Are you a first-time homebuyer wondering about the MCC program? Perhaps you’re interested in using it, but you’re not sure if you qualify. Maybe you love the idea of saving money on your home, but you don’t know how the MCC tax credit works.
Well, you’re in luck! As a CPA, I specialize in the MCC program, and I’m here to answer your FAQs. I’ve compiled the five most common questions I get about the program and will answer them here in this blog post. If you have further questions (or I missed anything), please don’t hesitate to contact me. My team and I work with homebuyers from across the United States.
The Most Common MCC Program FAQs
A lot of people contact me asking the same questions. I have an FAQ page on my website, but sometimes it’s helpful to address the most common of the bunch. If you’re curious about how the MCC program works and if you qualify, then this post is for you.
FAQ #1: What’s the Purpose of the MCC Program?
Let’s start with the basics. The MCC Program benefits first-time homebuyers by giving them an annual non-refundable tax credit. If you’re buying your first home, then you don’t have any capital from a previous property to help you afford it. You’re starting at the very beginning, which can be financially challenging for many.
To help you buy your first home, the federal government created the MCC program. This program gives you an annual tax credit based on how much interest you paid on your mortgage. The maximum credit is $2,000 per year. So for a 30-year loan, that’s a significant savings of $60,000.
FAQ #2: What Does ‘MCC’ Mean?
‘MCC’ stands for Mortgage Credit Certificate. To receive the MCC program’s tax credit, you must obtain a certificate before buying your home. Both your realtor and your loan officer can help you with this, but be sure to tell them that you want to use the MCC program. Not all realtors or banks understand the process, so choose someone who will be on your side. And, again, you can always ask us for help!
FAQ #3: How Do I Qualify for the MCC Tax Credit?
The MCC Program is a tax incentive for first-time homebuyers, helping them make such a big purchase for the first time. But you don’t necessarily have to be a “first-time” homebuyer to get the benefit. There are four ways you can qualify for the program:
FAQ #4: How Much Money Can I Get with the MCC?
That credit varies from person-to-person, as a few factors determine the final amount:
You can calculate the amount of credit once you obtain your MCC certificate. On that certificate, you’ll receive an assigned tax credit percentage. This percentage will vary depending on the factors listed above. In general, however, the rate ranges from 10%-50%.
Once you know this figure, you can calculate your tax credit benefit by using the following formula:
Annual Interest Paid on Mortgage ($) x MCC Program Assigned Percentage (%)
Let’s look at a simple example. Let’s say you have a mortgage loan of $100,000 and an interest rate of 5%. That means the annual interest you’ll pay on your first year is $5,000 (5% x $100,000). Now, let’s say your assigned MCC percentage is 30%. That means you’ll receive an annual tax credit of $1,500 (30% x $5,000).
As a non-refundable tax credit, you can apply that $1,500 towards your annual taxes. If you owe less than $1,500, you won’t receive a refund for the remaining amount (non-refundable). And if you anticipate a higher tax year in the future, you can always roll your credit forward.
FAQ #5: Are There Any Limits on How Much I Can Spend on a House?
Yes, there are two limits you’ll need to consider for the MCC Program: house price limits and annual income limits. These restrictions vary depending on where you live within your state. To determine yours, simply look up the MCC Program in your state or county.
House Price Limits: Each county will determine this limit individually, but in general, the limits are quite generous. The purpose of the program is to help first-time homebuyers and stimulate the housing market. Therefore, plenty of houses fall into the pricing limits.
For example, we call Blair County in Pennsylvania home. Here, the house you purchase cannot exceed $346,300 if you want to use the MCC Program. As a more impoverished county in the state, this is quite a high figure. The program allows both lower-income and middle-class people to benefit.
Income Limits: Again, these limits vary from county-to-county. I’ll use Blair County as another example. Here, if you want to use the MCC Program and purchase a 1-2 bedroom home, your annual income cannot exceed $92,200. For a 3+ bedroom home, that yearly income limit increases to $107,600.
Be Proactive And Save Money on Your Future Home
The above questions are the most common I receive, but if you have more questions, you can read our FAQ page, browse our blog posts, or contact us. The general rule of thumb with the MCC Program is to be proactive. Ask us questions, talk to your realtor, and discuss opportunities with your home loan officer or financial advisor. The MCC tax credit is just one benefit for homebuyers, but it’s a good one and an excellent place to start.
The Mortgage Credit Certificate Program is an excellent benefit to first-time homebuyers in any year. Still, in 2021, we already see housing market trends that make this program even more critical. In a nutshell, the MCC program delivers a tax credit to those who qualify (more on that below). For many homebuyers, this benefit can make or break their future house plans. And as the market shifts and interest rates rise amidst a pandemic, financial assistance is topping the list of homebuying priorities.
This guide will explore the Mortgage Credit Certificate (MCC) program, who qualifies for it, and how it can help first-time homebuyers in 2021. 2020 was a challenging year for many of us, impacting the economy in several different ways. We know that homebuying doesn’t stop, even in a pandemic. We’re here to help you understand and get the most out of the MCC tax credit this year.
What is the MCC Tax Credit?
The MCC tax credit results from the MCC program — a non-refundable tax incentive to help first-time homebuyers secure a house. Those who qualify receive the benefit every year throughout their home loan. The amount of your MCC tax credit is a percentage of the interest you pay on your mortgage. Keep in mind, however, that there’s a yearly cap of $2,000.
But, if you have a 30-year loan, that means you can save up to $60,000 on your home. Again, such considerable savings could be the reason why a first-time homebuyer can finally afford a house. The purpose of the program is to assist homebuyers financially and help stimulate the economy. The government wants us to buy homes!
Who Qualifies for the MCC Program?
The Mortgage Credit Certificate Program is available for those who qualify as a “first-time homeowner.” The Finance Housing Agency has officially defined this term. This organization uses four categories to determine who can receive the benefit. They include:
These categories make up those who qualify for the MCC tax credit. If you find that you fit any of these definitions, then congratulations! You, too, can receive this benefit when purchasing your home.
How to Calculate Your MCC Tax Credit
Although the Mortgage Credit Certificate Program is a federal initiative, every state manages its program individually. And, therefore, one state might implement a different approach than others. As a result, it’s common for those living in New York, for example, to receive more credit than their best friend in a different state, or vice versa.
If you’re curious about how your state runs the MCC program, check out a past blog post that dives a bit deeper into the differences. We also provide a link to a handy database that allows you to explore the credit where you live and search other helpful homebuyer programs.
It’s essential to explore your specific state because you’ll need those guidelines to determine how to calculate your credit. Remember, the amount you’ll receive each year is based on the interest you pay on your home loan. Your state sets the percentage to use.
First, you’ll need to gather some critical paperwork to file your taxes and calculate your credit. A helpful tip is to stay organized throughout the year and obtain the necessary paperwork as soon as possible. You’ll need:
Making the Calculation
Once you’ve collected all the important paperwork, you’re ready to start your calculation. Here’s the simple equation that you’ll use:
Annual Mortgage Interest Paid x MCC Percentage Rate
Let’s look at an example.
Let’s say your loan is $100,000 and your interest rate on your mortgage is 3%. That means you’ll pay a total of $2,876 on mortgage interest ($100,000 x 3%) in one year. You must now look at your MCC percentage rate and multiply it by the amount of mortgage you paid. So, let’s say you received a 50% rate. That means the total tax credit you’ll receive is $1,438 ($2,876 x 50%).
Loan Amount – $100,000
Interest Rate – 3.0%
Total Mortgage Interest Paid – $2,876 ($100,000 x 3%)
50% Rate of Mortgage Interest Paid – $1,438
Full Credit Earned – $1,438 ($2,876 x 50%)
Non-Refundable Tax Credit
There are a few other details to keep in mind. First, there’s an annual cap of $2,000. So even if your MCC tax credit is $2,500, you can only receive $2,000 of it. Second, this is a non-refundable tax credit. What does that mean?
A non-refundable tax credit is a benefit that doesn’t result in a refund for your taxes. Many of us get excited at tax time to receive our refund, but the MCC tax credit isn’t going to give you money. Instead, it reduces the amount of tax that you’ll owe. For example, let’s say you owe $1,000 on your taxes, but you received a non-refundable tax credit of $2,000. You can use it to pay off that $1,000 that you owe — but you don’t get the remaining $1,000 as a refund.
