This is a nationwide program for first time home buyers that helps them qualify for the loan by saving them even more money on their tax bill. With that said, however, the state of California accounts for more than 50 percent of all MCC Certificates.
Each individual area has its own administrator. Within the County of San Diego, for instance, there are three individual programs, although one company administers two of them. You must submit your paperwork to the correct authority, under the correct program. Each program has its own allocation of money, and if you submit to the wrong program, the application will not be approved, wasting your money.
Now, before I go through all the rigamarole of the program, what does it do for you? Simply put, it boosts the value of the mortgage interest deduction.
Here's how it works. During the escrow period, the time between the purchase contract being agreed to and the consummation of the transaction, you apply for a Mortgage Credit Certificate (MCC) through the originating lender. This means the people who take the loan application. This program is emphatically open to loan brokers. If the broker participates, it does not matter whether the funding lender participates, because it is not required that the funding lender participate, only that the originating
lender participate. There is a nonrefundable upfront fee involved. This fee is paid to the authority administering the program. Some brokers may front this money on your behalf, but they will expect to be paid back several times over upon funding. Remember: There is no such thing as a free lunch. Your lender submits the application and the fee, and receives an approval from the authority on your behalf. This approval is good for up to 120 days, and in most cases, it may be transferred to another property conditions if this escrow falls apart.
What does it actually do for you? It converts part of your mortgage interest tax deduction into a direct tax credit. 20% of your mortgage interest, to be precise. This applies to both first and second mortgages on which interest is being paid and payments are being made. It does not apply, however, to first time buyer assistance loans on which there are no payments, or only nominal payments.
Let's do some math! Let's say you're buying a property for $400,000, using 100% financing. Of that, $320,000 is a first mortgage at 6%, and $80,000 is a second mortgage at 10%. Let us examine the situation you should be familiar with, the normal mortgage interest deduction, first. This is the situation without MCC: