In the above graphic, the Alabama Housing Finance Authority details potential savings using a Mortgage Credit Certificate. (Courtesy AHFA)
As of March, the maximum home purchase price for a loan using an MCC is $253,809, while borrowers in a target area can buy a home costing as much as $310,211.
The Mortgage Credit Certificate, along with other programs offered by AHFA, are intended to give potential homebuyers more financial flexibility when it comes to purchasing a home. These incentives can help soften the blow of the initial down payment, closing costs and actually furnishing the home, among other things.
We recently caught up with the Alabama Housing Finance Authority to shed some more light on how the Mortgage Credit Certificate works and how it could benefit Alabama homebuyers.
ACRE: The Mortgage Credit Certificate presents opportunities for homebuyers to better afford a home in Alabama. Can you briefly describe how the MCC works and who qualifies for the certificate?
AHFA: Mortgage Credit Certificates (MCCs) reduce the amount of federal income tax homebuyers must pay, which in turn increases available income to qualify for a mortgage. An MCC is a dollar-for-dollar tax credit of up to 50 percent of the mortgage interest paid per year, capped at $2,000 annually.
Homeowners can choose to receive immediate savings, which will increase their monthly take home pay, or choose to receive the credit once a year when filing federal income tax returns.
In order to qualify, borrowers must be a first-time homebuyer or have not owned a home in the last three years, or purchase a home in a target area exempt from the first-time homebuyer rule (they can see their lender for more information about these IRS-set target areas). Federally established income and sales price limits also apply. These can be found at http://www.ahfa.com/homebuyers/am-i-eligible.
ACRE: Affordability continues to be an issue, especially in rural areas around the state and country. How important are mechanisms like MCCs in assuring more families have access to affordable housing?
AHFA: Programs like MCCs are vital to making homeownership more affordable. In the case of MCCs, homebuyers receive the initial benefit of the tax credit increasing available income to qualify. In addition, we know that the entry costs of buying a home aren’t the only potential expenses homebuyers must consider. There are also other costs to homeownership like furnishing the home, buying lawn and garden equipment, maintenance costs, etc. MCCs give homeowners more money in their pocket each month or when they receive their tax return to help with these and other costs of owning a home.
In addition, MCCs can be combined with AHFA’s Step Up down payment assistance program, which gives homebuyers even greater purchasing power.
ACRE: Why did AHFA take the step that it took recently with the Mortgage Credit Certificate?
AHFA: Section 42 of the Internal Revenue Code sets the guidelines for income and sales price limitations. Sales price limits are based on the average area purchase prices safe harbors published annually by the IRS. The limits are set at 90 percent and 110 percent of the average area purchase price in non-targeted and targeted areas respectively.