Day 103: Mortgage Credit Certificate

When I first looked into buying my first home, one of the first things I did was jump online and look to see what programs were available to me as a first time homebuyer. Some programs I wasn't eligible for due to income or location or whathaveyou. One program did catch my eye though--the Mortgage Credit Certificate (MCC).

The Texas Department of Housing and Current Affairs (TDHCA) created its Texas Mortgage Credit Certificate 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.

 

"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.
Note: The Mortgage Interest Credit (MCC) is a non-refundable tax credit, therefore, the Homebuyer MUST have tax liability in order to take advantage of the tax credit.

The size of the annual tax credit will be 40% 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."

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. And, you can use the MCC for the entire length of the term of your mortgage, so 30 years for me! There is an origination fee of 1%, however I'll reap that back in the first year of filing the MCC with my taxes.

I can also adjust my W4 so that I have my savings immediately each month instead of waiting until April to file my taxes, thus helping me afford my home every easier. If you know you'll max out the credit of $2,000 (which you probably would the first few years since most of what you're paying goes to paying interest), you can effectively plan to receive $167 more dollars back in your paycheck each month, if you make the W4 adjustment.  In reality, I plan to drop that money into a savings account for a rainy day fund. Even with home warranties, and new appliances and such, you never know what might expenses might crop up.

So, if you're like me, buying your first home, ask your mortgage specialist about the Mortgage Credit Certificate see if it's right for you so that you can save even more of your hard-earned money.