What Is a Mortgage Credit Certificate?
A mortgage credit certificate helps eligible homeowners save on their taxes through a tax credit they can claim for a portion of their mortgage interest payments — up to $2,000 every year. Learn more about mortgage credit certificates, including eligibility requirements and how to claim this valuable tax break.
How does a mortgage credit certificate work?
A mortgage credit certificate (MCC) provides a dollar-for-dollar tax bill reduction, and was created to make homeownership more affordable for low-income families. MCC programs are run by state and local housing finance agencies and are only available to homeowners who fall under specific income limits. Income guidelines can vary by program, location and family size.
You can qualify for a mortgage credit certificate program whether you have a conventional or government-backed mortgage, including VA loans and FHA loans. Unlike some other tax breaks for homeowners, an MCC works even if you take the standard deduction. The credit is typically only for single-family homes, condominiums and manufactured homes — not multifamily properties.
To estimate your MCC credit, you’ll need to know your mortgage amount, interest rate and MCC percentage, which usually ranges from 10% to 50%.
Who qualifies for a mortgage credit certificate?
Generally, low-income, first-time homebuyers are eligible for a mortgage credit certificate, though requirements vary by program. Homeowners typically must earn less than the area median income and live in the home as their primary residence to qualify for an MCC.
Additional requirements to qualify for an MCC may include:
→ Buying a home within the program’s price and area limits. In some cases, your MCC eligibility will depend on your home’s location and purchase price. Check with your state’s housing finance agency to learn more about the specific requirements in your area.
→ Living in your home for a set period of time. If you sell your home within the first nine years, you may have to repay a portion of your MCC — this is known as a recapture tax.
→ Paying the MCC program fee. Most MCC programs charge issuance or processing fees. This amount varies by program and mortgage lender and can range from $0 to several hundred dollars.
How can you get a mortgage credit certificate?
If you think a mortgage credit certificate is right for you, here’s how to get one:
- Research programs in your area. The National Council of State Housing Agencies (NCSHA) has a directory of housing finance agencies you can use to identify local MCC programs. You can also try a Google search using your state’s name and “mortgage credit certificate” as the search terms.
- Determine your eligibility. Once you find an MCC program in your area, review its requirements, including income limits, as well as location and purchase price restrictions. Additionally, your real estate agent should be able to provide guidance about qualifying for an MCC.
- Fill out your application. Once you find the program you’re interested in, you must complete an application with the housing finance agency or lender. You’ll likely need to provide details about your income, family size and mortgage.
- Claim the tax credit. You can claim the mortgage credit certificate on IRS Form 8396 (Mortgage Interest Credit). You’ll need to know the mortgage interest you paid during the tax year, which your lender should provide you on IRS Form 1098.
Ready to compare refinance offers? Get Your Best Rates from Top Lenders TodayHow much does a mortgage credit certificate cost?
Mortgage credit certificate costs vary by the issuing agency. For example, the Michigan State Housing Development Authority charges $400 to get an MCC, and the North Carolina Housing Finance Agency charges a $475 MCC processing fee. Your lender may impose additional fees. Contact your local housing finance agency to learn more about the costs you can expect.
What are the pros and cons of a mortgage credit certificate?
| Pros | Cons |
|---|---|
| It can reduce your tax liability. You can claim the credit annually, and there’s no lifetime cap. It provides a tax break to low-income homeowners. | Refinancing your mortgage can void your MCC. You typically must pay a fee to the issuing agency. You may owe a recapture tax if you sell your home too soon. |
Is a mortgage credit certificate worth it?
Whether an MCC is worth it depends on several factors, including how long you plan to live in your home. Selling your home before the nine-year mark can result in needing to repay a portion of the tax credit. The bottom line? An MCC is a great way for eligible homeowners to reduce their tax bill, as long as they understand the limitations and drawbacks.
Frequently asked questions
Yes, you can lose your mortgage credit certificate if you refinance your mortgage. However, you can apply for a reissued mortgage credit certificate (RMCC), which may allow you to maintain your MCC.
Your mortgage credit certificate number is on your original MCC form. If you need a copy of your certificate, contact your lender.
Yes, you can get a mortgage credit certificate with bad credit. Since an MCC is a federal tax credit and not a loan, your credit score doesn’t affect your eligibility.
Yes, you can still qualify for the mortgage credit certificate if you take the standard deduction on your tax return. This differentiates it from other tax breaks for homeowners, including the mortgage interest and property tax deductions, which are only available to those who itemize their taxes.