Mortgage Credit Certificate (MCC): How it can help you afford your mortgage payments

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

It’s important to note, Rocket Mortgage^® does not participate in issuing new or reissuing existing mortgage credit certificates (MCCs). Homeowners must contact the state or local government agency that issued the original MCC to find out how to claim the tax credit on a new mortgage.

An MCC can be a great way to save money on your mortgage if you meet the terms set by your local housing authority. However, there are a few drawbacks to consider before applying for an MCC.

What is a mortgage credit certificate (MCC)?

An MCC is a federal income tax credit for lower-income borrowers typically reserved for first-time home buyers. When you receive an MCC, you can claim a dollar-for-dollar tax credit of up to $2,000 on the mortgage interest you paid on your home. You can claim the tax credit every year you’re a qualified homeowner, and there’s no lifetime cap on how much you can save.

The tax credit also allows you to reduce the amount you owe in federal taxes. An MCC is especially helpful if you pay a substantial amount of money in mortgage interest. If your interest payments are relatively low, an MCC won’t help as much.

How do mortgage credit certificates work?

If you qualify for an MCC, you’ll receive an MCC percentage. The Housing Finance Agency (HFA) sets the rate, which can range from 10% – 50%.

Mortgage Credit Certificate Example

Let’s say you take out a $200,000 mortgage with a 4% interest rate, and in the first year, you pay $8,000 in interest. If you qualify for a 20% MCC percentage, you’ll get a $1,600 tax credit. You can deduct the rest of the mortgage interest you paid ($6,400 in this example) as an itemized tax deduction.

Who is eligible for a mortgage credit certificate?

While many homeowners may benefit from applying for an MCC, not everyone is eligible. The IRS has strict guidelines on who can qualify for an MCC.

Typically, you must be a first-time home buyer, your income must fall below certain limits and you must purchase a home in a state-designated target area. Because the program is reserved for low- to moderate-income home buyers, you can’t earn more than the median income in your state.

You must also meet home purchase price limits, and the home must be your primary residence. Each state sets eligibility guidelines in addition to the IRS guidelines. You can explore your state’s guidelines on the Department of Housing and Urban Development (HUD) website.

Is the mortgage credit certificate worth it?

Let’s take a look at some pros and cons of 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 is that a homeowner can receive a substantial tax credit. Once approved, the credit is available every year a homeowner qualifies for it, and there is no lifetime cap on how much you can save.

Most states make the application process relatively easy. You can qualify and start saving money right away.

MCC cons

Depending on the state, you may pay issuance, administration or compliance fees for an MCC. However, not all states offer the MCC program to home buyers. Borrowers who want to purchase homes in high-income areas with home prices above the state’s purchase price limit will not be eligible for the tax credit.

How to claim the MCC tax credit

To claim the MCC tax credit on your federal income tax returns, you must complete IRS form 8396 (Mortgage Interest Credit).

Mortgage credit certificate FAQs

Let’s explore some common questions about mortgage credit certificates and how to qualify for them.

When do I have to apply for an MCC?

You can apply for an MCC when you take out the mortgage on the home. You should start thinking about applying for the tax credit during the early stages of the home buying process.

Check to see if your state offers the program and ensure that your lender is approved to offer mortgages with an MCC.

Will I still qualify if I refinance?

If you refinance your mortgage, you may run into some problems with your MCC. Homeowners can usually have their MCC reissued as long as the new loan balance is lower than the previous balance.

What 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 annual mortgage interest. If you qualify for the program, you can save up to $2,000 in interest a year.

First-time home buyers should check their eligibility because a mortgage credit certificate can help 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 explore your options.