You’re in for a nice surprise. The MCC Tax Credit, Mortgage Credit Certificate, is available for first time home buyers and the MCC, Mortgage Credit Certificate, will save you more money than the $8000 credit offered in 2009. Some people are saving more in the first four years. And the credit continues for the life of the loan!
Many first time home buyers don’t know of the MCC Tax Credit because their loan officer doesn’t know of it or doesn’t want to undertake the extra work required to register you for the credit.
Your loan officer and lender are your access to MCC and you must be registered before your loan closes.
A loan officer just recently told a first time home buyer the tax credit was not worth the $650 fee required. Nice guy. As soon as the credit was explained the people signed up for the Tax Credit, using a different lender and loan officer.
Every year 20% of what you pay in mortgage interest equates to a tax credit.Each state dictates a percentage but most are 20%. If you use our typical scenario example of a $300,000 loan amount at 4.50% the credit the first year would be approximately $2600!
These are real dollars. Money that you would otherwise pay in taxes. The credit diminishes very slightly each year as you pay less interest but the savings over the first five years could be over $10,000!
In addition 80% of the interest you pay each year equates to a write off. Your property taxes and mortgage insurance are also write offs. The average savings will be another $330 a month, $3,968 a year! This one also diminishes slightly each year as your loan pays down and you pay less interest.
So in this scenario the credit and write off combined nets approximately $546 a month for the borrower. For an FHA loan some lenders will add these savings into your income so raising the monthly income the lender uses to determine the loan amount available to you.
You can increase your deductions with your employer so you take the benefits home each month in your pay check instead of waiting for your tax refund.
So in this scenario the borrower takes home $546 a month more than if they were renting and, qualifies for a larger loan so more home.
Another tax benefit for you is the ability to write off some of the costs of securing your loan such as points, prepaid taxes and prepaid interest.
The tax credit will serve as a test when you interview a loan rep. Don’t mention that you know of the tax credit.
Now keep in mind everyone’s situation is unique and yours may not be exactly the same as this example even if your sales price is the same. This is only an average scenario. An accountant can work out a more accurate scenario based on your situation.
The tax benefit for first time home buyers is a questions I suggest in Article #13; Consultation, Interviewing Loan Officers. If a loan officer you are interviewing does not mention the MCC tax credit or tries to discourage you than maybe best to move on to your next interview.
Don’t let anything or anyone deter you from your goal of owning your home.
Best of Luck, Stephen Webber, 34 Years of Real Estate for First Time Home Buyers