Mortgage Credit Certificates Can Help Home Buyers
Due to the high cost of housing in Hawaii, attaining the goal of homeownership may seem impossible to some, especially first time home buyers. A common question from first time buyers hoping to reach that goal is whether any programs that make home ownership more affordable are currently available. One such program is the Mortgage Credit Certificate (MCC).
The Mortgage Credit Certificate Program is administered by the Hawaii Housing Finance and Development Corporation. For eligible borrowers, a Mortgage Credit Certificate can reduce the amount of federal income tax that a borrower pays. In turn, this tax savings aids in giving the borrower more available income for loan qualification. The homebuyer may use the tax savings they realize to assist with their housing payments. Utilizing this program can make the monthly mortgage payment much more comfortable for the buyer.
A homeowner with an MCC can claim a federal tax credit of up to 20 percent of their annual mortgage interest for that tax year.
This will result in a dollar-for-dollar reduction of the homeowner’s annual income tax liability. The remaining 80 percent of annual mortgage interest can still qualify for an itemized tax deduction. Homeowners without an MCC can only claim an itemized tax deduction which results in a smaller benefit than a credit. The MCC will remain in effect for the term of the mortgage loan as long as the borrower continues to use the home as a principal residence.
Here’s an example of the benefits of an MCC with a credit rate of 20 percent: A mortgage loan of $500,000 at 4.0 percent for 30 years has an approximate annual interest cost of $20,000. With a 20 percent MCC Program credit rate, borrowers can claim $4,000 (20 percent of $20,000) in credit on their annual federal tax return. In this example, borrowers whose income tax liability is $4,000 or greater can receive the full benefit of the MCC tax credit. If the tax credit is more than the amount of a borrower’s tax liability, the unused portion can be carried forward for up to three years to reduce future income tax liability. The remaining 80 percent of mortgage interest, can still qualify as an itemized income tax deduction.
It’s important to note that the savings offered by an MCC can be realized sooner than tax season. Borrowers can fill out a revised W-4 withholding form with their employer to reduce the amount of federal income tax withheld from their paycheck, thereby increasing their take-home pay. Please consult your tax professional for more advice regarding tax strategies.
What are some of the requirements to be eligible for the MCC Program? The home must be used as the buyer’s principal residence. The buyer can not have owned a principal residence within the past three years. The buyer must meet the program’s income and purchase price restrictions.
MCCs are available only through participating lenders who are approved by the Hawaii
Housing Finance and Development Corporation. Compass Home Loans is a participating lender in the MCC Program. We are able to offer the MCC program in conjunction with a variety of our loan programs including Conventional, VA, FHA, and USDA to meet the needs of our borrowers. Find out how the MCC Program can benefit you and help you qualify for a home loan by scheduling a no-obligation consultation with one of our Loan Officers. Please contact us at (808) 518-3650 or visit our website, compasshawaii.com.