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Mortgage Credit Certificate
Category - Real Estate Glossary - Real Estate Terminology

MCC - Mortgage Credit Certificate

What is a MCC assisted mortgage?

The Mortgage Credit Certificate Program (MCC) was authorized by Congress in the 1984 Tax Reform Act as a new concept for providing housing assistance to homebuyers. The Michigan State Housing Development Authority is an issuer of MCCs. A MCC will reduce the amount of federal income tax you pay, thus giving you more available income to qualify for a mortgage and assist you with your house payments.

MCCs are available to homebuyers who meet household income and home purchase price limits established by the state Legislature and who are eligible under the federal regulations.

How will the MCC assist my home purchase?

The federal government allows every homebuyer to claim an itemized federal income tax deduction for all of the interest paid each year on a mortgage loan. An MCC makes this benefit to you even better: a certain percentage (20% for a household with income of $30,000 or less, 10% for a household with income over $30,000) of the mortgage interest will be a credit - that is, a dollar-for-dollar reduction of your tax liability. The remaining mortgage interest will continue to qualify as an itemized tax deduction. The specific amount of the MCC credit depends on how much interest you pay on a mortgage loan obtained from your lender through this program. However, the amount of the credit cannot be more than your annual federal income tax liability after all other credits and deductions have been taken into account.

Unused MCC credit can be carried forward three years for tax purposes. Example based on 20% credit rate You obtain a mortgage loan of $50,000 from your lender at an interest rate of 8 percent for 30 years. In the first year, you will pay $4,000 in interest on this loan. You can receive a federal income tax credit of $800 (20 percent of $4,000). If your annual federal income tax is $800 or more after all other credits and deductions have been subtracted, you will receive all the benefit of the MCC. Remember that 80 percent of the interest, or $3,200, still qualifies as an itemized deduction. To receive immediate benefit from the MCC, you can file a revised W-4 withholding form, and your federal tax withholding would be reduced by $66 per month ($800 divided by 12). If your tax liability is less than $800 - $700 for example - your federal income tax is reduced for that year by $700. Depending on your tax liability the following three years, you may be able to claim the remaining $100 as a credit on subsequent tax returns. For the loan in this example, the monthly payment for principal and interest is $367. Reducing your federal taxes with a MCC credit gives you $66 more in income each month to put toward the mortgage payment. From other sources you now have to come up with only $301 ($367 minus $66 income from tax reduction) toward your $367 monthly payment. Applied to the mortgage payment, the extra cash flow from the MCC tax credit is like reducing the first-year interest cost from 8% to 6%.

Where may I obtain an MCC?

You apply for the MCC at the same time you make a formal application for a mortgage. Lenders vary in their requirements for mortgage loan application, but generally you will have made a purchase offer on a specific residential property and will be ready to supply credit information, employment data, and other information to the lender. There will be a non-refundable fee to make application for an MCC. Call us to learn more about the application requirements. After you have made a formal application, the we will call MSHDA to reserve an MCC for use in connection with your mortgage loan. This reservation will hold the MCC while we are processing your application and the MCC is processed by MSHDA.

How long does the credit certificate last?

Each year, the credit certificate will be calculated on the basis of the certificate credit rate times the interest you paid on your mortgage loan that year. The MCC will be in effect for the life of your original mortgage loan, so long as the home remains your principal residence and you do not refinance the original mortgage.

What are the MCC requirements?

Federal, IRS, and state regulations apply to everyone who obtains an MCC. These include: You cannot have had an ownership interest in a principal residence at any time in the last three years, unless you apply for a loan in the targeted area. In these targeted areas, you do not have to be a first-time homebuyer. The home you buy must be a Single Family residence and used as your principal residence after you obtain your mortgage. The mortgage loan must be a new loan, not the refinancing of an existing mortgage loan or land contract. Because the federal government considers the tax credit to be a subsidy, you may be subject to a federal "recapture tax" if you sell your home within nine years and realize a profit on the sale. The amount of such a tax depends on various factors at the time you sell or dispose of your home; your lender will give you more details about the recapture tax.

What are income and purchase price limits?

For an existing, previously occupied home: Maximum gross annual household income is $56,650 in urban areas and $44,000 in rural areas of the state. The total maximum sales price of house and land ranges from $60,950 to $105,000, depending upon the area of the state. For a new, never-occupied home: Maximum gross annual household income ranges from $44,000 to $56,650, depending upon the area of the state. The total maximum sales price of house and land is $128,000 statewide. In some areas of the state, you must be a first time homebuyer.

What kinds of properties are eligible?

The MCC can be used in conjunction with mortgage loans for new, never-occupied houses; existing, previously owned homes; condominiums, and certain manufactured homes. You must occupy the dwelling as your principal residence.      

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