Mortgage Credit Certificate (MCC) Program

The Texas Department of Housing and Community Affairs created its MCC Program for the residents of Texas, to help make ownership of new and existing homes more affordable for individuals and families of low and moderate income, especially first time buyers.

Read more about the program below or use the MCC Participating Lender List (PDF) to locate lenders in your area who are currently participating in the program. The list includes address and contact information.

What is a Mortgage Credit Certificate? A Mortgage Credit Certificate allows the homebuyer to claim a tax credit for some portion of the mortgage interest paid per year. It is a dollar for dollar reduction against their federal tax liability.

Who is eligible to receive an MCC? The program is open to those individuals and families who:

• meet income and home purchase requirements;
• have not owned a home as primary residence in the past three (3) years;
• meet the qualifying requirements of the mortgage loan;
• will use the home as their principal/primary residence.

Note: The MCC may not be used in connection with the refinancing of an existing loan. Targeted Areas – first time homebuyer requirement is waived; increased income and purchase price limits.

How much of a tax credit can be issued under the MCC program? The size of the annual tax credit will be 30% (2008 MCC Program) of the annual interest paid on the mortgage loan. However, the maximum amount of the tax credit shall not exceed $2,000 per year. The credit cannot be larger than the annual federal income tax liability, after all other credits and deductions have been taken into account. MCC credits in excess of the current year tax liability may, however, be carried forward for use in the subsequent three years.

MCC Example: MCCs are issued directly to qualifying Applicants who are then able each year to take a tax credit equal to a specified percentage of the interest paid on their mortgage not to exceed $2,000. The Mortgage Credit Certificate Rate for the 2008 MCC Program is 30 percent. Thus, an Applicant with a $121,000.00 mortgage (30 year fixed with equal monthly installments of principal and interest) would realize the following savings:

During the first year of the Program, this Applicant would be entitled to a tax credit of $2,000.00. Based upon such entitlement, he or she would be able to file in advance a revised W-4 withholding form taking into consideration this tax credit and have approximately $167.00 per month in additional disposable income. Additionally, taxpayers who file itemized returns may take a deduction for their mortgage interest paid each year, less an amount equal to the tax credit taken. (In the above example, the additional interest deduction would be $7,260.00 less $2,000.00, or $5,260.00)

MCC Program Criteria / Requirements: All mortgage loan types are eligible. The mortgage loan, available through a network of participating lenders, must be underwritten according to FHA, VA, USDA/RHS or conventional loan criteria and will be at prevailing market rates. New and existing single family homes, townhouses, condominiums and manufactured housing (with certain restrictions) are eligible properties. Purchase price and income limits, adjusted by household size apply. The homebuyer must also occupy the property as their principal residence.

Tax Credit versus Tax Deduction: A mortgage interest deduction differs from a mortgage tax credit in a number of ways. For example, all homebuyers, regardless of income, may take a mortgage interest deduction, whereas mortgage tax credits are available only to holders of MCCs.

Length of Benefit: Each year, the mortgage tax credit will be calculated on the basis of 30% of the total interest paid on the mortgage loan that year. The MCC will be in effect for the life of the mortgage loan, so long as the residence remains the principal residence. In order to maintain the MCC the homebuyer can adjust their withholdings on their W-4 form with their employer and must file IRS Form 8396 with their federal income tax return. The form can be obtained from the IRS web site at www.irs.gov.

Other Costs/Fees: In addition to the regular closing costs associated with the loan, there is a $75 MCC Commitment Fee (non refundable) and, upon closing, a MCC Issuance Fee of 1% of the loan amount.

Loans made in this program are subject to recapture tax provisions, under federal law. Read more in the Understanding Recapture brochure (PDF).