The Arkansas Development Finance Authority (ADFA) recently introduced a program that offers a Federal Tax Credit for First-Time-Homebuyers. It is called the Mortgage Credit Certificate (MCC) Program. The MCC Program is offered by the Internal Revenue Service to encourage borrowers to buy their first home.
For borrowers that qualify, if offers them up to a $2,000 Federal tax credit for each year that the house they are buying is used as their principal residence. To qualify borrowers must be first-time-homebuyers, except in targeted counties; must meet household income limits, which vary by county; and not exceed a purchase price of $225,000. The MCC is not part of the home financing, but rather an incentive the IRS offers to get first-time-homebuyers to buy a home.
“This is a new program that Realtors and lenders are just finding out is available in Arkansas,” said Single Family Housing Manager Murray Harding. “We expect demand for MCC’s to be greater than availability so awards will be made on a first come, first served basis.”
To be eligible for the MCC, a borrower’s mortgage loan must be a 30 or 15-year fixed-rate mortgage and can’t be used in conjunction with a mortgage revenue bond loan. The IRS considers both programs to be “mortgage subsidies” and to do both would be considered “double dipping”.
The specific benefit to a borrower is calculated by taking the amount of interest paid each year on a mortgage loan and multiplying it by 25%. The borrower can take immediate advantage of the MCC benefit by going to their employer and adjusting their W-4 to reflect the anticipated amount of credit. That will lower the borrower’s Federal tax withholdings and increase a new homebuyers monthly take home pay.
The MCC Program provides the greatest benefits to a borrower that has Federal tax liability; however, because the MCC can provide a benefit for the life of the mortgage loan, a borrower may not have a Federal tax liability initially but may have such a liability in the future.
The MCC Program is accessed through one of ADFA’s MCC Participating Lenders. A borrower must apply and be approved for the MCC prior to closing on the purchase of a home. Participating lenders, county income limits and detailed program information can be found on the ADFA web site – www.arkansas.gov/adfa . You may also call ADFA at 501-682-5900 and ask for the Single Family Division.