This caveat makes many people wonder if the MCC tax credit is worth it if you don’t tend to owe much on your taxes each year. The answer is still yes. With the MCC program, you can “carry forward” the credit into the following tax year. This strategy works well if you know you’ll have a higher tax year in the future. Still, if your tax burden is below your tax credit, it’s a great way to save money.
The 2020 Housing Market and 2021 Predictions
Let’s get back to 2021. We recently posted a couple of blogs addressing two common questions we receive: When is the best time to buy a house, and Should I buy a home in 2021? Both articles go into more depth than this guide, but these questions certainly impact how you can use the MCC tax credit in 2021.
The answers to these questions are not simple. Although we watch patterns and trends in the housing market, other factors swoop in (like a pandemic) and throw us off course. What you need to think about when answering these for yourself is:
Although these questions won’t change the logistics of how you’ll file your taxes and use the MCC tax credit, they will impact whether or not you should take the house-buying plunge.
Personal Finances in 2021
What matters most in your pursuit to buy a home — whether it’s your first home or not — is your personal finances. Unless you’re genuinely ready to buy a house, it’s best to wait. How do you know if you’re ready? You want to lower your financial obligation as much as possible, meaning you want a loan balance and interest rate that fits comfortably into your monthly and annual budgets.
You can secure affordable loans and interest rates by offering a higher down payment and ensuring that your credit score is top-notch. If you don’t have the savings or a good score, consider holding off while improving those two factors. When you are ready to buy a house, search for the best programs that can support you financially. The Mortgage Credit Certificate program can help make a home more affordable with its tax credit, but there are other programs out there, too.
2020 Housing Market Trends
I think we can all agree that 2020 was not your average year, and that’s even more true for the housing market. At the beginning of the year, the market ran its typical course. January and February usually remain slow as supply and demand lower. But at the start of the pandemic in late winter and early spring, we saw an unusual surge in demand. As people started to embrace the work-from-home trend, many city-dwellers set their sights on relocating to smaller and even more rural communities.
Supply was already growing, but demand snowballed. What we saw was an unexpected surge in housing prices in smaller communities while city prices started to drop. At the same time, we also saw record-low mortgage rates. Although these trends are now officially in the past, they will undoubtedly influence the housing market in 2021.
2021 Housing Market Predictions
The 2020 surge in housing demand isn’t going away anytime soon, which means those looking to buy a home this year must work with a lower supply. And when supply is low and demands high, you get higher prices. Some experts predict that the average cost will increase by up to 9%, and, unfortunately, we’ll see higher interest rates on top of it all.
If you’re a first-time homebuyer in 2021, you’ll need the MCC tax credit even more than in previous years. The savings the MCC program can offer you may be crucial to buying your first home.
Using the MCC Tax Credit in 2021
With high-price homes and increased interest rates on the horizon, 2021 homebuyers are prioritizing financial assistance programs. The housing situation will make it more difficult for first-time and low-income homebuyers to compete. For many, the Mortgage Credit Certificate Program and other state-level grants and assistance will be of the utmost importance.
If you want to buy in 2021, consider the following tips:
If you ever have any questions about the MCC tax credit or any tax inquiries, please reach out to us! We love helping people save money on their dream homes.
The MCC tax credit is a federal program to assist first-time homebuyers. However, each state runs its own particular program, and the benefits vary depending on where you live. In this article, we focus on the state of Texas. Here, residents rely on the Texas Department of Housing and Community Affairs (TDHCA MCC) for all the MCC mortgage credit certificate Texas details.
Qualifying for the MCC Tax Credit in Texas
If you live in Texas and fall into the Federal Housing Administration’s definition of a first-time homebuyer, then you can qualify for the MCC tax credit. Those who fall into that definition include:
Other restrictions include income and house pricing limits:
The above criteria determine general eligibility for the federal MCC program. However, as each state offers a different rate, calculating your tax credit depends on where you live. So, those living in Texas might receive a different credit than those in California or New York, for example.
Other Homebuyer Programs in Texas
According to the TDHCA MCC, in Texas, the state allows eligible residents to benefit from more than one homebuyer program. You can apply for the MCC mortgage credit certificate Texas as well as two other helpful assistance programs:
For the Texas Heroes program, eligibility extends to teachers, police officers, firefighters, EMS personnel, and corrections officers, in addition to veterans. An additional perk is that those who qualify for both the Heroes and the MCC programs save money on waived fees for the MCC tax credit.
