Using the Mortgage Tax Credit Certificate Program to buy a house in Cape Coral
The Mortgage Tax Credit Certificate (MCC) Program is an assistance program that provides home buyers with tax credit in relation to their home loans, helping them save money for each year that they reside in their newly purchased home.
Homeowners under the MCC Program will be able to claim from 10% to 50% of their paid mortgage interest every year as a tax credit on their IRS tax return. The credit is limited at $2,000 annually, and any credit amount exceeding 20% and any outstanding mortgage interest excluded in the tax credit is qualified as an interest deduction on the homeowner’s federal tax return.
Every year, homeowners may get a dollar-for-dollar reduction of income tax liability for up to 50% on their first mortgage’s interest, thereby reducing the total amount of federal taxes owed.
Qualifying for a mortgage with an MCC
The MCC Program can also be used by first-time homebuyers by adding the $2,000 credit into their income when they’re trying to secure a mortgage, allowing them to qualify for houses priced slightly higher than what they initially could afford.
The MCC isn’t a form of tax deduction – instead, it offers a dollar-for-dollar tax credit to recipients, increasing their home purchasing power. In some cases, the program can also assist borrowers who are otherwise unable to qualify for a loan by lowering their net monthly mortgage payment.
Florida’s MCC Program is available for first-time homebuyers, non-first time buyers looking for homes in selected areas in Florida, and qualified veterans planning to buy a home anywhere within the state.
The MCC may be provided along with any participating lenders first fixed-rate mortgage loan. The program cannot be used in conjunction with the Florida Bond First-Time Homebuyer Program or any bond loans provided by local housing agencies. It can only be applied to the first mortgage, and not the subsequent down payment assistance grant or loan.
How you can use Mortgage Credit Certificates
First-time homebuyers looking to qualify for a home loan can use mortgage credit certificates to reduce their tax liabilities below what they would be required to pay otherwise. The term is also used to refer to the tax credit qualified borrowers are allowed to receive, which is a dollar-for-dollar tax credit for a percentage of the mortgage interest they pay annually.
Borrowers will be able to get a maximum of $2,000 tax credit every year. The actual amount of tax credit a borrower is eligible to receive is calculated by using a formula that will take into account various factors, including the mortgage amount, mortgage credit certificate percentage, and the interest rate. The credit rate percentage will depend on the original mortgage loan amount.
Types of mortgages you can use with an MCC
Homebuyers may use the MCC Program in conjunction with any conforming mortgage, conventional Fannie Mae or Freddie Mac financing, VA financing, USDA financing, or FHA financing.
However, it cannot be used with any other form of first-time home buying bond programs. Loan amount limits vary depending on the area. In most cases, the only way a borrower reaches the limit is if he or she has little debt and an income that’s close to the limit.
Who can qualify for an MCC?
In a nutshell, Mortgage Tax Credit Certificates are tax incentives that are designed to help first-time home buyers by reducing their tax liabilities in order to qualify for a loan. The tax incentives however are targeted primarily towards low to moderate-income borrowers.
The Internal Revenue Service (IRS) states that borrowers can be eligible to receive the credit if they are able to obtain a qualified MCC from their local government or state. Generally, an MCC is provided only in connection with a new mortgage for the purchase of a primary residence. It’s also important to keep in mind that an MCC isn’t credited at the closing on the loan, but on federal taxes in the future.
Additionally, the credit allowed varies depending on the local government or state in charge of issuing the MCC. It also has income and purchase price requirements, and applies only if the home is used as a primary residence. Mortgage credit certificates may also be used together with another payment program for more benefits.
Benefits of an MCC for homebuyers
To put it simply, MCC is designed to provide better access to affordable housing for first-time homebuyers. They effectively reduce taxes and make it easier for first-time homebuyers to qualify for a mortgage. With an MCC, not only will you need to pay for lower taxes, but you’ll also get more money which you can put into your savings or use towards your home.
Best of all, home buyers also receive a tax credit on a regular basis, as long as they retain the mortgage and use the home as their primary residence.
Tax credit percentage
The tax credit percentages vary for every state but are typically in the range of 20% to 40% of the total mortgage interest. The outstanding interest obligation may be reduced as a standard deduction of home mortgage interest.
The Internal Revenue Service sets a $2,000 tax credit cap for any given year for every recipient, regardless of the tax credit percentage issued. The MCC tax credit will remain throughout the duration of the mortgage, as long as the borrower uses the home as their principal residence.
MCC recapture tax
MCC recapture tax is a federal provision from the IRS which requires homeowners who use an MCC to potentially repay a percentage of the profit gained from the sale of their home back to the federal government. It does not come up frequently, unless the homeowner:
- Sells the home within nine years from the date of purchase
- Gets a significant increase in their total household income
- Gets a profit out of the sale of their home
The maximum amount of allowed recapture is either 50% of the profit from the sale or 6.25% of the original loan amount, whichever figure is less. In case recapture is due, it is included as a part of the individual’s federal income tax liability during the same year when the home is sold.
