What’s a Mortgage Credit Certificate? How can it help me save a load AFTER I buy my new house?

It’s a form of aid for low and moderate income home owners. Simply put, it allows lower-income home buyers to get a bigger tax break on their yearly income taxes than are generally available. Usually, when a homeowner files their federal income tax each year, they are allowed to deduct the cost of their interest payments on their home from their taxable income up to $1 million. In the case of home owners who get an MCC at the time of their home purchases, however, they are allowed to take a portion of that as a tax credit, rather than a deduction. This is a much bigger savings, because a tax credit is taken off the amount of tax owned, rather than just taxable income. For instance, a homeowner who has paid $10,000 in interest is allowed to deduct the $10,000 from the amount of income that can be taxed. However, if the homeowner has a mortgage credit certificate good for 25%, for instance, he can take 25% of that $10,000 right off the final tax bill. Quite a savings! The credit is good for the life of the mortgage, but if you sell the house in less than nine years, you may have to pay back some of the tax break you received. It’s only good if it is still your primary residence—not if you move out. For more information, see the IRS publication 530, Tax Information for First Time Home Buyers.

Who is eligible?

First-time homebuyers (people who have not owned their primary residences in the last three years), who have incomes that fall under the range set by the MCC coordinator’s limits. If the home is in a “target area” that the state or local government is trying to develop economically, the limits might be removed. MCCs are only available if you buy a home in an area where the state or local government offers the MCC program. Bodies that coordinate mortgage credit certificates include state housing agencies--here's a list of state agency websites, so that you can see if yours offers a MCC), and local and county housing departments. Contact the state, county and city housing departments and agencies in your area to see if they offer this product. Agencies vary in the percent of the mortgage that can be taken as a credit. But you must apply for this at the time of purchase. It’s not available for everyone, but is well worth looking into.