Are you buying your first home? Congratulations! This should be an exciting time in your life; but many first-time homebuyers often feel confused and overwhelmed with the process. The number one source of stress? That hefty price tag that makes your jaw drop. But don’t worry too much — there are several ways for you to save money on your first home purchase.
The MCC Tax Credit for First-Time Homebuyers
At our CPA firm, Tarpey, Sickler, and Associates, we specialize in helping first-time homebuyers navigate the MCC Tax Credit. This tax perk falls within a federal program but runs on a state-by-state basis. For example, if you’re from Texas, you need to look specifically at the TDHCA MCC because that will determine the tax credit conditions. Be sure to look at your specific state’s program to learn exactly what the incentive is for you.
We know that this process can be a little confusing, so if you work with us, we make sure to walk you through it step-by-step. And in the world of home buying, tax incentives are where you should start when you want to save money.
What is the MCC Tax Credit?
A recent blog post goes into greater detail, but let’s look at what the MCC Tax Credit is and how it helps first-time homebuyers.
To start, it’s a tax credit, which is different from a tax deduction (the other route for home buying tax incentives). This merely means that you can receive up to $2,000 on your tax returns each year throughout the entirety of your home loan. On a 30-year loan, that’s up to $60,000 of savings!
Again, the MCC Tax Credit differs from state-to-state, but how the credit is calculated remains the same. The credit percentage ranges from 10% to 50% and is based on your mortgage’s annual interest. Some states offer 20%, while others 50%. To repeat, be sure to look at your specific states’ program. For Texas, that’s the TDHCA MCC. For California, it’s the CFHA MCC. And, so forth.
Other Ways to Save Money as a First-Time Homebuyer
Tax credits and deductions like the MCC Tax Credit should be your go-to strategy for saving money. However, there are other ways to chisel that price down a bit more.
Increase Your Down Payment
The more money you can offer upfront as a down payment, the more you will save throughout your loan. But don’t put all your money down! You want to pay more upfront, but you don’t want to put yourself in a bad financial situation as a result. First, determine a reasonable price you can afford, meaning what you can offer as a down payment and continue to pay on your mortgage over the years.
Select the Right Mortgage for You
Not all mortgages are created equal, so you should shop around before settling on one. Conventional mortgages offer low rates, but some loan programs might be more beneficial to you and your particular situation. These are FHA loans, USDA loans, and VA loans. Consider all the details (your past, your work, where you want to buy a house, etc.) and compare rates before choosing the right mortgage or loan.
Finally — and as you already know — each state offers a different rate for the MCC Tax Credit. But this tax credit isn’t the only tax incentive or lender program offered by states! Look at your specific location and determine which first-time homebuyer programs can benefit you and your situation.
If you’re buying a home, you’ve probably searched for governmental tax programs that can save you money. Although there are a few different programs out there, the Mortgage Tax Credit Certificate is specific to first-time homebuyers and the specialty at our CPA firm, Tarpey, Sickler, and Associates. Buying your first home will be a significant expense, so this federal program assists those just starting the process. Let’s look at precisely what it is and how it can help you.
To qualify for the Mortgage Tax Credit Certificate, you must fall under the definition of a “first-time homebuyer” set by the Finance Housing Agency. A previous blog post goes into more depth here; but to sum it up, you need to fall into one or more of these categories:
What Does the Mortgage Tax Credit Certificate Do?
Now that you’ve determined whether you qualify, let’s dive deeper into what the mortgage tax credit certificate does for you. The certificate is a tax credit, often called the MCC Tax Credit. By applying for the certificate, you can save up to $2,000 annually when you complete your taxes.
The MCC Tax Credit is a non-refundable federal tax credit that operates on a state-by-state basis. Not every state is the same. The credit you can receive ranges between 10% to 50% of the interest you pay on your mortgage and caps at $2,000 annually. That means you can save up to $2,000 a year for the entirety of your loan. On a 30-year mortgage, that's up to $60,000 in interest savings!
