MCC is a federal tax credit that reduces your federal tax liability by 20-40% of the mortgage interest you pay each year, up to ,000 annually.
It is available to first-time homebuyers through state and local housing programs. It lowers your effective housing cost and can increase your purchasing power.
The MCC can be combined with down payment assistance programs for maximum benefit.
How It Works
Your lender issues an MCC certificate that entitles you to a tax credit. You claim it on your annual tax return. The credit reduces the amount of tax you owe, dollar for dollar.
Tax Credit Calculation
If your annual mortgage interest is 2,000 and your MCC rate is 20%, your tax credit is ,400/year. This reduces your federal tax bill by ,400, effectively lowering your monthly housing cost by 00.
Eligibility
Available to first-time buyers (or those who haven't owned a home in 3 years). Income and purchase price limits apply. Must use FHA, VA, USDA, or Conventional financing through a participating lender.
How to Obtain
Apply through your state or local housing finance agency. Your lender must be approved to offer MCCs. The certificate is issued at closing. Some programs charge a small fee.
Impact on Buying Power
MCC increases your buying power because lenders can add the tax credit benefit to your qualifying income. A 00/month tax savings translates to roughly 0K-0K more purchasing power.
Vs Standard Deduction
You can still take the standard deduction AND use the MCC. The tax credit is separate from the mortgage interest deduction. This is a common misconception. You benefit from both.