What Is a Mortgage Credit Certificate, and Can It Help Me Buy in Orange County?

What is a Mortgage Credit Certificate, and how could it help you buy your first home in Orange County? It turns part of your mortgage interest into a federal tax credit, which reduces your tax bill dollar for dollar, up to the limits.

I'm Jeanette Nelson, a REALTOR® with Jeanette Nelson Real Estate, Keller Williams Realty, serving Orange County, Huntington Beach, Costa Mesa, Fountain Valley, and surrounding areas. The MCC is one program worth checking before you lock in your plan.

IRS Publication 530 explains the basics:

• It's issued by a government program. A state or local government issues the MCC.
• It's tied to a new loan for your main home. Generally, an MCC is issued only with a new mortgage to buy your main home.
• Timing matters. You must get the MCC before you get the mortgage and buy the home.
• Your certificate sets the numbers. The MCC shows your certificate credit rate and the loan amount that qualifies.

This is general information, not tax advice. Please talk with a CPA or tax professional about your own return.

As of this writing, the County of Orange's MCC page says the Orange County Mortgage Credit Certificate Program is available and currently funded.

For funding availability, program qualifications and participating lenders, the county refers buyers to its program administrator, National Homebuyers Fund, Inc. Programs like this can change, so check the county's page and ask the administrator before you count on it.

It depends on your certificate. IRS Publication 530 includes these limits:

• The $2,000 cap. If your certificate credit rate is higher than 20%, the credit can't be more than $2,000 a year.
• Your tax bill. The credit generally can't be more than your tax liability.
• Carryforward. If your tax liability limits the credit, you can carry the unused part forward to the next 3 years or until it's used. Amounts above the $2,000 cap don't carry forward.
• Your deduction changes. If you itemize, you reduce your mortgage interest deduction by the credit amount.

You claim the credit each year on IRS Form 8396, which figures the current credit and any carryforward. My article on the mortgage interest deduction explains how the two fit together.

There can be. Publication 530 says that if you bought your home after 1990 with an MCC and sell it within 9 years, you may have to repay all or part of the benefit. IRS Form 8828 is used to figure that recapture, and Publication 523 explains the rules.

Whether you owe anything depends on several factors. If you think you may move up within a few years, ask your tax professional before you buy.

Depending on the program rules, you may be able to pair an MCC with down payment assistance. My articles on CalHFA's Dream For All program and homebuyer education courses cover other first-time buyer options.

Here is a simple order of steps:

1. Find a participating lender. The administrator's list is the place to start.
2. Ask about eligibility early. Income limits, price limits and first-time buyer rules may apply.
3. Compare Loan Estimates. The CFPB says your lender must give you a Loan Estimate within three business days of your application.
4. Get the MCC before closing. It can't be added after you buy.
5. Plan your taxes. Your CPA can tell you how the credit fits your situation.

Remember that a tax credit doesn't lower your monthly payment by itself. Some buyers adjust their tax withholding, which is a question for your tax professional. My article on debt-to-income ratios explains how lenders look at your budget.

If you're starting to plan your first purchase, I'd love to help you list the programs worth asking about and connect you with lenders who know them. Call or text me at 714.366.8575 | DRE: 01397168, or contact me. Jeanette Nelson is a REALTOR® with Jeanette Nelson Real Estate, Keller Williams Realty, serving Orange County, Huntington Beach, Costa Mesa, Fountain Valley, and surrounding areas.