While you may be familiar with the tax benefits that result from homeownership, a lesser-known but significant benefit for first-time homebuyers is the Mortgage Credit Certificate (MCC). A Mortgage Credit Certificate is a document that directly converts a portion of the mortgage interest paid by the borrower into a non-refundable tax credit. It is not an itemized deduction, but a federal income tax credit that a client will use to lower the amount of federal income taxes they pay each year.

Mortgage Credit Certificate (MCC) Eligibility

The MCC is available on VHDA loans and administered in Virginia by the Virginia Housing and Development Authority. To obtain a Mortgage Credit Certificate:

• Apply for an MCC with an approved lender and receive a commitment from VHDA before closing
• Sign and return the Mortgage Credit Certificate Homebuyer Application and Fact Sheet to your loan officer
• Confirm your request on the Single-Family Loan and MCC Disclosure at loan application

The borrower must also:

• Be a first-time homebuyer or have not owned a home as a primary residence within the past three years.
• Avoid exceeding the maximum household income limits.
• Purchase a home below the maximum sales price/loan limits.
• Use the home as their primary residence.

How To Calculate Your MCC Credit

If you’re curious to know the amount of your credit, use this calculation to determine the amount. Multiply three numbers:

• The total amount of a borrower’s mortgage
• The mortgage interest rate
• The MCC tax credit percentage (20%)

For example, let’s say a borrower has a loan for $250,000 with an interest rate of 4%. The borrower would pay about $10,000 in interest that year. With the MCC, the borrower would first get a federal tax credit of $2000, 20% of the amount they paid in mortgage interest on their new home loan.

Remember To Use Your MCC

Unfortunately, this deduction is often overlooked by clients when tax time comes around. To take advantage of this benefit, include the Mortgage Credit Certificate number on the proper form when you file your tax return.

“I find many borrowers forget they have this credit and file their tax return without utilizing the MCC they set up at their closing,” said Newport News, Loan Officer, Mike Manicone.

After reviewing a client’s 2019 tax return, Manicone noticed that the borrower did not utilize her MCC tax credit, costing her $1,600. Fortunately, the client could amend her 2019 and 2018 tax returns. She is now anticipating $3,000 thanks to her applied credits.

The Bottom Line

A Mortgage Credit Certificate can offer potential home buyers an excellent source of income after filing federal income taxes. We can walk you through the necessary steps to determine your eligibility and set up your MCC. When you receive MCC at closing, don’t forget to keep the document handy for your tax preparation. If you have any questions regarding your eligibility or use of your Mortgage Credit Certificate, our team is here to help.