In North Carolina, we have multiple programs available to help First Time Home Buyers 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.
How To Qualify For the Tax Credit For First Time Home Buyers in NC:
- 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 mean the maximum sales price can not be more than $245,000
- 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, 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. Because of this, the processing times for these loans might be slightly longer. 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. We recommend a total of 45 to 60 days to close a USDA with MCC, Mortgage Tax Credit 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).
Compare No Money Down Programs in NC
Suppose you qualify for the Mortgage Tax Credit (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 Home buyers? 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!
We just bought a new home (07/12) and qualified for the MCC program. The purchase price of our home was 207,000. We don’t know what to do in regard to W4 revisions and how we are to file our taxes in 2013.
Did you actually apply for the MCC at the time of loan application? You had to go through the NCHFA program prior to closing in order to take advantage of it? Assuming you did go through the program, they actually had a form that you completed to make the revisions to your W4 for you. It was submitted immediately after closing to your employer.
Yes we did apply at the time of our loan application.
Okay – well, the paperwork is done as part of the application, and should have been forwarded. When you do your taxes you are able to take 70% of the annual mortgage interest that you paid as a tax deduction 🙂
Great info! How much of a change is this in comparison to deductions allowed without the MCC?
With MCC, you are taking up to 30% of the Annual Mortgage Interest you pay in a given year. It’s capped at $2000. So let’s say you are paying only $5000 a year in Mortgage Interest. The calculation would be $5000 x 30% (for an existing home – new homes just got a bigger adjustment this spring) which equals $1500. This is what the adjusted W-4 is allowing you to bring home (extra) each month in reduced Federal Income Taxes.
The remaining $3500 (the 70% of $5000 / or $5000 minus $1500) can be used as a deduction on your tax return on the second page where you have itemized deductions. Additionally, of course, in most cases you can write off the property taxes that you’ve also paid with your mortgage. You should have gotten a statement from the folks that you make your mortgage payments to.
I’m not an accountant – so you might want to talk to a professional about your tax position.
This is literally up to a $2000 a year difference if you didn’t have the MCC credit.
What is the down side of using the mcc ?
first time condo buyer in Chapel Hill.
earn less than $70,000. Is the MCC program still available?
What is the price limit on the property?
Do I need to work with certain lenders?
thanks, HB
hbrown95@aol.com
We replied directly to you as well, but Yes – given the circumstances you mention, a Condo in Chapel Hill will qualify for the MCC Program. The maximum income limit for Orange County family of 1 to 2 people is $81,000 – and the maximum sales price is $225,000. We are one of the lenders that offers that programs, but we’ve noticed that several new home builder affiliated mortgage companies do not. Additionally, a condo will need to meet the FHA Condo Approval process, if you are applying for a Government backed mortgage loan. If you are going to apply for a Conventional Loan (at least 5% down payment) then you will need to meet the Fannie/Freddie Condo approval process.
Hi Eleanor,
I have a question about the qualifying income for the MCC. I understand that the MCC uses the combined income of all of the intended home occupants. What if one of the occupants has been working for half of the year as a paid intern/temporary employee and their employment has a known end date coming up? How does that income factor into the MCC qualifying income?
Thanks for all of the great info!
If the Intern has a true end date -then the income would not count. We do not believe it would count in putting the family over the income limit, and it would not be used to qualify for mortgage payments.
I just closed on my house using the NC hosing down payment program and I assumed the MCC would be given in default. My lender didnt mention the MCC, does this mean we can no longer receive it anymore since we’ve closed on our home already?
It breaks my heart to tell you this – but yes. When you did not work with a lender who also offered it (many loan officers don’t understand the program, and others simply don’t offer it) you are no longer qualified for it. Please tell friends to call US!
We live in the CPMCB & we are buying in Jacksonville, NC, D/T all my specialty Drs., No one seems to have heave this or they say ohhh my you missed out, hunnie, im so sorry. Then then they RAISE My husbands rates.. we have put a bid on a home & now the mortgage co says our VA RATEs(%) have went up from 3.5 to 5%!!! ohhh we fought. and they have have NEVER HEARD of it!
Amanda, I’m so sorry you are having trouble with this. Yes, mortgage rates have gone up in the past few weeks. With folks we have been working with for a while, to help them qualify, we generally add an MCC Credit. Ask your mortgage lender about this First Time Home Buyer benefit that can help offset up to $162 a month in house payment (lower) – that will !help with the higher mortgage rates we have now!
is there a fee to do the application for MCC
Do you have to redo how much you get on your paycheck every year? The interest changes every year right? On your example you’d get 124/mnth the first year but what about the second and so on
Also I closed Nov 26 2014, my employer hasn’t seen anything about changing my W4.. What do I need to do about this.. I’m at a loss with no local help.. Thanks
Here is the standard message that I give to my clients regarding the MCC program. You have to initiate the change of your withholdings with your employer:
Now would be a great time to call in a favor from an accountant or CPA friend if you or your family has one. If not it’s worth a few bucks to get some good advice. And with the year coming to an end now would be a great time to set the withholdings for next year. The way that you recognize the credit is annually when you file your tax returns. But you can amend your withholdings such that you get the equivalent of the effect of the credit, on a pay period basis. You do this by claiming more exemptions on your W-4. If you make this change you are seeing the higher net income monthly as opposed to a potential large refund at the end of the year when you file your taxes.
But everyone’s tax situation is different. And now that you are a home owner, with other itemized deductions in addition to the tax credit, it is important to get the advice of a tax professional.
Let me know if I can help out with your advisor. Some are familiar with the credit and some are not. I would direct them to the NC Housing Finance agency site: http://www.nchfa.com/
Having trouble knowing how to fill out my W4 with the MCC credit. I know the amount that I need to come out every month of my check but dont know what to claim or put on my W4?
You should really talk with a Tax Prepare Expert. We had a H&R Block agent call us yesterday with questions about the Mortgage Credit, so not all of them know how it works!
I signed up for the program and noticed an extra 500 MCC fee in my closing costs for the program. Is this standard?
Shana – NCHFA does have a charge to set up the program. It is not a fee the loan officer is keeping
I have been pre-approved for a conventional mortgage through a credit union, and without a government program. I think I qualify for the MCC though. Is it just up to the lender whether they offer it or not?
Thanks!
Yes – not all Credit Unions and Banks offer the MCC. If you are in NC and would like to get a quote, we’d be glad to help you! 919 649 5058
Eleanor quick question; can u only claim a current mortgage credit certificate by doing itemized deductions instead of the standard deduction when filing for your taxes? Please let me know if you need more info or if my question makes no sense. Thank you!
Evan – makes sense to me. Its a credit, so it doesn’t matter about the deductions…
Ms. Eleanor Thorne I have a quick question: upon closing on 12/31/14 I was told I qualified for the MCC program and that it was to make homeownership more affordable. I completed MCC paperwork before closing. Fast forward to now 4/2016 I am filing my taxes and trying to use the credit (I did not elect to bring more money home monthly because I wanted to wait until tax time). MY CPA says I’m supposed to have a Certificate after I closed?… What confirmation should I have of being a MCC recipient so I can file the credit?
Renee
You can get that from your lender, or from NC Housing Finance Agency.
HELLO, I applied and qualified for the MCC program, however, I’m unsure on how to properly filled out my new w4 in order to receive the credit. My lender doesn’t know how to either. Who do you suggest I see for help? I work for a small company and the person in charge of paypoll isn’t experienced with this kind of credit. Thank you.
You can always go to the H&R Block close to you?