Tuesday, June 12, 2012

Mortgage Credit Certicate may increase buying power

The Texas Department of Housing and Community Affairs Mortgage Credit Program helps low to moderate income families make home ownership more affordable. There is a focus on first time homebuyers.

Before I start let me say that I am not an accountant and the information here is strictly an example and may not reflect your personal tax situation.

A mortgage credit certificate (MCC) allows the home buyer a dollar for dollar tax credit of up to $2000 per year. In Texas you can get 35% of the mortgage interest credit up to the $2000 limit. The difference between a tax deduction and a tax credit is that credits act as tax paid versus a deduction from income. The mortgage interest deduction comes off your income and the amount of money saved is based on your tax bracket. for example (I'm using simple easy to figure numbers here) if you qualified for a mortgage interest deduction of $1000 and you made $50,000 you would deduct the $1000 and pay tax on $49,000 in income. If you were in the 15% tax bracket you would save $150 on your taxes. With a credit you would subtract that $1000 from the tax you owed so you would save $1000.

The benefit is limited to a $2000 credit per year and it is a non-refundable credit which means if your tax liability was less than $1000 you couldn't use it all, but then you wouldn't have a tax liability. You are also still able to claim the mortgage interest deduction on the remainder of the interest you pay during the year. If your interest was $3000 and your credit was $2000 you can deduct the additional $1000 under the mortgage interest deduction.

If you are eligible your lender may factor the increased savings into your income figures which would allow you to count that toward your qualifying income for your loan.

Some other points:

  • Not all lenders are able to offer the MCC. There is a network of participating lenders and fees apply, but the savings over the life of your mortgage could be significant.
  • Veterans are exempt from the first time homebuyer requirement
  • Income and purchase price restrictions apply
  • Must be used on an owner occupied property
  • Borrowers must complete a pre-purchase homebuyer education course.

For more information you can visit the Texas Department of Housing and Community Affairs website at www.tdhca.state.tx.us

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