Why is the MCC Mortgage Credit Certificate Texas Different Than Other States?
Let’s dive deeper into why each state runs its own separate programs. In 1984, the Deficit Reduction Act established the United States’ MCC program, which the Tax Reform Act modified in 1986. The program offers eligible homebuyers a non-refundable tax credit of up to $2,000 annually. Beneficiaries calculate the amount by using a percentage of the interest they paid on their mortgage, but each state’s rate is different.
State and local HFAs administer the MCC program, and it’s the HFA’s responsibility to set the benefit between 10-50%. Usually, each state has a smaller range, and the percentage that an individual homebuyer receives varies depending on the size of the home loan. For example, with the TDHCA MCC in Texas, those who receive the MCC tax credit claim between about 20%-30% of the interest they paid on their mortgage.
The most apparent reason why each state offers a different tax credit rate is that the cost of living varies across the country. Plus, every state works within different budget allocations.
How to Calculate Your MCC Tax Credit Rate in Texas
As mentioned, the TDHCA MCC in Texas allocates about a 20%-30% MCC tax credit rate. The rate you receive depends on the amount of your home loan. Keep in mind that you must calculate the benefit each year, so your percentage could change as your principal home loan decreases. And, remember that the maximum benefit is $2,000 annually. So if your rate gives you a credit of over $2,000, you can only claim the maximum on your taxes.
30-Year Loan Amount: $150,000
Interest Rate: 5.5%
Interest Paid: $8,250
Texas MCC Program Rate: 21.8%
Year-One Savings: $1,640
Let’s say you have a $150,000 loan with an interest rate of 5.5%. That means, in your first year, you’ll pay $8,250 in interest on your mortgage. With that loan amount and interest rate, you’d receive a 21.8% rate for the MCC program, meaning you’d receive a tax credit of $1,640.
Remember, the rate will change as your principal balance and the amount of interest you pay changes. By year five, you’ll have saved nearly $8,000 total. By the end of the 30 years, your total saving will be just over $31,000.
30-Year Loan Amount: $250,000
Interest Rate: 5.5%
Interest Paid: $13,750
Texas MCC Program Rate: 19.8%
Year-One Savings: $2,733
As your home loan increases, your percentage falls just slightly. For this example, by the fifth year, you will have saved just over $13,000. And by the end of your 30-year loan, your savings will be just over $52,000 in total. You can use this calculator for the MCC program in Texas to try out different scenarios.
The MCC Mortgage Credit Certificate Texas Will Save You Money
If you fit the MCC program’s eligibility criteria, you can save a lot of money on your home loan. You’ll receive thousands of dollars in tax credits throughout your home loan, reducing your federal income tax liability each year. And with the TDHCA MCC in Texas, you can combine these benefits with other helpful homebuyer programs.
If you want to get started on these saving, let us know — we’re here to help, and we serve residents in all 50 states.
If you’re hoping to buy a house this year, utilizing the MCC tax credit program is an excellent idea. As accountants, our CPA firm serves clients across the nation, many of whom are first-time homebuyers looking to save money on such a purchase. We always steer them in the direction of the MCC tax credit because it works so well. And after brushing up on some 2021 housing market predictions, many new homeowners will rely on these types of programs.
The 2020 Housing Market and 2021 Predictions
Last week, we published an article answering the question we always get: Should I buy a house this year? It seems that once the clock strikes midnight on New Year's Eve, people are thinking about homeownership and wondering if this is the year to take the plunge. As we always tell them, what matters most is your personal finances. Unless you’re financially ready to buy a house, it’s best to wait. The MCC tax credit program can help make a home more affordable; however, sometimes housing market trends can get in the way.
2020 Housing Market Trends
To say the least, 2020 was an odd year. At the start, the housing market was running its typical course. But once the pandemic hit, many people transitioned to remote work and wanted to relocate out of big cities. Supply was high, but demand snowballed. As a result, housing prices increased, but we also saw record-low mortgage rates. Relocating to smaller, more affordable cities was already a trend at the beginning of 2020, but the pandemic influenced it even more.
