Navigating the Mortgage Interest Credit and MCC
MCC: A User-Friendly Overview for Homeowners
By Sharon Gonzalez, HFA Program Administrator
What exactly is a Mortgage Interest Credit? It’s a federal income tax credit that can help first-time homebuyers save on their annual income tax bills. The credit translates to dollar-for-dollar savings straight off the homebuyer’s tax liability, and makes buying a home more affordable. The credit is a percentage of the mortgage interest paid every year on your home loan.
Different government entities, or issuers, sponsor these programs with specific requirements – and deadlines – including:
- Applying for your home loan through a participating lender and meeting eligibility requirements before you close on your loan
- Receiving a Mortgage Credit Certificate (MCC) from the government entity sponsoring the program
- Filing Form 8396 and a copy of your MCC with your federal income taxes every year
Some background to get started
Mortgage interest credit programs are helpful to both issuers and consumers. Issuers are government entities that can designate specific areas for eligibility, to help grow neighborhoods. Our HilltopSecurities Housing Advisory department actively advises and underwrites programs for government entities, structuring and administering mortgage interest credit programs, as well as providing compliance and regulatory services. That experience brings a thorough understanding of the basic requirements of mortgage interest credit programs.
With a mortgage credit certificate, first-time homebuyers can potentially save every year on their income tax bill. How much you can save will depend on:
- The percentage of the interest credit offered by the issuer. For instance, the Arlington Housing Finance Corporation offers a mortgage tax credit rate of 40 percent on the interest you pay every year on your home loan (maximum mortgage tax credit is $2,000).
- Your annual federal income tax bill and related factors including income changes, other deductions, etc.
- Accurately calculating your tax credit and completing Form 8396 every year.
An overview of timing
Because these are government-sponsored programs, it is important to meet all the eligibility requirements to ensure you receive the maximum benefits. Here is a summary of the major steps:
- As you begin shopping for a home loan, ask lenders if they participate in Mortgage Interest Credit programs. For a list of participating lenders, you can email us at firstname.lastname@example.org or call us at 214.953.4176.
- Review the specific eligibility requirements for the program and make sure you meet them. Eligibility requirements can vary from program to program.
- After you close on your loan, the issuer of the program (or their program administrator) will issue you an MCC.
Here is an example of a basic MCC and how it works with a comparison of a family’s annual tax bill with, and without, the mortgage tax credit.
Filing your tax returns
To receive the maximum tax credit you are eligible for, it is important to file your federal income tax returns with these three items:
- The Form 1098 Mortgage Interest Statement your lender provides every year.
- A copy of your MCC certificate – you will need to file a copy of the same certificate every year you file.
- A completed Tax Form 8396 as part of your federal return.
Some important requirements of a MCC program
- In general, Mortgage Interest Credit programs are for first-time homebuyers, so refinancing an existing loan does not qualify.
- Property and annual income restrictions may apply.
- Tax credit amounts not fully used in any given year can be carried forward for up to three subsequent years or until used, whichever comes first.
- Most types of home loans are eligible including Federal Housing Administration (FHA), Veterans Administration (VA), U.S. Department of Agriculture Rural Development (USDA/RD) and conventional loans.
- Most types of homes are eligible including single family, townhomes, condominiums and manufactured housing.
Start early and ask questions
Be sure to ask questions up front. For additional information, here is a downloadable PDF of frequently asked questions. Start the process early, as you are shopping for your home loan, and keep detailed records along the way. You can learn more about Mortgage Interest Credit programs and MCCs from the links in this blog, and these resources:
You also can call our HilltopSecurities housing team at 214.953.4167
Please note that a Mortgage Credit Certificate may impact your federal tax return. Hilltop Securities Inc. urges you to contact a tax professional if you are considering purchasing a home using a Mortgage Credit Certificate.
Hilltop Securities Inc. (HTS) is a registered broker-dealer and registered investment adviser that does not provide tax or legal advice. Material presented herein is for informational use only and reflects the views of only the author. This information may not be duplicated or redistributed without prior consent of HTS, and distribution or publication of this material does not represent a solicitation to complete a financial transaction with the firm. Though information was prepared from sources believed reliable, HTS, does not guarantee its accuracy or completeness. Securities offered by HTS (1) are not insured by the FDIC (Federal Deposit Insurance Corporation) or by any other federal government agency; (2) are not bank deposits; (3) are not guaranteed by any bank or bank affiliate; and (4) may lose value. HTS is a wholly owned subsidiary of Hilltop Holdings, Inc. (NYSE: HTH) located at 1201 Elm Street, Suite 3500, Dallas, Texas 75270, (214) 859-1800. Past performance is no guarantee of future results.