As you may have noticed, we’ve been blogging a lot lately about mortgage assistance programs that are offered through state housing agencies in Texas. Today, we’d like to introduce you to the Texas Mortgage Credit Certificate Program also known as “MCC Program.”
The MCC Program is a great opportunity for first time home buyers and low to moderate income individuals and families who who wish to buy a home. If you think you may qualify for the MCC Program, don’t hesitate to call us. For now, let’s learn more about this opportunity. Many lenders don’t take the time and effort to participate in these worthwhile programs but we do!
What Exactly Is The MCC Program?
One of the many advantages of home ownership is the fact that the interest you pay is tax deductible. All homebuyers, regardless of income, may take advantage of this mortgage interest deduction feature. If you file itemized returns (which most home owners do) than you can include any interest you pay towards your mortgage (with certain restrictions) in your total itemized deductions. Having an MCC Certificate issued is like “turbo charging” your tax advantage. This occurs because the Texas Mortgage Credit Certificate allows the homebuyer to claim a tax credit against their federal income tax liability for as long as they occupy the home and pay interest.
There is a big difference between a tax credit and a tax deduction. With a tax credit you get to reduce your tax liability on a dollar-for-dollar basis. For example, if your overall tax liability is $5,000 and you have the maximum MCC credit of $2,000 than your total tax bill is reduced to $3,000.
Who Is Eligible For The MCC Program?
Eligibility for the issuance of an MCC is open to individuals and families who meet income and home purchase requirements below:
- have not owned a home as primary residence in the past three (3) years;
- meet the qualifying requirements (including income limitations) of the mortgage loan;
- will use the home as their principal/primary residence. As long as you occupy the property as your primary residence the MCC tax credit will be available to you. You must file IRS Form 8396 with your federal income tax return. The form can be obtained from the IRS web site at www.irs.gov.
- used primarily in conjunction with the purchase of a home. An MCC Certificate can only be issued on a new refinance if there was an MCC Certificate issued on the original loan.
- Homebuyer Education required – the homebuyer must complete a Homebuyer Education course prior to loan closing. There are courses that you can attend in your area that your lender can direct you to, or you may complete the course online. Either way, a certificate showing the completion of an approved homebuyer education course is required to close the loan.
There may be other requirements and restrictions, so speak with your qualified lender to determine these.
The MCC program can be used with all types of mortgages. So whether your loan is conventional, FHA or VA the MCC credit is available to go along with it.
Finally, I do want to point out that the Department of Housing and Urban Development (HUD) has designated certain areas as “Targeted Census Tracts.” If you purchase a home in these areas, you do not have to be a first-time homebuyer and income and sales price limits are higher. In addition, there is a potential waiver of the first-time homebuyer requirement for eligible Veterans.
Please see your lending professional for further information on these exceptions.
Other restrictions apply and vary by the state, city or county that administers the program.
How Much Of An MCC Program Tax Credit Can You Receive?
The total tax credit depends on the size of the loan and the interest rate you are paying but the tax credit you receive will be 40% of the annual interest paid. In no case can the tax credit exceed $2,000 per year. However, if you have a credit that exceeds your tax liability for the year you may be able to carry it forward for use in the subsequent years.
Finally, the remainder of the mortgage interest not taken as a tax credit will continue to qualify as an itemized tax deduction. How you decide to take advantage of this savings depends on how you file your taxes. You may choose to take a tax credit or a mortgage interest deduction. Your lender and/or financial adviser will be able to advise you based on your goals and individual tax situation.
MCC Program Fees?
As with any mortgage product there are regular closing costs that are associated with closing your loan. The In addition, there will be an MCC Issuance or Participation Fee of 1% of the total loan amount. Going back to our previous example of a $150,000 loan – you will pay a $1,500 MCC Issuance fee to have the MCC issued. Again, actual amounts will vary depending on your loan size, but the additional MCC fee will be 1% of the loan.
Potential Recapture Tax Due
The MCC program is funded with proceeds from tax exempt Mortgage Revenue Bonds. Since this is a federally subsidized program, you may be subject to a Recapture Tax. The Recapture Tax calculations can be very confusing and the determination of whether you are subject to any Recapture Tax can only be made at the time of sale of your property. Your lender will provide you with a disclosure that will explain the rules for the Recapture Tax.
Please note there are some exceptions provided that result in no tax due. In general, if you sell your home within the first nine years and your income has gone up substantially than you may be subject to this additional tax. General information on Recapture Tax can be found in Section 143(m) of the IRS Code, or by logging on to www.irs.gov.
I hope this has been a helpful recap of the Mortgage Credit Certificate program.
Capstar offers this program through various agencies including the Texas Department of Housing and Community Affairs (TDHCA), Southeast Texas Housing (SETH) and Texas State Affordable Housing Corporation (TSAHC). Tweet this
If you or someone you know might benefit from this program than please email firstname.lastname@example.org or call 512-459-2419 for more details. NMLS#216603