2021 Housing Market Predictions
Now, what about 2021? Experts predict that the surge in demand in 2020 will lower supply and increase housing prices earlier than in a typical year. Some say that the average cost of buying a house will increase by up to 9%. Unfortunately, this prediction means that those who are buying their first home, or those from lower-income households, will have more of a challenge entering the housing market. This impact makes it even more critical for first-time homeowners to use money-saving programs like the MCC tax credit.
What is the MCC Tax Credit?
We explore this topic in-depth throughout our website, but it’s worth giving a little summary here, as well. The MCC tax credit is a credit that first-time homeowners can receive annually throughout their home loan. The amount you can make is a percentage of the interest you pay on your mortgage, with a yearly cap of $2,000. So, if you have a 30-year loan, that means you can save up to $60,000 on your home.
How to Qualify for the MCC Tax Credit
To qualify for this tax credit, you must be a “first-time homeowner” as defined by the Finance Housing Agency. They use four categories:
If you fall into any of these categories, then you can qualify for the MCC tax credit. Every state has a different approach, so those in New York might receive more credit than their best friend in a different state, or vice versa. A previous blog post of ours dives into what states offer the MCC tax credit and other helpful homebuyer programs.
How to Calculate Your Tax Credit
Once you know that you qualify for the MCC tax credit, it’s time to organize your paperwork. Before you buy your house, you must work with your lender and real estate agent to complete all the necessary paperwork to obtain the MCC mortgage credit certificate. Without this certificate, you cannot receive the tax credit! Ensure that your lender and agent are MCC-friendly — it will save you a big headache later on.
To calculate your credit, you’ll need to determine what percentage to use. You’ll work with your state’s MCC tax credit program provider. For example, in Texas, residents obtain their rate from the Texas Department of Housing and Community Affairs (TDHCA MCC). Then, when it comes time to file your taxes, you’ll use a tax form to determine how much interest you paid on your mortgage. Here in Pennsylvania, we use the PHFA 1098, but you’ll need to use the one from your state.
For your taxes and to calculate your credit, you’ll need to gather:
Then you can start your calculation. Here’s an example:
Loan Amount – $100,000
Interest Rate – 3.0%
Total Mortgage Interest Paid – $2,876
50% Rate of Mortgage Interest Paid – $1,438
Full Credit Earned – $1,438
So, if you have a home loan of $100,000 with a 3% interest rate, then you’d pay $2,876 annually in interest on your mortgage. If you qualify for a 50% MCC tax credit rate, then you’d receive $1,438 as a non-refundable tax credit.
MCC Tax Credit in 2021
The MCC tax credit is an excellent tool in any year. As long as you’re a homebuyer who falls into one of the “first-time homeowner” categories, you save money on your home purchase. But with high-price home predictions on the horizon for 2021, the MCC tax credit program is even more desirable. For many, it could be the trick that allow you to buy your home. If you ever have any questions about the MCC tax credit or any tax inquiries, please reach out to us! We love helping people save money on their dream homes.
The leap from renting to owning is an exciting one, which leaves many first-time homeowners wondering if (and when) they should buy a house. As we turn our calendars to 2021 — and with so much activity within the housing market — is this year to take the plunge? You’re not alone if you’re contemplating this question. As a CPA firm, we work closely with clients navigating the MCC tax credit (a first-time homeowner perk), so we’re here to help you make the right decision.
The Difference Between Renting and Buying
Let’s start with the basics. There are advantages to both renting and owning, so it’s essential to consider the differences before becoming a first-time homeowner.
As a renter, you sign a lease, pay your rent and utilities, and call it a month. Maybe you cringe every calendar turn knowing that your money isn’t going towards an investment of your own, but not having to worry about other expenses is an advantage. If appliances break or there are plumbing issues, the homeowner is who typically handles those expenses.
Take the roof, for example. Roofs need replacement every 20-25 years and would probably cost around $5 per square foot. That’s a significant expense that renters don’t need to pay. And the roof is just one example of regular maintenance. Other routine maintenance includes chimney cleaning, exterior and interior painting, upgrading appliances, maintaining HVAC systems, yard maintenance, plumbing, and more. All of that adds up.
As a homeowner, you have to worry about those extra maintenance expenses, plus taxes, fees, insurance, and more. The advantage here is that your money is investing in something that will most likely appreciate. On average, homes appreciate at an annual rate of 3-5% nationally. So, if you buy a home for $150,000 and maintain it well, in ten years, it could be worth about $225,000.