How Does the MCC Tax Credit Work?
This is where the mortgage tax credit certificate gets a little complicated. Remember, if you’re interested in applying for the certification and taking advantage of this tax perk, you can always contact our CPA firm to help!
But for now, let’s look at an example of how the MCC Tax Credit works. The amount of credit you can claim is a percentage of the interest you pay on your mortgage. Specifically, the program looks at the previous year’s interest and ranges between 10% - 50%. The more expensive the home purchase is, the lower the percentage will be.
Example: How Much Do You Get on a $100,000 Mortgage?
Let’s pretend that you qualified for a 50% credit on the mortgage interest that you pay. Here’s an example of what that could look like on a $100,000 home loan.
Loan Amount – $100,000
Interest Rate – 3.0%
Total Mortgage Interest Paid Year 1 – $2,876
50% of Mortgage Interest Paid– $1,438
Total Credit Earned – $1,438
As you can see in the example above, the home buyers didn’t earn the full $2,000 because their interest rate was lower. The homeowners will receive the payout with their annual taxes because it’s a tax credit and not a deduction.
Hopefully, you now understand what the Mortgage Tax Credit Certificate is and how it can help you. Again, if you need any assistance understanding the MCC Tax Credit, feel free to contact us!
No one is as excited about buying a house as first-time homebuyers are, but they also tend to be the most confused with the process. With such a large purchase and investment, it’s essential to seek the assistance you need to ensure you’re getting the most bang for your buck. That’s where the MCC Tax Credit Program comes into play. It’s an excellent incentive for those who qualify, as it can help reduce your new home’s overall cost.
We can all agree that buying a house is very different than buying a refrigerator! Buying a home is not only an advantageous move for your finances, but it’s also great for the economy, so the government wants to assist you in making this purchase. Bottom line: you don’t have to pay the ticket price or do it alone. Many tax incentives help to get the keys to a new home in your hand with a significant discount.
MCC Tax Credit Program
At our CPA Firm, Sickler, Tarpey & Associates, we specialize in helping first-time homebuyers with the MCC Tax Credit Program. This tax incentive can reduce the cost of your future home by up to $2,000 per year. On a 30-year mortgage, that’s a total savings of up to $60,000 — a huge dent in your future home’s price! It sounds great — and it's truly an exceptional incentive — but the catch is that not all homebuyers are eligible. Let’s look at who can take advantage of the MCC tax credit.
The MCC (Mortgage Credit Certificate) Program is a product of the federal government, but it’s administered by each state individually. For example, Texas has the TDHCA MCC and California the CHFA MCC. Its purpose is to give assistance and relief to first-time homebuyers on a state-by-state level. So although the maximum benefit is $2,000 per year, the TDHCA MCC, as an example, might differ from other states. Even though states operate individually, the qualifications for eligibility are the same. If you’re not purchasing your first home, you may not qualify. However, there are a few exceptions:
Many assume that a first-time or “new” homebuyer is someone who’s never bought a house before. This definition is correct; however, the HFA (Housing Finance Agency) defines a “new” homebuyer a little differently.
You qualify as a “new” homebuyer if you haven’t owned a residence in the past three years. That means if you bought a home in the past (so you’re not a “first-time” homebuyer), but have not owned a home in the past three years, you can still qualify for the MCC tax credit!
All Homebuyers in Targeted Areas
The first-time homebuyer requirement and the “new” homebuyer definition don’t apply for those purchasing a home in a specified target area. These sections are particular to each state and defined by the Department of Housing and Urban Development (HUD).
Often, targeted areas fall into more impoverished or rural areas that could use a housing boost. That means you could buy more than one home in your life and still qualify for the MCC tax credit.
Active Military and Veteran Homebuyers
The first-time and “new” homebuyer requirements also don’t apply for active military and veterans. If you fall into these categories, you don’t have to be purchasing your first home or follow the three-year rule to benefit from the MCC tax credit.
