State Spotlight: The MCC Mortgage Credit Certificate Texas

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:

• Those buying their very first home
• Those buying their first home in more than three years
• Those who are active military or a veteran
• Those purchasing a home in a designated neighborhood (which differs by state) 

Other restrictions include income and house pricing limits: 

• Income Limit: Your income must be $92,200 or lower annually when buying a 1-2 person household, or $107,000 or lower annually for a 3+ person household.
• Home Price Limit: The home you wish to purchase cannot exceed $346,300.

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:

• The Home Sweet Texas Home Loan Program and the Homes for Texas Heroes Program offer:
  • Fixed interest rates on 30-year mortgage loans
  • Down payment assistance (DPA) for up to 5% of the loan amount
  • DPA that you don’t need to repay (grants and forgivable second lien loans)
  • Resources to help find realtors who work with the program
    
    

With these programs, you don’t have to be a first-time homebuyer. However, there are strict income limits, which vary by county throughout the state. Participants can request assistance outside of these limits, but only for those buying homes in targeted areas.

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.

Example 1:

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.

Example 2:

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.