The Mortgage Credit Certificate (MCC) is a tax credit that reduces the amount of federal income tax paid, giving more available income to qualify for a mortgage loan and assist with house payments. To apply for the MCC, the homebuyer applies through an ADFA participating lender. This is not a mortgage product. A borrower can use any of the lender products available in the market place. The MCC is a program used in conjunction with a lender’s mortgage product. It is an alternative to the bond program Lenders retain the servicing on the loan.

The Mortgage Credit Certificate Program was authorized by Congress in the 1984 Tax Reform Act as a means of providing housing assistance to families of low-to-moderate income. State, county or city governments authorize the program. While new to Arkansas, it’s been used in other states for several years. The basic program rules are in the Internal Revenue Service Code.

The MCC program takes the mortgage interest paid and turns a portion of the interest paid into a "tax credit" up to $2,000 per year. The tax credit cannot exceed the amount of the annual federal income tax liability of the borrower. The "tax credit" is subtracted from the actual amount of tax for which the taxpayer is liable. It provides a dollar-for-dollar reduction in taxes owed. Excess tax credits can be carried forward three years. MCC’s cannot be used with an MRB loan as that would be double dipping.

Qualification: In addition to the IRS Code Requirements of Income Limits, Sales Price Limits, and occupancy within 60 days of closing.

ADFA Requirements:

1. Total Household income not to exceed limits on Home To Own charts
2. Qualified residential dwelling
3. Primary residence
4. First-Time-Homebuyer unless property is in a Targeted county
5. Purchase price cannot exceed $225,000

Benefit: By revising their W-4 withholding form, borrowers may adjust federal income tax withholding in order to receive the MCC benefit on a monthly basis. This adjustment is accomplished by the borrower speaking to their payroll department at their place of work. By reducing monthly withholding, they will have more disposable (after tax) income with which to make mortgage payments.

Example Calculation of Savings: Assume the Arkansas MCC Tax Rate is 30%.

$120,000 loan amount x 6% interest rate = $7,200 mortgage interest paid in 1^st year

$7,200 x .30% MCC tax credit rate = $2,160 tax credit amount

Maximum amount of tax credit per year is $2,000

Borrower saves $166/month ($2,000 divided by 12 months = $166)

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