Many People Qualify
Although the MCC Tax Credit Program focuses on first-time homebuyers, there are a few exceptions. These exceptions are in place to help other populations. So just because you aren’t buying your very first home, it’s still worth your time to check and see if you qualify. Again, look at the state-level (TDHCA MCC for Texas, CHFA MCC for California, etc.) to discover how you can benefit specifically. If you need help, contact us!
First Time Homebuyer
You’ll find lots of general (but still good) advice as you search the web to prepare for buying your first home (and the mortgage that you will need to purchase it).
Common suggestions include researching neighborhoods, starting to save money for a down payment and closing costs, choosing a real estate agent to work with, being cautious about taking on new debts, exploring various types of mortgages such as $0 down if you’re a veteran, $0 down if you are looking in an area that qualifies for USDA Rural Housing (assuming your total household income falls within allowable guidelines), various low down payment programs from Fannie Mae and Freddie Mac (some of which also have income limits), or FHA may be the best option for you if you’re credit is a little bruised.
You’ll also read about all the warnings about the difference between pre-qualification and pre-approval, which generally speaking is that in a pre-qualification you are asked questions but your documents are not reviewed, while in pre-approval the mortgage company reviews your documents.
Pre-approvals though come in two different flavors. In one type the loan officer reviews your documents and issues the pre-approval, in the other an actual underwriter reviews your documents and issues the pre-approval. The latter is obviously the better option as no matter what the loan officer says or thinks, your file will ultimately be reviewed by an underwriter who has the final say.
I don’t mean to disparage loan officers as many are real professionals who understand mortgage guidelines as well as the best underwriters. At the end of the day the underwriter is just reviewing the loan officer’s work and even a pre-approval from an underwriter is still subject to final scrutiny when you are actually asking for the money.
Your real estate agent can be a good source of lender referrals as if you don’t end up obtaining your financing, the real estate agent doesn’t get their commission. So they are very careful to refer people they have a lot of confidence in, but even their referral doesn’t guarantee success. Many times loan officers will court real estate agents hoping to get referrals from them and will settle for being in “2nd position”. They wait there and get promoted to “#1” when the #1 blows a deal and the initially “pre-approved” mortgage doesn’t close.
When speaking with a loan officer you need to use your intuition and decide if you are working with a professional who closes 100% of the loans they set in motion or if they are a loan officer who is a little careless/less experienced and therefore has a certain percentage of loans that “fall out” due to their mistakes or oversights.
Even if you think you have your financial house in great order (high credit score, low debts, plenty of money in the bank, good steady jobs, etc.) there are mortgage guidelines that can trip you up.
Here is a sample of questions a careful loan officer will ask you when taking your application:
1) Other than normal sick and vacation days, have you been away from your job for any reason over the past two years (injury, caring for a relative, extended illness, etc.)?
2) Do you have any pending job absence or relocation planned (sabbatical, plant closing, etc.)?
3) If you are buying a condominium, is there a formal Homeownership Association (some smaller projects don’t have one)?
4) Have you made any deposits into your bank account over the past 90 days that you can’t verify the source (a friend paid you back money you informally lent them, you have a small side cash business, you won some money at a casino)?
5) Are there any items on your credit report that aren’t yours or aren’t accurately reported (especially if you have a parent with the same name or you have a “common” name it’s very possible for someone else’s credit items to get placed on your report)?
6) Are you letting the seller lease the property back from you after closing or for any other reason are you not moving into the property within 60 days after closing (there are requirements for how soon you need to move into a home you are buying as your primary residence)?
7) Is the seller making any repairs to the property prior to closing (you may receive an “appraisal waiver” which means you do not have to pay for an appraisal, however if there are repairs being made to the property the underwriter can invalidate the waiver and require an appraisal, which can either delay your closing or cause the deal to blow up if the value does not come in at the price you are paying).
