Mortgage Credit Certificates (MCCs) are an attractive option for homebuyers hoping to qualify for a loan in states that run the program. As the program’s tax credits can be used as qualifying income, lenders will underwrite to a higher purchase price than they would otherwise.
ICNY 2020
- Mortgage Credit Certificates (MCCs) are highly underused and can help homebuyers qualify for a loan in participating states.
- The MCC is first-come, first-serve -- so homebuyers will want to take advantage of it early in the fiscal year.
- The MCC's definition of a first-time homebuyer is someone who has not owned a home in the past three years.
Mortgage Credit Certificates (MCCs) are an attractive option for homebuyers hoping to qualify for a loan in states that run the program. As the program’s tax credits can be used as qualifying income, lenders will underwrite to a higher purchase price than they would otherwise.
However, in many areas, the program is underused. To test this theory, I researched the utilization rates in states that offered an MCC program.
Below are the results, and afterward I’ll cover what agents can tell clients to help them make an informed decision on the program.
Low usage rates
I called to get usage rates in each state that runs the MCC and received numbers on the following:
Usage rates are low — when compared to total loans that are originated each year. Out of the hundreds of thousands of loans that are originated in each state annually, only a minimal number of loan officers are using the MCC program. For many homebuyers, this is money left on the table.
Let’s look at an example scenario to illustrate this point. According to the Ohio Association of Realtors, in Ohio, there were 134,075 homes sold in the 2014 fiscal year. However, only 414 mortgage credit certificates were issued from the Ohio Housing Finance Agency — about 0.31 percent of the total homes sold.
According to the Ohio Housing Financing Agency (OHFA), the MCC requirements for Ohio are fairly standard. By way of example, in a nontarget area such as Cincinnati, the price cap is $265,158. In a target area, this increased to $324,082. However, median sales prices in the same area are between $120,000 and $144,000 — well below the MCC cap.
Of course, we can’t know for certain how many homeowners met the financial requirements, but from these averages, we can make an educated assumption that there were far more than 414.
The Department of Numbers lists the median annual household income for Ohio at $49,308 in 2014 — far below the MCC income requirement of $60,000 to $90,000 as listed by the OHFA (determined by county and family size). Eligible homebuyers simply aren’t applying for the MCC program.
Agents are in a position to change this. I’ve put together the nine most important MCC factors that will have you on your way to being an MCC expert.
9 key points on mortgage credit programs
I’ve chosen the following facts because they cover the questions I’ve fielded from borrowers over the past 12 months regarding the MCC program.
1. First-come, first-served
The MCC is first-come, first-served. Although the MCC as a whole is underused, certain income brackets might exhaust the MCC funds allotted to them in certain areas.
Therefore, if homebuyers want to take advantage of the program and are buying in a more competitive market, it’s best to get in line early in the fiscal year. This isn’t a huge concern but valid information nonetheless.
2. Restrictions are relaxed significantly in targeted areas
Targeted areas relax MCC requirements and allow many more people to take advantage of the program. It’s these areas where the MCC usage is most underrepresented. For a full list of targeted areas, consult your state’s housing regulator.
3. Tax credits can be claimed monthly
Although the MCC is a tax credit program, in some states the credits can be claimed monthly. This gives your clients extra money on a predictable basis, which goes along with qualifying for a higher purchase price.
A lender will look at the income as qualifying income or income that can be allocated toward purchasing a home.
4. You apply for the MCC through the funding lender, not the originating lender
Because you apply for the MCC through the funding lender, you can still originate the loan through a mortgage broker. This expands the homebuyer’s options when looking for a loan.
5. You can apply for a wide range of loan types, but you must make them with full documentation
A homebuyer can apply for a wide range of loans, such as FHA, VA and USDA loans. On the other hand, the loan must still be made with full documentation. A homebuyer must be able to qualify for and afford the loan.
6. You can mix the MCC with other assistance
Unlike some other programs, you can mix the MCC with other forms of financial aid, such as down payment assistance.
Typically the MCC will not restrict homebuyers from applying for other forms of housing assistance. This makes it an excellent choice for those buyers needing extra help with down payments or who qualify for county- or city-specific programs.
7. Some states allow you to claim the MCC when you refinance, but not all
Whether the MCC can be used when you refinance the loan will depend on the state. Most states don’t allow you to keep the MCC when you refinance, but some do. Clients should be aware of this as it will inform their financial planning.
8. The MCC will be there for the life of the loan
Barring any refinancing, the MCC will be there for the life of the loan — nothing can disqualify or take it away. However, if you sell within nine years, there is the possibility of paying reclamation tax. This can be minimized but will require the advice of a tax professional.
9. Know the definition of a first-time homebuyer, and don’t forget the veterans
The MCC’s definition of a first-time homebuyer is quite forgiving — as long as you have not owned a home within the past three years, you qualify.
This makes the MCC program a great way for homebuyers who have spent several years building up their credit to get back in the market.
It’s also important to recognize that in most states veterans can qualify for the MCC program regardless of being a first-time homebuyer. They can use the program over and over again.
More clients qualify than you think
Not everyone qualifies for the MCC, but more do than is often assumed. This is an opportunity to serve your clients as an adviser in addition to being their agent.
Few agents routinely advise their clients to investigate the MCC, and as a result, homebuyers miss out.
Make sure you are using the MCC and any other program that is available to you to leverage your brand as the go-to for special programs and homebuyer incentives.
Adam Stephens is a branch partner at The Stephens Brotsky Group at Primary Residential Mortgage Inc. Connect with him on LinkedIn or Facebook.
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