It really is free money! The Mortgage Credit Certificate (MCC) program – administrated in Sacramento County by the Sacramento Housing and Redevelopment Agency (SHRA) – allows you to subtract 20% of your mortgage interest from your Federal Income Tax bill. Here’s how it works: If you borrow $200,000 at 5% for 30 years, your payment will be $1,073.64. After twelve payments, you will have paid $9,933.00 in interest and $2,950.68 towards your principle. When you file your tax return, you get to subtract $1,986.60 from your income tax bill! – a dollar for dollar credit equal to 20% of what you paid in mortgage interest. Oh, and you still deduct the other $7,946.40 in mortgage interest on your Schedule A. Oh and you get to do it next year, and the year after that. You get the idea.
You can use the MCC with just about any loan program so long as the lender is approved to work with SHRA. There are a few forms to fill out, and the program costs about $250 to do. If your lender knows what they’re doing, most all of the processing can be done right along with the rest of the loan processing. Doing an MCC really shouldn’t slow down the loan process much if at all. So long as your household income is under $87,360 ($72,800 for households of 1 or 2 people) and you have not owned a home in the last three years you are eligible. In fact, there are certain areas that don’t require you to be a 1st time buyer, and will allow incomes up to $101,920 ($87,360 for households of 1 or 2 people.)
The 2010 allocation just came out, and they have enough funding for $20 million worth of mortgages. This works out to be about 144 total MCCs to be issued this year – depending on the size of the loans done.
So what’s the downside? Frankly, there isn’t much downside. There is some paperwork involved and sometimes getting the seller to sign the forms can be difficult – especially if the seller is a bank. It does cost $250, but of course that is more than recouped by the first year’s tax credit. The only thing that might be an issue is the recapture. I don’t have enough space to explain it here, but the best way I can explain it is this: If you make a profit on the sale of the home AND are making more than the original maxim income, you might have to pay back what you saved by using the program. After 5 years, the recapture amount goes down (while you continue to pay less tax) and after nine years there is no recapture. In my 25+ years in the business I have done well over 100 MCCs and I have never heard of ANYONE ever having to pay a recapture.
So why wouldn’t a lender want to do this? Well, that’s a good question. I can tell you that the lender gets paid nothing to do this program, and there is a bit of paperwork that we have to do. My personal philosophy is that I have an obligation to help my clients take advantage of every program that will benefit them. That’s my job.