8) Other than a garage or moveable storage shed, are there any outbuildings or mobile homes on the property (it doesn’t happen often but it happens and it can result in your loan being denied)?
9) In the jurisdiction where you are buying your home, does the sale of the property create an automatic change in the real estate taxes (if so you will have to qualify with the higher property tax amount).
10) If you are buying a multi-family home and need the rent from the other unit(s) to qualify, do you have any prior experience with rental property management (if you don’t some programs either won’t allow you to use the income to qualify or will limit the amount of that income you can use to qualify)?
The bottom line is that you should feel that you are being thoroughly questioned about your overall financial circumstances. It’s okay if the loan officer asks you to fill out the application online, but after that there should be a very detailed discussion about your situation.
It’s also okay if someone other than the loan officer conducts this interview, but you should hold that person to the same standards. Once a loan officer gets beyond closing around 5 loans a month, they need to bring on assistants to manage their volume. There’s nothing wrong with that, but it’s certainly possible for someone they hire to need more time getting ramped up or to not be as knowledgeable as they initially appeared. Make sure that in the loan officer’s attempt to increase the size of their business that you aren’t a “learning experience” for them as they build their team.
Thank you to my new friend from Rhode Island who created this article and has been involved in the mortgage industry for many year.
Annual taxes can be complicated, frustrating, or require knowledge that the average citizen simply doesn’t have. Yet, many of us still choose online companies like TurboTax or H&R Block instead of seeking a professional accounting firm or an online CPA. Some are brave enough to try it themselves and simply work through the IRS complexities. But are you missing out on a better refund? What is the best route for you? And, should you use a CPA for your annual taxes?
Marketing Popular Companies
Through the magic of marketing, many companies like TurboTax convince us that we don’t need to know much about the tax process. Instead, these companies allow us to input our information and be on our way. Although they certainly make the process easier, they are doing us a disservice. We aren’t learning about taxes, and we aren’t receiving the customer service we deserve. If you have a question or concern, you’re either out of luck or must pay more.
The average citizen doesn’t have a lot to file when it comes to taxes. If you don’t fall into the “complicated taxes” category, then you can get away with using something like H&R Block or even just the IRS website. But, in the process, you could lose money on your refund. In 2018, 80% of filers missed an essential step, which may have affected their rebate. That’s why using a CPA firm that provides customer service, and education, might be worth the expense.
CPA and Accounting Firms
Another route you can take is to file your taxes through an accounting firm. The main perk of using a CPA is that you have access to professionals who live and breathe taxes and are available to help you face-to-face or over-the-phone. And if you miss the convenience of programs like TurboTax, you can use an online CPA like our firm, Sickler, Tarpey & Associates. Our offices are in Tyrone, Pennsylvania, but we work online with clients across the country and the world.
Education and Customer Service
Let’s take TurboTax as an example. If you’re using the paid version for both federal and state taxes, you’re going to pay about $175. That’s a significant fee for an online company that gives you no customer service. To keep our rates competitive, we match that fee at Sickler, Tarpey & Associates, yet we provide education and personalized service.
When you use an online CPA firm, you’re not just a number or one of the thousands. You're an essential part of someone's business, and you get one-on-one, individualized attention so you can gain the most from your taxes. Our accounting firm walks you through the process, whether you have one job and no kids or several business partners and many dependents.
We often like to categorize ourselves into two cases: complicated or straightforward. Someone who’s a simple tax case might be a single person who has one job and rents an apartment. A complicated situation might be a married couple with several children, businesses, and homes. So we assume only “complicated” taxes need a CPA. At our accounting firm, we believe that everyone can benefit from professional help.
Because of this belief, we offer an online CPA at affordable rates (comparable to TurboTax). We don’t want you to be one of the 80% who might lose money on your return. We want the opposite! We help you find other refunds or deductions so that you’re in the best financial situation possible. And, along the way, we want you to understand your taxes so that you can take any necessary steps throughout the year to enhance your finances and taxes.