One disadvantage of the MCC Program is that not everyone will be able to qualify for it, particularly households with a total combined income that’s exceeding the limits.
The program’s income limits are similar to the U.S. Department of Agriculture (USDA) financing, both in terms of the actual limits and the fact that every state considers the total income of the entire household.
Process of Obtaining a Mortgage Credit Certificate
Here is an overview of the steps involved in applying for a Mortgage Credit Certificate:
- Your selected lender will provide you with a copy of the MCC Information Guide, which contains all of the regulations, prohibitions, restrictions, and penalties for the misuse of the MCC program. All applicants are required to understand and agree to the terms and conditions of the program, which you can discuss with your lender during the initial interview in case you need clarification on specific items.
- The lender will determine whether you can be a candidate for an MCC based on preliminary indications such as income, prior ownership, acquisition cost, tax liability, FICO credit scores, and other factors.
- All individuals applying for an MCC must already have an application for a mortgage loan filed with the participating lender. All lenders are required to keep a record of all MCC applications they receive, as well as the disposition of such applications.
- As part of the application process, all lenders require borrowers to sign a Mortgage Affidavit, which will serve as the application and contains all certifications and affidavits required under federal MCC regulations and by the state.
- The lender submits a request for MCC Commitment Letter, tax returns for the past three years (if applicable), and the MCC Commitment Fee to the county’s Housing Finance Authority. This fee is considered non-refundable and can be paid by the applicant, the home seller, the lender, or any person representing the applicant. The fee may be adjusted by the HFA from time to time in its own discretion.
- The lender issues a copy of IRS Form W-4 Employee’s Withholding Allowance Certificate to the applicant. If necessary, the applicant may choose to complete the W-4 in order to adjust their withholding tax to an amount that’s comparable to the MCC tax credit.
- The lender provides the applicant with the Notice of Potential Recapture Tax on Sale of Home, which needs to be signed prior to closing.
- Lenders are not allowed to remove a spouse from an application to qualify, in the event that a co-occupying spouse is not considered a legal resident of the United States.
Why buy in Cape Coral, FL
If you’re planning to buy a home in Southwest Florida, the city of Cape Coral is definitely one of the best choices. Home to over 195,000 residents, the city offers an exceptional quality of life, with its temperate climate, pristine Gulf Coast beaches, world-class golf courses, plethora of family-friendly attractions, and picturesque environment.
Located just a few minutes southwest of Fort Myers, Cape Coral is nicknamed “Waterfront Wonderland,” as it features a network of over 400 miles of navigable waterways, along with numerous lakes and easy access to the Caloosahatchee River and the Gulf of Mexico. This makes it an ideal place to call home for those who enjoy activities such as fishing, boating, and water sports. Avid boaters in Cape Coral get access to five public boat ramps, offering tons of opportunities to enjoy relaxing days on the water.
In addition to its extensive network of waterways, the family-friendly Gulf Coast community also features scenic nature preserves, top-rated restaurants, sprawling athletic parks, and other terrific destinations.
If you want to check out some of the best places to visit and activities to enjoy in Cape Coral, take a look at one of our previous blog posts here.
Homes for sale in Cape Coral, FL
With numerous bodies of water scattered throughout Cape Coral, it’s easy to see why waterfront properties make up most of the city’s real estate market. Home buyers will be able to choose from an enticing selection of stylish waterfront homes available in a variety of prices and sizes, ranging from affordable townhomes and condos to sprawling luxury estates, and almost everything in between.
Homes in Cape Coral are available in lovely architectural styles including Mediterranean, French Villa, Contemporary, and Ranch. Many homes are equipped with features such as infinity pools, screened lanai areas, seamless indoor-outdoor floor plans, sprawling sun decks and balconies, and other features designed to take advantage of the city’s pleasant climate and breathtaking views.
For those in the market for new construction homes, many options are available in Cape Coral’s exclusive gated neighborhoods. Homes in these new communities offer an unparalleled combination of privacy and security, as well as access to top-quality amenities such as fitness centers, community clubhouses, tennis courts, swimming pools, and more.
Buy a home in Cape Coral with the Mike Lombardo Team
Start your search for the perfect home in Cape Coral, FL by connecting with the Mike Lombardo Team today! If you’d like to experience a seamless and stress-free real estate transaction, you’ll be hard-pressed to find a better team at your side than the Mike Lombardo Team. Whether you’re searching for your dream home in sunny Southwest Florida or looking to sell your current property for top-dollar, you can count on the team to get the job done for you through efficient, top-quality professional service.
Led by top-producing broker Mike Lombardo, the team is composed of knowledgeable and highly skilled professionals who are dedicated to providing exceptional service to every client. The team has earned a stellar reputation not only in Southwest Florida but throughout the entire country for their consistent high volume of closed transactions year after year.