Mortgage Credit Certificate: What is it and How does it Work?

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Mortgage Credit Certificate: What is it and How does it Work?

California's Mortgage Credit Certificate (MCC) program was designed to help first-time homebuyers and homebuyers in federally targeted areas qualify for homes. This program is administrated by state and local Housing Finance Agency (HFA), but they are not the lender. Rather, they work with local lenders to offer the Mortgage Credit Certificate program. Here's how it works.

What is a Mortgage Credit Certificate? 

Essentially, the California Housing Finance Agency(CALHFA) or local agency issues a certificate to first-time homebuyers through the MCC program which is used to decrease your tax liability at the end of the year. The amount of the credit certificate is based on a percentage of the amount of interest you pay and your overall tax liabilities. More specifically, this is a non-refundable tax credit, so you can use the certificate to reduce the amount of taxes you owe at the end of the year, but you cannot use it if you do not pay taxes. The remaining percentage of interest you pay is used as a deduction to lower your tax obligation.

Ultimately, the goal of the certificate is to offset a portion of the interest you pay with your monthly principal, interest, tax, and insurance (PITI) mortgage payment. Depending on the price of the home, this could amount to several hundred dollars each month in interest credits, which you can subtract from your taxes at the end of the year. In general, this certificate allows lenders to approve buyers for greater loan amounts by adding this benefit to their income when calculating their debt ratio.

How the Program Works

First, homebuyers need to determine their eligibility for the program itself. The definition of a first-time homebuyer is anyone who has not owned a house in the previous three years. However, California has expanded this program to include anyone purchasing a house within federally targeted areas where they are trying to boost homeownership. Veterans may also qualify. Contact us directly to see if you qualify for these programs. We also have a tool on our website that allows you to see what other programs we offer with down payment and closing cost assistance in which you may qualify.

Next, homebuyers must work with an MCC approved lender such as Ubermortgage. In an effort to ensure that this program is being managed fairly and consistently, only lenders who have been trained and approved by the HFA are able to participate in this program. As a homebuyer, you will still need to qualify for a loan using the regular application process for the lender. This will require proof of income and other information to determine the amount of a loan that you qualify for. Your lender will also be able to tell you if funds are available for MCCs in the area you are shopping. This program is funded locally and funding availability may change throughout the year, so you will need to be sure that the program is funded in your area at the time you are shopping. 

CalHFA offers an online training course for first-time homebuyers to raise awareness of common financial pitfalls that you should be aware of. This class is a requirement of the program and can be taken online in just a few hours at your own pace, or it can be taken in person at one of the HFA's locations. 

Ubermortgage can give you a list of eligibility requirements for your house as well. There are price and size limitations in place for the program that you will need to be aware of as you shop. 

Once you've found a house, it's time to go to closing. Your lender will qualify you for the loan based on the amount you will be paying with the mortgage credit certificate, which means you need less annual income to qualify for a larger house. After you've closed on the house, you move in and get settled. Either the CAlHFA or your local housing authority will issue you a certificate for your credit. Remember, this is not a check that comes to you monthly for your lender. It is a credit that is applied at the end of the year with your income taxes, so you shouldn't be expecting monthly payments from the HFA. At the end of the year, you will receive a dollar for dollar tax credit based on a percentage of the interest you paid throughout the year. 

Get Started With Ubermortgage

Now that you understand how the mortgage credit certificate program works, you can get started today with Ubermortgage. We are happy to answer any questions you may have about eligibility in your area and qualifying for a loan for your next home. 



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