Mortgage Credit Certificates (MCC)
What it is:
How it works/Example:
A borrower pays a specific amount of interest over the course of a mortgage. Some of this interest may be tax deductible provided that buyer meets certain income requirements. In addition, some borrowers may qualify for MCCs if they meets certain conditions pertaining to previous homeownership, income, purchase price and whether or not the home is the primary residence.
The broker or lender sometimes considers the estimated tax credit amount as "additional income" in order to help them qualify for the mortgage. For example, let's say a borrower paid $800 in interest during a given year and qualifies for a 30% mortgage credit certificate. Because of the credit, the borrower will pay taxes on less of his income ($800 x 30% = $240). This $240 savings can be considered extra income when qualifying for a loan.
Why it matters:
Mortgage credit certificates are issued as part of state-run initiatives meant to promote more affordable homeownership. The mortgage credit certificates reduce taxes for first-time buyers and help bring them closer to qualifying for a mortgage. However, there are some instances where state or local governments allow additional homebuyers to qualify for MCCs who would not otherwise given the opportunity. This is usually in cases of natural disasters where the government wants to stimulate redevelopment as quickly as possible.