Find 'forgotten' tax break for first-timers
Mortgage Credit Certificate has a catch
By Tom Kelly, Thursday, April 22, 2010.Most potential homebuyers are well aware of the federal tax credits available before June 30, 2010, but few first-time homebuyers are aware of another subsidy that has no deadline yet could prove to be a huge benefit for cash-strapped consumers.
The Mortgage Credit Certificate Program was authorized by Congress in the 1984 Tax Reform Act as a means of providing housing assistance to low- and moderate-income families. To qualify, buyers must not have owned a home in the previous three years, must meet income and purchase-price restrictions, and must intend to use the new home as a primary residence.
MCCs are now available in 26 states. The household-income and home-purchase-price limits vary by area. "Targeted" income areas have higher limits.
The Mortgage Credit Certificate is a written document issued by the federal government. It states that the borrower is entitled to a tax credit equal to 20 percent of the interest on the borrower's home loan each year, capped at $2,000. The credit is typically applied to the borrower's federal tax bill after all other deductions are used.
Borrowers may use this option to increase purchasing power, reduce tax liability or both.
MCCs reduce taxes on a dollar-for-dollar basis, unlike tax deductions, which reduce taxable income only. Here's how the MCCs work:
- Buyer obtains a 30-year, fixed-rate loan of $250,000 at 6 percent interest. The monthly principal and interest payments are $1,499 and a MCC credit rate of 20 percent.
- In the first year, the buyer pays a total of $14,916 of interest on the mortgage loan. The MCC would then provide a federal income tax credit of $2,983 (20 percent of $14,916).
- If the buyer's income tax liability is $2,983 or greater, the buyer receives the full benefit of the MCC tax credit. If the amount of the tax credit exceeds the amount of tax liability, the unused portion can be carried forward (up to three years) to offset future income tax liability. The remaining 80 percent of mortgage interest, or $11,933, qualifies as an itemized income tax deduction. ...CONTINUED
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Submitted by Francene Grewe on April 22, 2010 - 11:59am.
Participating in this program has become much more expensive in recent days. The City of Portland (OR) has decided that you must pay to play:
Lender Participation Fee
All lenders must now pay a fee per funding allocation to participate in the MCC program as
outlined below. This fee also entitles the lender to register a certain number of loan officers
for the required MCC loan officer certification training.
Lender Asset Size Fee per Funding Round
Includes training
registration for
$1 Billion or more $1,000 4 loan officers
Less than $1 billion $500 2 loan officers
Training Registration Fee
Loan Officer Certification training – $150, unless covered by the lender participation
fee (to be paid on or before the training date.)
MCC Application Fee
The MCC application fee paid by the borrower has increased to $675.
Additional, In authorizing the refunding of the MCC program, the PAB challenged the City of Portland to
improve communities of color homebuyer participation in the program. Our current goal is
35% and we fell far short of that during the first round of funding.