Because you’re paying for upkeep and maintenance, as mentioned above, that appreciation helps fuel those costs. But specific neighborhoods, cities, regions, or even events can produce higher rates. Consider the tech boom, which caused lasting housing value effects on areas like the San Francisco Bay Area and Seattle. Over the past ten years, San Francisco’s average annual appreciation rate has been closer to 7%, whereas Seattle has been about 6.3%. Both are above the national average.
What’s the Best Time to Buy a House?
Although there isn’t any magic calculation on the exact time to buy a house as a first-time homeowner (or, really, any homeowner), there are some trends that can help you decide. To summarize a previous blog post of ours, late summer or early fall tend to be ideal times to buy a house. After the rush of the summer, housing inventory is still high, which keeps prices at bay. Once that inventory shrinks, though, prices go up.
But, buying a house is less about the perfect price and more about when it’s right for you. So as you enter 2021 with dream homes on your mind, consider if it’s right for you financially. Do you have enough savings for a downpayment? Is your credit score high enough to get a reasonable interest rate? Is this your first home? All these questions are critical to consider before diving into homeownership.
First-Time Homeowner Perks
If you're financially ready to buy a house, then any year is an excellent year to do so! And if you’re a first-time homeowner, you can save more money on your significant purchase. As mentioned above, we specialize in the MCC tax credit. Our CPA firm is eagerly anticipating tax day 2021, so we’re already helping our clients get their paperwork in order. If you’re a first-time homebuyer, perhaps some of these perks can help you, too.
MCC Tax Credit
Our website has all the information you need to know about the MCC tax credit, so we’ll sum it up here quickly. This tax credit is for those who fit the definition of a “first-time homeowner.” You either need to be purchasing your first home ever, buying your first home since at least three years ago, looking in designated neighborhoods that need a housing boost, or be retired or active in the military. If you fall into any of those categories, then you can benefit from the MCC tax credit.
First-time homeowners can earn up to $2,000 annually throughout their entire home loan. For a 30-year loan, that’s saving $60,000. It all depends on where you live and what percentage you can claim on the interest you pay on your home loan. Every state is different, so those in Texas will receive their rate from the Texas Department of Housing and Community Affairs (TDHCA MCC). But when it comes time to file your taxes, you can use any CPA firm.
Here in Pennsylvania, we serve clients across the nation and abroad. For our local first-time homeowners, they’ll use other forms like the PHFA 1098. This form tells you how much interest you paid that year on your mortgage. We use the PHFA 1098, yes, but those working with the TDHCA MCC in Texas will use their state’s form. Universally, everyone will also need to file Form 8396, which you can find on our website.
Mortgage Interest Deduction
Unlike the MCC Tax Credit, any home buyer can benefit from a deduction. The Mortgage Interest Deduction reduces the interest that homeowners pay on their loans from their taxable income. You can use this perk on either your home purchase or home upgrades, so it’s more versatile than some tax benefits.
All states have their programs to help homebuyers, whether it’s your first home or not. In Texas, for example, there’s the Texas State Affordable Housing Corporation, which allows buyers to deduct a large portion of their interest. You can combine this perk with other tax breaks related to down payments and closing costs. Another example is in the city of Oakland, CA, which provides a Mortgage Assistance Program. This program provides funds to reduce closing costs and down payments.
Home Buying in 2021
So, back to the question: Is 2021 the year to buy a house? If you’re financially and personally ready to take on the responsibilities and enjoyment of homeowning, then yes, of course, it’s a great year to buy a house. It doesn’t matter when as much as it matters if you are ready.
However, because 2020 was such a unique year, keep your eye on the 2021 housing market. Last year, many people relocated due to the pandemic, which increased demand in an already large supply year. Housing prices grew, but mortgages fell to a record low. Many experts predict that housing sales will increase this year and prices will rise over 5% — some saying up to 10%. Further, due to the pandemic, construction companies face challenges in providing new builds. So, eventually, supply will go down, and prices may increase even more.
This situation will make it hard for low-income earners to enter the market and essential for first-time homeowners to take advantage of those perks! If you plan to buy in 2021, consider looking around earlier in the year. Ignore the late-summer-early-fall trends, as this year will not follow the usual course. When you find the home that’s right for you financially and personally, then that’s the perfect time to buy a house.