Mortgage and held roles in mortgage banking, public relations and more in her 15+ years with the company. She holds a bachelor’s degree in journalism with an emphasis in political science from Michigan State University, and a master’s degree in public administration from the University of Michigan.