What is a Mortgage Credit Certificate?
What’s a mortgage credit certificate? First, we have to talk about taxes. Nobody loves paying taxes -- and most people don’t love paying interest on their mortgage, either. Both are realities of life, but fortunately, you can use part of the interest you pay on your mortgage to reduce your tax bill.
One way to do this is to obtain a mortgage credit certificate (MCC), which is issued by a state or local government. MCCs are typically designed to allow first-time home buyers to offset the cost of part of the interest on a new mortgage.
How Mortgage Credit Certificates Can Make It Easier to Get a Home Loan
Unlike a regular mortgage interest tax deduction, a mortgage credit certificate is a tax credit, so it can actually be counted by lenders as monthly income in order to help a borrower qualify for a mortgage. And, if you already qualify for a mortgage, getting an MMC can help you qualify for a slightly larger home loan.
How to Qualify for a Mortgage Credit Certificate
While MCC guidelines can vary from state to state, in most cases there are several guidelines for people who want to get one, including:
Borrower must not have lived in a home they owned for the last three years
The home needs to be the owner’s primary residence (no vacation, rental, or investment homes)
Various income and price limitations also apply
In most cases, MCCs can be used with conventional loans, FHA, USDA, and VA loans, but cannot be used with jumbo loans. Typically, the credit is capped at $2,000 by the IRS.
Mortgage Credit Certificates and Home Refinancing
As long as a homeowner owns their home as their primary residence and continues to pay their mortgage, they can continue to claim the federal tax credit. But what if you decide to refinance your home? In many cases, you can still claim the credit, but you’ll have to apply for a re-issuance first. Despite that, MMCs are only available for a first-time refinance. In other words, if you’re refinancing your home a second time, you won’t be able to claim one.
If you’re refinancing into a loan with a lower interest rate, you should also expect to see your MMC amount drop proportionally; the less interest you pay, the less of a tax credit you can receive. Plus, if you refinance into a longer-term loan, you can usually only get the MMC up to that length of time. For example, if you refinanced seven years into a 15-year mortgage, you might only be able to get that tax credit for the next eight years.
In addition to these considerations, you’ll also need to make sure that you’re refinancing with a lender approved by the Housing Finance Agency (HFA) that has received MMC training. If you choose an unapproved lender, you won’t be able to get a re-issuance of your MMC.