What are Mortgage credit certificates?A mortgage lender gives a document to the borrower which converts a portion of the mortgage interest paid by the borrower into a non-refundable tax credit this document is known as a mortgage credit certificate or MCC.A mortgage credit certificate (MCC) program can be used by low- or moderate-income homebuyers to help them purchase a home.Either loan brokers or the lenders themselves can issue, mortgage credit certificates but they are not a loan product.The working of mortgage credit certificatesWhen first-time homebuyers qualify for a home loan a mortgage credit certificate helps them by reducing their tax liabilities below what they would otherwise have to pay.Sometimes the term “mortgage credit certificate” is used to refer to the tax credit that an eligible borrower receives.For a portion of the mortgage interest, they pay each year the borrowers can receive a dollar-for-dollar tax credit.Every year the borrowers can get a maximum tax credit of $2,000.A formula is used to calculate the exact amount of the tax credit a borrower will receive by taking into account the mortgage amount, the mortgage interest rate, and the mortgage credit certificate percentage.Depending on the amount of the original mortgage loan the credit rate percentage is calculated.The process of mortgage credit certificateAfter the purchase, the contract has been signed, but before the time of closing, borrowers apply for mortgage credit certificates with the originating lender.A non-refundable fee is charged for the service of the mortgage certificate program by the party administering it.There is a validity of up to 120 days for the state or local approval and it can be transferred to another property in case the current loan does not close.Homebuyers must qualify for income and purchase price criteria to take advantage of the mortgage credit certificate program.A portion of the monthly mortgage payment can be balanced and saved by reducing the buyer’s federal tax liability, with the help of a mortgage credit certificate and tax breaks.Borrowers now with this reduced tax liability can qualify for a loan during the initial approval process.Once they obtain a mortgage credit certificate, and as long as the borrower remains in the home and occupies it as his principal residence he can take advantage of the tax credit every year.In most cases, the mortgage credit certificate can be reissued if the borrower refinances the loan.How to qualify for a mortgage credit certificate?A borrower must contact an eligible Participating Lender, to see if they are eligible for an MCC.Advantages and disadvantages of mortgage credit certificateLike every program MCC too have there pros and cons.The advantages of MCC are: All the states offer a mortgage credit certificate program.Every state offers a tax credit for first-time homebuyers or people who are purchasing a home in an economically distressed area through access to the federal program.
there is a cap at a maximum of $2,000 for their savings and this credit is available to the homeowner for every year.So a homeowner can save $10,000 on their taxes after spending five years in the home.
If he stays there for 10 years, then the saving is $20,000.
One can still qualify for this program even if they are divorced or are renting out another home.
Till the borrowers, the financial situation can stabilize there may also be opportunities for grants, low-interest loans, or defer payments for a specific period.No need for a perfect credit score to qualify.Most states will let a borrower qualify for a mortgage credit certificate with a credit score of less than 700.
And if a borrower makes more than $86,000 for a family of four, then they may not qualify for a mortgage credit certificate.The property must qualify to specific health and safety stipulations as a mortgage credit certificate is usually treated as a first-time home buyer arrangement program.