In North Carolina, we have multiple programs available to help First Time Homebuyers qualify for a home. Not all mortgage loan offices participate with the programs, they can be a little complicated. We do MANY of these loans every month, in fact, we just helped our son buy his first home using a Tax Credit! Does that mean that you won’t be able to “write off” your interest on your tax return? No. It means you might be able to buy a “little” bigger house!
The MCC program (Mortgage Credit Certificate) is normally used in conjunction with a Government Mortgage Loan, like FHA, USDA or VA. The Home Buyers must meet:
- Qualifying income requirements vary by the size of your household, and the county you want to buy a home in.
- Credit score requirements for the MCC mortgage program are 640
- Sales Price Restrictions that as of July 1, 2013 mean the maximum sales price is $240,000
- First-time home buyer status (meaning if you have not owned a primary residence, “home” in the last 3 years you might qualify for the program)
This is a federal tax credit that was authorized by Congress several years ago to assist home buyers with moderate and low incomes.
While all homeowners can claim an itemized tax deduction for mortgage interest, you can go a step further with an MCC. An MCC reduces your tax liability, dollar-for-dollar, by a percentage of the mortgage interest you pay.
If you qualify for an MCC, you will be able to claim 30% of the interest you pay on your mortgage as a credit on your federal income taxes. You can save up to $2,000 per year on your federal taxes, money that can be put toward your mortgage payment.
Additionally, as of July 1, 2013 – if you purchase a home that is brand new, and has not been lived in within the past 12 months, you can qualify for a 50% deduction up to $2000!
This program is underwritten by the NC Housing Finance Agency – so the mortgage loan will be underwritten by “our” Bank Underwriters, then (if it is a USDA loan) it will be underwritten by the USDA Underwriters – and THEN it will be underwritten by the NCHFA underwriter – so it can be a fairly lengthy approval process. We recommend a total of 45 to 60 days to close a USDA MCC loan – and 30 to 45 days if it’s a FHA or VA Loan.
This program is also available for Conventional loans – we just find that most people who need an MCC, are putting very little down, and using one of the Government Programs (like FHA).
Suppose you qualify for an MCC and obtain a 30-year, 4% fixed-rate mortgage of $125,000. The first year’s interest payment is approximately $4,960. The MCC allows you to take a federal income tax credit of $1,488 ($4,960 x 30%) for that year.
If your federal income tax liability is $1,488 or more after you have taken all other credits and deductions, you receive the entire benefit of the MCC tax credit – $1,488. In figuring your taxes, you also claim a deduction for the remaining 70% of your mortgage interest.
If your federal income tax liability is less than $1,488 – Let’s say it was $800, for example, then your tax is reduced by only $800 that year.
You can receive an immediate benefit from your MCC tax credit by filing a revised W-4 (Employee’s Withholding Allowance Certificate) with your employer. This means that with the MCC, you are bringing home MORE money each pay period, to help you afford your new home! In this example, your federal tax would be reduced by $124 a month ($1,488÷ 12). The extra $124 increases your take-home pay and helps make your house payments affordable!
Do you have more questions about Tax Credit For First Time Homebuyers? Leave a comment below, I try to answer all questions, or call us.
If you have questions about qualifying for a first time home buyer program in NC, please call Steve and Eleanor Thorne 919 649 5058, we close many loans every month for folks who need to work on their credit, or have little money to put down on a home, or need information about home loans for single parents – and we love to help!