Information o the Riverside County Mortgage Credit Certificate.
Effective Home Buying Power With and Without an MCC
First Mortgage Amount
Mortgage Interest Rate
Monthly Mortgage (Principal & Interest Only)
Monthly Credit Amount
“Effective” Monthly Mortgage Payment
Annual Income Needed *
* Annual Income Needed is based on monthly Principal and Interest (P&I) not exceeding 28% of monthly income.
Assume the homebuyer bought a home with a mortgage amount of $300,000 with an interest rate of 7% with the monthly mortgage payment of $1,996 as illustrated in the previous page.
(1) The homebuyer would pay a total of $300,000 x 0.07= $21,000 of interest in the first year (Loan amount x interest rate).
(2) Because the homebuyer has a Mortgage Credit Certificate, the homebuyer could receive a federal income tax credit of $3,150 (15% x $21,000). If the homebuyer income tax liability is $3,150 or greater, the homebuyer will receive the full benefit of the MCC tax credit. If the amount of homebuyer tax credit exceeds the amount of his/her tax liability, the unused portion can be carried forward (up to three years) to offset future income tax liability.
(3) The remaining 85% of the mortgage interest or $17,850 ($21,000 less $3,150) qualifies as an itemized income tax deduction.
(4) To receive immediate benefit of the MCC tax credit, the homebuyer would file a revised W-4 withholding from with the homebuyer’s employer to reduce the amount of federal income tax withheld from his/her wages and increase homebuyer’s take home pay by $262 per month ($3,150/12 )
(5) By applying the increase in the homebuyer take home pay of $262 towards his monthly mortgage payment of $1,996, his effective monthly payment becomes $1,734 ($1,996 minus $262).
A “tax credit” entitles a tax payer to subtract the amount of credit from their total federal tax bill whereas a “tax deduction” is subtracted from adjusted gross income before federal income taxes are computed.
Qualifying for the MCC Program
The three basic qualifications are:
(1) The borrower must be a first time Home Buyer;
(2) The borrowers annual income must fall within the program income limits; and
(3) The home being purchased must fall within the program purchase price limits. If the home is located in a Target Area, then the first-time buyer limitation does not apply and the income and cost limits are higher.