So what exactly is a Mortgage Credit Certificate, and why is it so valuable?
MCC: A Definition
Depending on where you live, there are likely lots of programs available for first-time homebuyers. One of the best programs out there (if it exists for your area) is the Mortgage Credit Certificate program. I found a good, concise definition on Century 21's site:
The amount of the credit is tied to a local formula that every city with an MCC program must follow. A MCC credit, which can total $2,000 or more, reduces the borrower's federal tax liability by an amount tied to how much one pays in annual mortgage interest. Both the borrower's income and the purchase price of the home must fall within established guidelines. [Source]
In our case, the MCC means the federal government grants us a 50% refund of our mortgage interest (to a maximum of $2,000) each year. The money comes to us via a tax credit that we claim when we file our federal income taxes.
Jumping Through Hoops
Think about how much mortgage interest your average family pays per year, and you can see why an MCC is so darn valuable. Two thousand bucks this year ... two thousand bucks next year ... nineteen hundred bucks the next year ... pretty soon you're talking real money.
Getting an MCC isn't easy — there are a lot of hoops to jump through. But it's worth it.
Income & Price Limitations
As noted above, first-time buyers must meet certain income limitations to qualify for a Mortgage Credit Certificate, and the house they purchase must meet certain price restrictions.
We purchased our house in 1996. Back then, if I recall correctly, household income had to be less than $25,000 in order to qualify for an MCC. We scraped under this level ... and just barely. But once you qualify, the MCC is yours until you sell the home, regardless of how high your income rises after that point.
Limited Number of Certificates Per Area
Each area (city, county, etc.) has a limited number of Mortgage Credit Certificates to issue. The certificates are issued on a first-come, first-served basis. Thus, if you're fortunate enough to be home-shopping when an MCC comes available, you have to be ready to drop whatever you're doing — that very moment — and head to your local MCC Administration office and get signed up.
When I got the phone call from our realtor that an MCC had come available, I immediately left work (my manager was quite understanding, thank goodness) and headed for the local MCC office.
I was there, and had our names on The List, inside of five minutes.
Applicants must purchase a single-family residence. Applicants must be first-time homebuyers. The house must be for primary-residence purposes only.
There's a monthly "Administration Fee" that must be paid (and automatically debited from your bank account) throughout the duration of the Credit Certificate. This fee, in our case, is less than $15.
If you're a first-time homebuyer (or know one) who has questions regarding MCCs in your area, just check with your realtor, mortgage broker, or do a Yellow Pages or Google search.
For a thousand bucks or more per year, any time you spend to learn about MCCs will be worth it.