Mortgage Credit Certificate (MCC) Program

How Does it Work?

If you apply for an MMC loan / mortgage you are eligible for 20% of your annual mortgage interest as a direct federal tax credit, resulting in a dollar for dollar reduction of your annual federal income tax liability. The remaining 80% of your annual mortgage interest will continue to qualify as an itemized tax deduction.

Restrictions
The home you buy must be your principal residence.
You can not have an ownership interest in a principal residence at any time in the last three years.
The mortgage loan must be a new loan (not a refinance).

The federal government considers the MCC tax credit to be a subsidy. As such, you may be subject to federal “recapture tax” if you sell your home within nine years of purchase or you sell your home at a gain and your income increases above a specific level.

QUESTIONS AND ANSWERS

What is a Mortgage Credit Certificate?
The Mortgage Credit Certificate Program was authorized by Congress in the 1984 Tax Reform Act as a means of providing housing assistance to families of low and moderate income. The Hawaii Housing Finance and Development Corporation (HHFDC) is an Issuer of Mortgage Credit Certificates.

The Mortgage Credit Certificate (MCC) reduces the amount of federal income tax you pay, thus giving you more available income to qualify for a mortgage loan and assist you with house payments.

The MCC is available to homebuyers who meet household income and home purchase price limits established for the MCC Program, as well as other federal eligibility regulations.

How will a Mortgage Credit Certificate assist my home purchase?
The federal government allows each homeowner to claim an itemized federal income tax deduction for the amount of interest paid each year on a mortgage loan. For a homeowner with a MCC, this benefit is even better: 20% of your annual mortgage interest will be a direct federal tax credit, resulting in a dollar-for-dollar reduction of your annual federal income tax liability. The remaining 80% of your annual mortgage interest will continue to qualify as an itemized tax deduction.

The amount of your mortgage credit depends on the amount of interest you pay on your mortgage loan. However, the amount of your mortgage credit cannot exceed the amount of your annual federal income tax liability. Unused mortgage credit can be carried forward for three years to offset future income tax liability.

What are the loan terms?
You are free to seek financing from any lender. However, MCCs are available only through participating lenders.

QUESTIONS AND ANSWERS listed on this brochure. The lender providing the financing is allowed to establish the interest rate, loan term, down payment requirement, credit and underwriting criteria, loan type, mortgage insurance requirement, fees, points, closing costs, and all other terms.

A MCC can be used in conjunction with a conventional fixed rate loan, variable rate loan, FHA loan, VA loan or privately insured loan. However, a MCC cannot be used with a Hula Mae loan.

How long does the Mortgage Credit Certificate last?
The MCC will remain in effect for the life of your mortgage loan, so long as the home remains your principal residence. The amount of your annual mortgage credit will be calculated on the basis of 20% of the total interest paid on your mortgage loan for that year.

What are the requirements?
The MCC requirements include the following:
The home you buy must be used as your principal residence after you obtain your mortgage. If it stops being your principal residence, your MCC will be automatically revoked and you will no longer be entitled to claim the mortgage credit.
You cannot have an ownership interest in a principal residence at any time in the last three years.

The mortgage loan must be a new loan. You cannot be issued a MCC for the acquisition, replacement or refinancing of an existing mortgage loan. However, you may (on a case-by-case basis) be issued a MCC for the replacement of construction period loans, bridge loans, or similar financing of a temporary nature with a term of twenty-four months or less.

The federal government considers the MCC tax credit to be a subsidy. As such, you may be subject to federal “recapture tax” if (1) you sell you home within nine years of purchase, (2) you sell your home at a gain, and (3) your income increases above a specified level

What are the income and purchase price limits?

The purchase price limits vary by county, while the income limits vary by county and family size.
Income limits by county:
2 or less, 3 or more
Honolulu $123,600 $144,200
Maui $107,160 $125,020
Kauai $98,880 $115,360
Hawaii $88,080 $102,760

The income limits may be increased or decreased by the HHFDC pursuant to U.S. Internal Revenue Service guidelines.

Purchase price limits:
County Newly Constructed or Existing Residences
Honolulu $732,692
Maui $729,230
Kauai $714,231
Hawaii $571,153

Revised 5-7-2012