What are Mortgage Credit Certificates?

In North America, a mortgage credit certificate, also called an MCC, is a document provided by the originating mortgage lender to the borrower that directly converts a portion of the mortgage interest paid by the borrower into a non-refundable tax credit. Low- or moderate-income homebuyers can use a mortgage credit certificate (MCC) program to help them purchase a home. Mortgage credit certificates can be issued by either loan brokers or the lenders themselves, however, they are not a loan product.

How Mortgage Credit Certificates Work

Mortgage credit certificates are designed to help first-time homebuyers qualify for a home loan by reducing their tax liabilities below what they would otherwise have to pay. The term “mortgage credit certificate” is sometimes also used to refer to the tax credit it allows eligible borrowers to receive. Borrowers can receive a dollar-for-dollar tax credit for a portion of the mortgage interest they pay each year.

Key Takeaways

Qualified borrowers with limited incomes can use a mortgage credit certificate to make buying a home more affordable.

Borrowers must meet specific guidelines, including income limits, to qualify for a mortgage credit certificate.

Mortgage credit certificate (MCC) programs may vary on a state-by-state basis, and MCCs are most often beneficial to first-time homebuyers, although other buyers shouldn’t rule out qualifying for them.

Borrowers can get a maximum tax credit of $2,000 each year. The exact amount of the tax credit a borrower will receive is calculated through a formula that takes into account the mortgage amount, the mortgage interest rate and the mortgage credit certificate percentage. The credit rate percentage depends on the amount of the original mortgage loan.

Special Considerations

Procedurally speaking, borrowers apply for mortgage credit certificates with the originating lender after the purchase contract has been signed, but before the time of closing. The party administering the mortgage certificate program charges a non-refundable fee for this service. The state or local approval that is granted can be valid for up to 120 days and is usually transferable to another property if the current loan does not close. A mortgage credit certificate program has income and purchase price criteria that homebuyers must meet to qualify.

Borrowers who are not first-time homebuyers may still be able to qualify for a mortgage credit certificate if they purchase a property in an area that has designated as economically distressed.

By reducing the buyer’s federal tax liability, the mortgage credit certificate and the tax break it enables can in essence help subsidize or offset a portion of the monthly mortgage payment. This reduced tax liability may even help borrowers qualify for a loan during the initial approval process.

Once they obtain a mortgage credit certificate, the borrower can continue to use it to take advantage of the tax credit every year for as long as they keep paying interest on the loan while remaining in the home and occupying it as their principal residence. If the borrower refinances the loan, the mortgage credit certificate can usually be reissued in most cases.