Blog, Home Financing, New Jersey

Apply for a mortgage credit certificate and save money

Buying a home? If you’re a first time home buyer and eligible,  apply for a mortgage credit certificate and save money. Sure when you’re house hunting, you’ve been told the standard savings ideas like saving on your mortgage interest deduction and rent vs. buy debate.  However, very few home buyers are aware of the mortgage credit certificate. I usually ask my clients to review their mortgage options with their mortgage loan officer of choice, but have realized they too may not be aware of this savings program.

mortgagecreditcertificate

The Siena Condos Montclair, NJ

 

So how does this mortgage credit certificate work?

Let’s start with this: It is not a hoax.  In short, the MCC program allows eligible borrower (income requirements) a tax credit to lower the amount of federal taxes that’s required to pay the IRS.  Here’s the only thing, you must be a first time home buyer and the program is good as long as you hold the loan and claim your home as a principal residence.

 

Numbers and Cents Example

Let’s say your home is $300,000 and your interest rate is 4.25% .
$300,000 x .0425 = ($12,750)

$12,750 x .20 = $2550 (annual tax credit)

Tax credit amount $2550

Extra money:  $2550/12 months = $212.50

 

Eligibility

  • Be a first time home buyer
  • Income limits (based on your county)
  • Purchase an eligible home
  • Occupy home as a principal residence (no investment properties)
  • Claim MCC on federal tax return

 

How to Claim your MCC

When you’re getting pre-approved, your loan officer/lender) should screen your eligibility and offer you the application. Then once you’re MCC approved, file your annual taxes and claim it on your federal tax return.   You can use your MCC program with FHA, VA, USDA and conventional loan programs.  However you can’t combine the program with a housing finance agency program or a state run VA loan product.

 

Here’s a quick tip:  Once you pay your mortgage for the first year (in full) you’ll appreciate the full savings by using the MCC program.

 

Check to see if your state offers the MCC program and then inform your lender so they may complete the MCC application forms and send them to the County managing the program for review and approval.

 

Is this a tax credit or tax deduction?

And here’s the best news!  When you buy a home, you’ll get a tax deduction which would adjust your gross income before you calculate your federal income tax. Yet a tax credit allows you to subtract the credit from your total federal income tax bill.  So in this case you get both.

 

Mortgage Credit Certificate Cons

If you sell your home within 9 years, you may have to reimburse some or all of the MCC credit. Certainly think through your purchase carefully.

 

MCC fee, there is a fee around $650 which will add to your closing costs.

 

Income Limits

StateNJIncomeLimits

Credit: NJ Housing Finance Agency Statewide income limits

 

Check with your state, currently NJ HOUSING income limits are set with maximum purchase price limits.  If you’re looking to purchase in target counties and cities within the county the NJ income limits are higher.

 

Hope this is helpful and hey don’t forget to tell your loan officer about this program if you qualify.  Please always consult your tax advisor on the pros and cons of this program.

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