I’ve written about Mortgage Credit Certificates (MCC’s) before, but even so, I have to confess that when I’m working with a first-time home buyer, it is easy to forget about this program which has the ability to reduce the effective interest rate of a 3.5% mortgage to as little as 0.6%. Do I have your attention?
How does an MCC lower your effective interest rate so dramatically? This was explained at the monthly luncheon of the Colorado Mortgage Lenders Association which I attended last week. Presenter Shelley Ervin explained how the MCC allows borrowers to claim as much as 50% of mortgage interest as a tax credit instead of a tax deduction, so long as the home remains their primary residence. If you know anything about tax preparation, you know that a tax credit is worth many times more than a tax deduction.
We all know (hopefully) that mortgage interest on our primary residences is tax deductible, which reduces the income on which you pay tax. But a tax credit is a refund of a portion of the interest which you paid. This tax credit is given to you not just on the first year of your mortgage but for the life of the loan, and can, over 30 years, amount to as much as $30,000. Compare that to the one-time $8,000 tax credit given to home buyers as a stimulus a few years ago. That tax credit created a rush of home buying activity, and yet it pales in comparison to the MCC program, which existed before that rebate and still continues — and this program doesn’t expire. If more buyers just knew about this program, they would be leaping off the fence and buying homes right now, while prices are still low.
Colorado’s MCC is only available from the Colorado Housing and Finance Authority (CHFA) or from a CHFA participating lender. Ask if your lender is CHFA approved.
The home featured below would be a perfect candidate for this program. A first-time homebuyer (or veteran) could purchase this home with as little as $1,000 out-of-pocket expense, and claim 20-30% of his mortgage interest as a tax credit — basically a refund on his tax return. Given the affordability of such homes and today’s low interest rates, I’d be surprised if this home does not sell right away. Indeed, three of the five comparable sales I used in pricing this home sold in less than a week, one for $3,000 over listing price. Did those buyers take advantage of the MCC program? Likely not. Don’t miss this opportunity, if you qualify. I’ve posted a link for more info at www.JimSmithColumns.com. If you need help finding a CHFA approved lender, ask me.
Just remember, recovering enough to qualify for a mortgage can be a slow and steady process. So, instead of being upset about the two or three year waiting period, use that time to get all of your ducks in a row.
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